PlaneBuzz

Delta Air Lines reported earnings this morning, the first airline to report earnings for the second quarter.

While the headline numbers for the airline's results look quite good on the surface -- airline stocks began to drop after the numbers were released and they have yet to get up again.

Why is this the case -- if Delta reported such a large profit?

If you are a PlaneBusiness Banter subscriber, you might have a good idea. As I said three weeks ago, I think a lot of this recent giddyness concerning the "return" of airline revenues is, I believe, on shaky ground.

Yes, no question that the second quarter numbers should be good across the board for the sector -- with one glaring exception. The only major airline that will probably post a loss for the quarter is AMR, parent of American Airlines.

But as I talk about in this week's PBB, we are now seeing a number of economic metrics that are pointing toward a recessionary recovery in the U.S. that is running out of steam.

Take those developments, coupled with the fact the airline industry is now looking at the start of a traditionally slow period in September -- throw on results from Delta that disappointed on the revenue side -- and poof. A perfect recipe for an airline sector selloff.

Now you know.

Posted by Holly at 10:45 AM | Permalink | Comments (0)

Thanks to JetBlue and American Airlines for providing us with a nice bit of April Foolery this year. Yeah, right, they are going to join in some kind of partnership, slot swap, interline agreement.

Good job guys.

Oh, wait.

That was yesterday.

Today is April 1.

Hmmmm.

So what is your take on all this news? I admit it. I was surprised at the news. I thought April Fools Day had come a day early when I first saw the headline.

If you could put two airlines in front of you that exhibit totally different cultures, management attitude, brand, and product -- well, here you go.

If, on the other hand, you want to strip all that out and strictly look at the deal from a strategic viewpoint -- then I can see the merit.

From American's viewpoint, clearly this gives the airline an opportunity to strengthen its position in New York at a relatively low cost -- as opposed to Delta Air Lines, which continues to throw the kitchen sink, the garbage pail, and the baby's bath water into the market in an attempt to snatch market share.

From JetBlue's standpoint, the agreement will allow its passengers to book international flights much more easily, utilizing JetBlue on the domestic segments, and American on the international legs. In addition, JetBlue should would get eight slot pairs at Washington Reagan (which the airline has lusted after for a long time) while American would pick up 12 slot pairs at JFK.

But having said that, we have to wonder -- what does Lufthansa think about all this? Remember, the German uber carrier owns a piece of JetBlue. When the airline first wrote out the check to JetBlue, the assumption was that this was because Lufthansa was less than impressed with Star Alliance partner United Airlines' presence into New York.

What presence? Exactly.

So what happens with all this? How can JetBlue serve two alliance masters?

Aside from that niggly problem, I think this is just another example of what we are now going to continue to see more and more of in this industry -- creative deals that go against what we have seen done in the past. The reason for them? Necessity. Efficiency. This is what is motivating the Delta/US Airways slot swap request. The AirTran/Continental deal.

So, on the surface, I like it. I'd be happy to see even more of these things. (But only if the airlines' respective IT systems are up to the task!)

My only question for JetBlue would be this -- have you surveyed your passengers who fly into JFK as to whom they fly on to Europe? Is American their first choice?

I would be curious to know the answer, because my gut feeling is that someone who is going to fly on JetBlue into JFK and connect to Europe might not necessarily be someone who would fly on American.

Yep. It's that mismash of culture and expectations thing I'm thinking about.

Then again, maybe, just maybe, that might be one of the reasons American was receptive to do the deal. They knew that too.

Posted by Holly at 8:24 AM | Permalink | Comments (0)

I'm sitting here waiting for final edits to be done on this week's issue of PBB, and was just looking at the wild party going on with airline stocks today.

In case some of you are wondering what is going on with the sector today -- which is up significantly across the board -- United Airlines issued the first of its revised format traffic reports after the close of the market yesterday.

As CFO Kathy Mikells discussed in the airline's recent earnings call -- and we talked about in PlaneBusiness Banter -- she is attempting to increase the level of transparency in the airline's financial reporting. As a result, the airline is now going to provide a RASM estimate, along with the usual traffic information in its monthly traffic release. The airline is also going to provide an update as to its current fuel costs.

Airlines like Continental, JetBlue, and US Airways already provide RASM estimates when they report their monthly traffic numbers.

When the new-look United Airlines release hit the wires last night -- all of us received quite a shock.

The airline easily blew past analyst forecast RASM numbers -- as the airline estimated that its RASM in January was up between 9.5% and 11.5%. Analysts had forecast a figure somewhere between 3% and 6% -- depending on the analyst.

So -- there you go. That is why airline stocks are frolicking today.

At last check, shares of United were up 17% for the day, trading at about 15.28.

Posted by Holly at 1:43 PM | Permalink | Comments (0)

In the last two days I have lost count of how many of you have sent me notes re: Mesa Air Group's bankruptcy filing.

No, I am not on another planet.

Yes, of course I am aware the airline filed for bankruptcy.

Yes, I'll be talking about it in this week's issue of PlaneBusiness Banter.

But I have what I think is a pretty good reason for not jumping in here and jabbering about Mesa, or anything else for that matter.

It goes something like this.

Over the last couple of days I traveled to New Orleans where I retrieved PlaneDad, who is now 90. We both drove back to the DFW Worldwide Headquarters, as he planned on staying in this part of the world for a week or so.

Up until that point, all was well, including a perfect flight for me on Southwest Airlines over to MSY.

But it was after he and I returned to DFW that the story takes a little more disheartening turn, for you see, my father decided in the early AM hours to go out to his car to retrieve a banana that he had brought with him. The banana, of course, was to go on his shredded wheat.

Yes, PlaneDad is a creature of habit. No shredded wheat without the banana. And the 2% milk. Accompanied, of course, by a glass of pulpless orange juice.

I told him no, don't go out there. It is icy. He said he would be careful. I said again, no, I will go get my shoes. Just sit down.

You know where this is headed.

I went in to put my shoes and my coat on -- and he went out the door. And not 10 seconds later, he was down on the driveway pavement of the Worldwide Headquarters with what appeared to be, and as of today has been confirmed -- a shattered left hip.

So pardon my silence on all things airline for the last couple of days -- particularly the news concerning the Mesa bankruptcy.

Then again -- I noted when we awarded the Mesa Air Group Board of Directors with our PlaneBusiness Ron Allen Airline Mismanagement Award two years ago that bankruptcy was probably a foregone conclusion for the airline.

Two years ago.

Can't say I didn't give you plenty of warning.

Posted by Holly at 5:50 PM | Permalink | Comments (0)

Ho, ho, ho. Merry Christmas.

Or something like that.

Thanks to a wickedly strange website entitled Sketchy Santas for today's visual. If you have a warped sense of humor like I do, go on over and take a peek. I'll use a couple more of them here before we say goodbye to the Christmas season. I mean, after all, a little warped sense of humor is good for us all this time of year -- yes?

Speaking of this time of year -- it's the time of the year when those folks who run the airlines start talking. To analysts. About their respective fourth quarter results that will be finalized in a little more than two weeks.

Today Bill Greene with Morgan Stanley wrote,

"We expect near-term data points and commentary to excite investors about the on-going airline recovery, pushing potential concerns of an anemic 2010 to the background, for the time being."

Oh my. Let's pop some champagne corks. What do you think?

Bill went on to talk more specifically as he added that AMR now expects fourth quarter mainline PRASM to be down more or less 5% year-over-year. This is better than Bill's previous 7% estimate. The airline also said this week that close-in bookings continue to be strong.

US Airways said this week that it continues to see revenue improving "rapidly." The airline said this week that corporate revenues could be up by as much as 10% year-over-year in 2010. Delta expects strong demand trends in 2010 and fourth quarter guidance updates imply better than expected top-line growth and United Airlines aid this week that it also continues to see improvement in corporate and premium cabin bookings.

Yesterday analysts Jamie Baker and Mark Streeter with JP Morgan issued a note in which they talked about both stock and debt updates.

They also talked about the positive comments from Delta and US Airways as did Bill. JP Morgan lifted its fourth quarter estimates for both Delta Air Lines and US Airways based on the latest updates from both carriers.

On the debt side, Mark Streeter gave all of us some good background on the fact that Delta Air Lines did also offer year-end liquidity estimates that were lower than those previously distributed this week.

Is this a bad thing? Not according to Mark.

According to Mark,

"Delta offered year-end liquidity guidance of $5.1 billion (versus our prior estimate for YE09 of $5.4 billion), or about $700 million lower than the $5.8 billion total liquidity as of 30-Sept-09. Given a seasonal air traffic liability shift of $800 million-$1 billion (per management), the net burn is deceiving. As we have discussed, Delta has reduced 2010 debt maturities by 55% from $3.4 billion prior to recent capital markets transactions (mainly secured first and second lien notes and a secured aircraft EETC deal) to $1.5 billion.

In our Airline Credit Outlook 2010 webcast, we reiterate our bullish view on airline credit (Overweight) and our specific opinion that Delta is our favorite legacy airline credit from a relative value perspective. We recommend Delta A (offered at 400bp+) and B tranche (9%+ yield) EETCs basically across the board (As for HG and HY investors, Bs for HY investors only) as well as the Delta first (9.5% bonds yielding 8.5%) and second lien (12.25% bonds yielding 13%) backed by Delta's Pacific operations. On the situation in Japan, AMR has the most to lose and Delta the most to gain if JAL defects from OneWorld to SkyTeam.

On the other hand, US-Japan Open Skies remains a long-term wild card from the perspective of how appraisers and the market will value Delta's Pacific collateral. Regardless, we expect Delta to maintain a large, significant presence in Asia and Narita specifically (and perhaps Haneda over time). Therefore, the short relative duration of the 9.5%s (due Sep-14) and the 12.25%s (due Mar-15) coupled with high current yields relative to credit ratings (credit ratings that should INCREASE over time given our forecasted improvement in Delta's credit metrics against our bullish industry recovery thesis) forms the basis of our favorable opinion on these unique bonds."

Posted by Holly at 6:01 PM | Permalink | Comments (0)

Posted by Holly at 12:19 PM | Permalink | Comments (0)

I'm sitting here writing this week's in-depth earnings call review of the third quarter results from Allegiant Travel.

It, along with in-depth looks at the earnings results from other airlines, will be in this week's issue of PlaneBusiness Banter, which will be posted Monday.

Inundated with numbers and corporate executive double-speak as I am this weekend (and yes, in case you missed it, we did have a moment of "triangulation" in this quarter's United Airlines' call) I simply had to stop and relay something I just wrote -- for all of you. Not just subscribers.

In fact, I should have mentioned it here in PlaneBuzz earlier this week. I simply forgot to do so.

(As for the "triangulation" reference, if you are a faithful reader you know that I am referring to a "Tiltonism.") Enough said.

But back to what I wanted to share. It needs no introduction except to say it comes from the beginning of my review of Allegiant's third quarter earnings performance.

And I quote,

"Maury [Gallagher, CEO of Allegiant] is never one for subtlety. And this quarter was no exception as he let everyone know two things on the call -- right off the bat. One, the third quarter is typically the weakest of the four for the airline. Two, the airline posted a 16.5% operating margin for the quarter."

I feel like I need to insert the sound of a rimshot here. Please.

Did you happen to catch that number? Let me replay it for you. S-l-o-w-l-y. The airline posted an operating margin of 16.5% for the quarter.

Okay, I'm going back to work. I suggest you close your mouth and go back to whatever it is you were doing before I interrupted you.

And people wonder why I like this airline's damn business plan so much. Sheesh.

Posted by Holly at 2:07 PM | Permalink | Comments (0)

Want to know why most all airline stocks sunk like they had rocks tied to their little feet today?

That's right. Give the man in the back row with the red shirt on a gold star.

It's oil. Or rather, the exploding price of oil.

Crude oil futures closed at 81.37 today -- up a hefty $2.25.

Why? One major factor-- the continued drop in the value of the dollar. The euro climbed about $1.50 today, the highest level since August 2008.

And as all bright PlaneBuzz readers know -- oil is priced in dollars. So as the dollar falls in value, international investors start bidding up the price of oil futures as a play against the weakening U.S. currency.

That's the way the markets work.

Posted by Holly at 5:25 PM | Permalink | Comments (0)

During weeks like this, I'm not really sure if I should even get out of bed in the morning.

Considering we are enjoying a nice gentle Fall rain here in the DFW Metroplex this morning, that's even more incentive not to get up.

Alas -- duty calls.

Two days, and we have now had six airlines have report earnings so far this week -- with more to come. The rundown goes like this: Continental, UAL, parent of United Airlines, AirTran, Allegiant, Hawaiian, and AMR, parent of American Airlines.

Any surprises in the results that have rolled out so far this week?

No real "surprises" but a few things that do warrant some discussion.

One -- United Airlines posted pretty good numbers for the quarter. Excluding special items, the airline posted a loss of $0.43 a share. This was much better than the consensus forecast of loss of $0.94. The airline posted better than expected results both on the revenue and the cost side. The airline posted a 2.8% operating margin. Granted, that kind of margin would make people in other industries weep. But in this industry, it might end up being one of the better performances for the quarter -- compared to its peers.

AirTran? No real surprises here. The airline posted a good quarter. Forecast was for the airline to post a profit of 8 cents a share. That's what the airline did. It also posted a very nice 5.1% operating margin -- 13.5 points better than third quarter 2008.

Dovetailing with the upgrade note on AirTran issued by JP Morgan analysts Jamie Baker and Mark Streeter late Sunday, the airline did, in fact, post a better operating margin than Southwest this quarter. Southwest posted a 4.8 operating margin (excluding special items.)

Allegiant? Another great quarter by the airline. The airline reported a profit of $0.68, which was better than the Street estimate of $0.63. The best news from the airline's call to me was the fact that the airline's new service in Los Angeles seems to be off to a tremendous start. The airline said that July operating margins for the new service, which just started in May, were already pretty much up to the airline's system average. This compares to other markets, which have usually taken as long as two years to hit the same levels.

Continental reported this morning, as did AMR.

Continental reported a net loss of $18 million or $0.14. Excluding $20 million in special charges, the airline posted a profit of 2 cents a share.

Analysts had expected the airline to post a loss of 6 cents a share.

As for AMR, parent of American Airlines -- the news wasn't nearly as positive. The airline didn't come anywhere near a profit for the third quarter.

The airline posted a net loss this morning of $359 million or $1.26. Excluding special items, the airline posted a loss of $265 million or $0.93. Consensus had the airline expected to post a loss of $0.95. Operating margin? Excluding special items, a negative 2.5%.

We're off to listen to the calls from both CAL and AMR. Behave yourself while I'm gone.

Posted by Holly at 11:05 AM | Permalink | Comments (0)

This morning Southwest Airlines kicked off the third quarter earnings parade for the things with wings.

The bulk of the sector reports earnings next week.

Excluding items, the airline reported a profit of 3 cents a share. This was a bit better than the street consensus, which had forecast the airline would post a profit, excluding items of two cents.

On the revenue side, the airline saw passenger revenue per available seat mile (PRASM) down 2.2%. This was much better than the airline's PRASM drop of 6% it recorded in the second quarter. However, yields were down 12% to 12.94 cents/mile.

On the cost side, the airline saw CASM jump 6.6%, excluding fuel and special items. Last quarter, CASM was up 5.9%.

Operating margin came in at 4.8%. This was a tad lower than last year, when the airline posted a 5.1% operating margin. Not necessarily that good a thing when you consider where the price of fuel was for much of the third quarter last year.

The basics reported today were: Net loss for the quarter was $16 million or $0.02 a share. This compared to last year when the airline posted a loss of $120 million or $0.16 per share.

The results included the following special items: A charge of $27 million related to the airline's early-out program they offered employees and a loss of $12 million related to non-cash mark-to-market items related to the airline's fuel hedging program.

Excluding the special items, the airline posted a profit of $23 million or $0.03. This compared to last year when the airline posted a profit of $69 million or $0.09.

Posted by Holly at 2:04 PM | Permalink | Comments (0)

One can never have enough cash.

Especially not in these days and times.

Following this train of thought, today AMR, parent of American Airlines, announced that it has put together a deal that will bring $1.3 billion in additional liquidity to the airline. In addition, the company announced that it has negotiated a reduction in the airline's credit card holdback total of nearly $300 million. Combined, this means an additional $1.6 billion in new liquidity by the end of they year.

According to analyst Gary Chase with Barclays, this announcement, combined with the airline's revenue fundamentals means that, according to his estimates, the airline should end the year with about $4.3 billion in unrestricted cash or 22% of trailing revenue. Give or take.

As Gary also noted, he now expects the airline to have "ample cash to manage its upcoming debt maturities. Moreover, we suspect re-financing those maturities will now be facilitated by a stronger liquidity position."

Gary also noted that the airline is expected to release its mid-quarter update tomorrow, which effectively is a pre-announcement of third quarter earnings.

Gary expects the airline to post a $0.75 loss for the quarter -- which is right in line with consensus.

Posted by Holly at 12:01 PM | Permalink | Comments (0)

Thanks to all of you who have been attempting to get me to comment this week on any number of goings-on in the airline industry.

But, I am happy to say -- I resisted.

Until today.

No, I said, I am on vacation, and damn it, I am going to stay offline. Until Tuesday.

Until today.

And what got me to finally break my silence? Something wickedly funny. Of course.

Most of you probably saw the recent YouTube effort in which some enterprising Boeing employee ( I would bet) did a take off on Boeing's continued delays with the 787. The video used? A now-familiar clip from a recent Hitler made-for-television movie that seems tailor-made for such antics. In fact, there are scores of these parodies now on YouTube, including one dealing with Brett Favre's sign-up with the Vikings. I know. Just one of those things that seems to be tailor-made for mischief.

This week das Fuhrer has made yet another appearance.

But this time it appears that a Southwest Airlines' pilot is the one responsible for the sub-titles. And Southwest's CEO Gary Kelly is the one barking out German invectives to his underlings.

I've had more than a handful of you inquire as to whether moi had anything to do with this. I think the reason is because there are some very "inside" management barbs in this new satire. So I guess the assumption is that this was something right up my alley.

But I am here to say -- I am completely innocent.

That is not to say that I didn't chuckle out loud more than once when I watched it, though. (Yeah, you know Business Select takes a hit in here, along with....."It's ON!") But I think I may have laughed the loudest at the "deck party" comment.

Not sure some folks over on Denton Drive are going to be too amused, however. This one hits just a little too close to home. On more than one front.

Serious stuff? Oh of course there has been a lot of serious stuff going on in the industry this past week -- including headline-grabbing FAA interventions with both American Airlines and Southwest Airlines. I mean, if this continues, the FAA should just move their headquarters to Dallas, don't you think?

And yes, Southwest, when not feverishly repairing aircraft this week, also announced a new "fee" for passengers. I'll be talking about this news this next week, along with a whole lot more. When my vacation finally ends on Tuesday.

Sigh.

Enjoy your Labor Day weekend everyone. Tennis in the greatest city in the world, college football at a stadium near you, and cooler temps almost everywhere.

Life simply doesn't get any better than this. Get out there and enjoy it.

Posted by Holly at 1:48 PM | Permalink | Comments (0)

Thanks to one of our readers who suggested we all download a copy of this and listen to it as we await more news from the bankruptcy auction.

http://world.std.com/~eshu/dbug/Jeopardy_Think_Music.mp3

Posted by Holly at 4:19 PM | Permalink | Comments (0)

First, AirTran and Continental announce a slot swap involving slots at Newark, Reagan National and LaGuardia on Tuesday. But the scope of that deal was swamped this morning with news that US Airways and Delta Air Lines have agreed to terms on a much larger deal that involves both a swap of slots, and a few routes thrown in for good measure.

This morning US Airways announced that it will obtain 42 pairs of slots at Reagan National, as well as access to slots in Tokyo (NRT) and Sao Paulo, Brazil (GRU) from Delta Air Lines.

In return, US Airways is giving Delta Air Lines 125 pairs of slots at LaGuardia.

This is a big deal for US Airways. The airline estimates that the deal will create an additional $75 million dollars in revenue per year.

It's a positive for Delta Air Lines as well, as Delta continues to muscle into the New York market in a major way. This is a huge gain for them.

And no, this does not affect the US Airways' Shuttle operation in any way.

Meanwhile, yesterday it was reported that AirTran plans to stop flying to and from Newark completely -- giving its takeoff and landing slots to Continental Airlines. In exchange, Continental is going give AirTran slots at both Washington Reagan and LaGuardia.

Apparently AirTran will give Continental 10 slots, a single gate and a jetway at Newark. In exchange, Continental will give AirTran four slots at LaGuardia and six slots at Washington Reagan.

So, those are the facts.

What does all this horse trading mean?

It means that the bigger airlines are doing exactly what we said they were going to do. They're getting creative.

While most headlines over the last few months have continued to talk about the lack of liquidity, "Which airline is most at risk?" -- we have continued to make the argument in PlaneBusiness Banter that in this industry -- good management teams are going to find a way to survive.

Look at the airlines involved in these two deals announced. Four of the better management teams out there.

We don't see United, we don't see a mention of American.

Meanwhile, Republic and Southwest are slugging it out over Frontier. Again, two of the better management teams in the industry.

Oh, and speaking of American - is it just me, or does that Holy Grail of a British Airways - American Airlines anti-trust agreement seem to continue to diminish in importance as the days go by?

I continue to believe that American, by putting all of its eggs in one basket it doesn't even have in its possession yet, runs a big risk of being odd man out when the music stops.

Posted by Holly at 10:57 AM | Permalink | Comments (0)

Southwest Airlines is holding a press conference in about 10 minutes to discuss its "sweetened" offer for Frontier Airlines. The airline submitted a binding offer of $170 million.

The airline issued a release in which it said,

"The offer contemplates that Southwest acquire approximately 80 percent of Frontier's existing Airbus fleet, which translates into about 40 aircraft, plus all of Lynx. Initially, Frontier would operate its Airbus aircraft as it does today, with a planned retirement of the Airbus fleet and transition to Southwest's Boeing 737s over a period of approximately 24 months. Despite the initial reduction in the fleet, Southwest intends to maintain all existing markets, as well as add new nonstop routes from Denver that are not served by either Southwest or Frontier today."

Interesting. "Intends to maintain all existing markets." That means no route rationalization? My guess is it means rationalization through reduction in frequency. But not routes themselves.

Also the question of Lynx and what Southwest would do with it has been determined.

More later. Now I'm trying to do at least three things at once. Oh, and eat lunch. That's four.

Posted by Holly at 12:58 PM | Permalink | Comments (0)

This week the big news in Airlineland (at least at this point early in the game) is the pending bankruptcy auction of Frontier Airlines.

Today is the deadline for interested parties to place their bids.

Could we see another "interested party" besides the two we already know about -- Republic and Southwest -- show up at the last minute?

I doubt it.

One reason is that Aug. 3 was the deadline for informal bids by potential buyers. No more likely prospects entered the fray as of that date. Last week officials of Frontier also said publicly that they had not been approached by any other potential buyers.

If no more live potential buyers show up between now and the end of the day -- then what?

Then the auction will begin on Tuesday.

At that point, officials from Frontier, and the airline's unsecured creditors, (which include Republic let's not forget) will begin to consider their options.

As most of you know -- the Republic deal would see Frontier remain intact -- as a separate entity. The Southwest deal (whatever the final numbers prove to be) is predicated on Southwest swallowing Frontier whole. It would take a while, but eventually Frontier would cease to exist as a separate airline.

While we might see some off-the-wall attempt at an offer by some entity today -- I doubt we see any kind of new serious offer materialize.

Stay tuned. The real fun begins tomorrow.

One last note: For fans of Frontier's animal tails, and I am one of the biggest fans of them anywhere, check out this website, LockOn Aviation Photography. They have photographs of all the tails. The photo above is theirs. Thank you guys!

Posted by Holly at 10:29 AM | Permalink | Comments (0)

If it's Monday and this week's issue of PlaneBusiness Banter is not posted yet -- you know the reason. Yep, it's another monster earnings issue. This week we take a long look at the earnings results and dissect the earnings calls from United Airlines, JetBlue, Alaska Air Group, AirTran and Delta Air Lines.

Talk about a group with a split personality. Three of these airlines posted profits. Two didn't.

Last week's issue apparently clocked in a little under what I had estimated -- at 74 pages someone wrote me. This week's is probably closer to 85. Happy reading. We will be posted later today.

Meanwhile, there is no question that the big story here in the U.S. domestic airline market today continues to be the bankruptcy bid by Southwest Airlines for Frontier Airlines.

There are way too many angles to cover here in terms of this attempt by Southwest to grab Frontier, and I'll be talking about some of those in this week's PBB.

However, there is one big falsehood that I want to dispel that a number of you have written to me about, and which, for whatever reason, seems to have been picked up by an analyst at Gimme Credit.

The questions concern a quote that was used in a Ft. Worth Star-Telegram story concerning the move.

In this story that ran Thursday, reporter Andrea Ahles quotes "Wall Street" Gimme Credit analyst Craig Hutson as saying, "Southwest entered Denver again in January 2006, and it has been among its most successful markets."

I do not believe this is the case. Far from it. Frontier Airlines has given Southwest fits. I think it's clear that Southwest thought they were going to go into Denver and kill Frontier. Didn't happen.

I'm not sure who this guy is, or what his background is, but according to the Wall Street analyst who I think knows Southwest Airlines' the best from stem to stern -- this is not the case. That analyst is Gary Chase with Barclays Capital, formerly Lehman Brothers.

There is no question that if you listen to the airline talk about Denver on its earnings calls, you would get the impression that everything is just rosy-posey in the Mile High city.

But as Gary Chase reaffirmed in his research note on the proposed deal Friday,

Our analysis suggests that Southwest is losing a significant amount of money in Denver while Frontier has been profitable year to date. Frontier has made substantial cost progress during its bankruptcy proceedings and currently enjoys a significant revenue advantage to Southwest in Denver markets. That combination defines the contrast between what we believe is money making at Frontier and a loss position for Southwest.

And no, this is not the first time Gary has written similar comments. He has tracked their presence in Denver for many years. And other markets as well.

Posted by Holly at 3:52 PM | Permalink | Comments (0)

One of our PlaneBusiness Banter subscribers just passed along this information to us. It was communicated to employees via a Southwest Airlines' Today@SWA email.

The airline has a press conference scheduled for 2 p.m. CT to talk about the airline's bid.

Southwest Submits Nonbinding Proposal to Acquire Frontier Airlines

On Thursday, July 30, Southwest Airlines submitted a nonbinding proposal to acquire Frontier Airlines in accordance with the bidding procedures in the bankruptcy court.  We view this as an exciting opportunity for the Employees and Customers of both Southwest and Frontier. It represents an opportunity for Southwest to grow our Denver Customers; grow our revenues; and grow our profits. We must caution, however, that this is merely a preliminary step in the bidding process.

We must submit a binding proposal by August 10.  If there is more than one qualified investor, and at this time Republic Airways has also submitted a bid, an auction will be held beginning August 11.  Frontier will determine, in consultation with the unsecured creditors committee, which bid to accept and present to the bankruptcy court for approval.   

Although our plans may vary as we work our way through this process, we wanted to share with you our present plan as we envision it.  Frontier would continue to operate independently and separately for a period of time with its Airbus aircraft and personnel.  We do not intend to integrate the Airbus into our Boeing 737 fleet. As we are able to retire Airbus aircraft, we will add Boeing 737 aircraft. Over time, Frontier employees would be hired into Southwest as needed to support our fleet growth and expanded operations.  There are many details to be worked through, but we are confident that the effort will be worthwhile. We are also confident that our bid, if successful, will boost low-fare competition and benefit consumers in Denver and other cities our expanded network will serve.

Even if our bid is accepted and approved by the bankruptcy court, our closing on this transaction will be subject to several contingencies. These will include the negotiation of acceptable labor agreements dealing with the interim period of separate operation and seniority; and the appropriate regulatory review.  Absent the negotiation of these labor agreements, we will not go forward with this transaction.  However, we are confident that the benefits of such a transaction for Employees of both Southwest and Frontier will become self-evident and that we will be able to obtain such agreements.

Posted by Holly at 12:45 PM | Permalink | Comments (0)

Just never know what the day's news is going to bring. Especially in this environment.

Today, news of a fight for Frontier Airlines.

Southwest Airlines announced today that it has filed a bid of $113.6 million for Frontier Airlines. Republic Holdings, as most of you are aware, has already submitted a bid of $108.8 million. That proposal has already been approved by the U.S. Bankruptcy Court for the Southern District of New York.

However -- just because the bankruptcy court approved that offer -- Frontier still had the right to seek a higher bid. And apparently that is what it did. Actually I don't think Frontier solicited anything. I'm pretty sure Southwest is the one who made the call.

Under terms of the Frontier bankruptcy auction, bidders can submit offers until Aug. 3 and a final proposal has to be submited by Aug. 10.

The auction is scheduled for Aug. 11.

Is it just me, or are memories of the fight over ATA creeping into your consciousness as well?

Well, we certainly now have something more to talk about than earnings.

Posted by Holly at 11:49 AM | Permalink | Comments (0)

Holly here. Reporting from the airline earnings bunker where I have been toiling since last week.

This week's PlaneBusiness Banter will be posted later today. It's one of those monster issues. Next week's issue will be just as packed, as we finish up from the group that reported last week. Just way too many earnings reports compressed in too short a period of time last week. Whew.

Having said that, it was an interesting group of calls last week. Just a couple of tidbits from what we heard.

One, US Airways, which has flirted with the idea of grounding its Embraer 190 fleet in the past -- in an effort to cut capacity further at the airline -- sounds like it is now looking at the possibility in a much more serious way. Because of the airline's contract with its pilots -- the airline is constrained in terms of how much flying it can remove. But it could remove the 25 Embraer 190 fleet in one fell swoop -- thus cutting their capacity by 2.5%. It's really the only option the airline has left if it wants to cut capacity further and in listening to the airline's call last week, it sounds like the airline is very close to pulling the trigger on the move.

Two, I'm getting pretty tired of hearing the folks at Southwest Airlines keep talking about all these revenue initiatives they are going to do in the ...future. Third quarter, fourth quarter. First quarter 2010. Who knows.

I am assuming the reason the airline keeps talking about all these things we are going to see -- someday -- is because the airline does not have the technological backbone in place to do them ..NOW.

Meanwhile the airline still does not charge for passenger bags. And revenues generated from their Business Select program continue to be under original forecast.

I think there is way too much money being left on the table here.

Three, the whole question of liquidity and who has it and who doesn't permeated the calls last week.

Jamie Baker and Mark Streeter, analysts at JP Morgan Chase found themselves right in the middle of the fray after they published a note on where they saw United, American Airlines, and US Airways in the "Dance of the Cash Constrained."

Hoping to clear up any confusion they had caused with their note, they issued another note later in the week in which they wrote:

Did We Not Make Ourselves Clear? – We are surprised by the volume of incoming calls from people who believe that our view is that LCC [US Airways] somehow disappears.

As noted earlier this week, “assuming LCC or UAUA die off, as we believe some do, is a mistake, in our opinion.” What we do take issue with is US Airways’ ability to raise incremental capital should industry fundamentals deteriorate further or even remain stuck here in neutral. There has been very little dialogue, as near as we can tell, as to the potential that 2010 demand may prove as bad as 2009’s. Alternatively, bump up your RASM and fuel by similar amounts and one’s industry models probably won’t show any meaningful improvement. It is against this backdrop that we continue to believe that borrowing power (as well as the need for incremental borrowing) at AMR & UAUA significantly exceeds that of LCC. Put another way, AMR needs to borrow a lot of money, and we think it has plenty of ways to do so. United needs to borrow less, and we think it also has a few bullets left to fire in the capital-raising gun. However, our view on LCC is that while its near-term needs are arguably low, its capital-raising options appear largely nonexistent if demand trends simply bump along from here or in fact worsen. We therefore believe that some form of Washington-mandated combination might potentially occur. Nothing this earnings season changed our view in this regard, nor our opinion that risk/reward in LCC shares remains weak assuming most scenarios short of quick recovery (though LCC’s peer-leading 54% decline since May 6th obviously tempers our negativity).

Posted by Holly at 7:03 AM | Permalink | Comments (0)

Another day, another round of airline earnings reports -- and yet another notice from Standard & Poor's that another airline is now on credit watch, with further rating downgrades a distinct possibility.

Allegiant Travel Company posted results late Tuesday while AirTran came flying in today. The one thing both airlines have in common? They both posted nice profits for the quarter.

Take these guys out and buy them a beer. They certainly deserve it.

Allegiant posted a profit of $23.8 million, up 801% from a year ago. The airline flies only MD-80s. I would have expected nothing less, considering the drop in the price of fuel.

But there is much more to the Allegiant story as those of you who hang out around here know. And in regard to their overall business model -- which relies heavily on ancillary revenue -- this quarter really didn't disappoint as the airline saw its ancillary revenues per ASM increase 17%.

AirTran, which is currently running kind of a hybrid operation in terms of ancillary revenues and more demand based scheduling that has been so advantageous to Allegiant versus the more traditional legacy carrier business model turned in another good quarter today as well.

The airline posted a profit of $78.4 million or $0.56. This was a huge turnaround from last year, when the airline posted a loss of $14.8 million or $0.14.

Excluding unrealized derivative gains associated with the airline's hedging activities, the airline posted a profit of $46.6 million or $0.34.

Interestingly, even here though, unlike at Allegiant, revenues were down. At Allegiant the airline saw operating revenues up 12.5%. on a 30.3% growth in ASMs no less.

AirTran posted a 12.9% drop in revenues. However, the airline also posted a whopping 27.3% drop in operating expenses. There is where the profit came from. ASMs here were down 7.6% for the quarter.

All said and done -- a good quarter for both airlines. Especially considering the rest of the carnage we've seen reported from almost everybody else.

One late note that hit the wires after the close today. Standard and Poor's said this afternoon that it had put UAL Corp., the parent of United Airlines on credit watch for a possible further downgrade.

The company's S&P rating is already buried in the "junk" status, sitting at a "B -."

S&P also warned that AMR, parent of American AIrlines is also now on the bad list as well, as it was also placed on the list for a potential downgrade. American currently is also rated "B -."

We'll look at the Delta Air Lines loss in another post.

Posted by Holly at 5:19 PM | Permalink | Comments (0)

On the first of a three-day onslaught of earnings that can only be described as "earnings hell," Southwest, Continental, and United Airlines all reported their second quarter numbers today.

The short and sweet?

While Southwest Airlines reported a profit for the first time in three quarters, the airline's guidance for the third quarter was not very rosy. So much so that the airline said it could not guarantee a profit for the third quarter. The airline posted a profit of $54 million or $0.07 for the quarter. This represented a 51% decline in profits over last year's $121 million.

Operating income at the airline declined by 40%, to only $123 million.

Based on weak travel demand and fuel price volatility, we cannot predict a profitable third quarter," said Gary Kelly, Southwest chairman, president and CEO.

United Airlines also posted a "profit" -- but don't let those headlines fool you. The airline only posted a "profit" as a result of one-time items and fuel hedge gains. Repeat after me: The airline did not post a real honest-to-God profit.

Excluding all the accounting handiwork, the airline lost $323 million or $2.23 for the quarter. This was, however, better than what the analyst consensus had been for the airline. Analysts had forecast the airline would post a loss of $2.61.

As for Continental, the airline posted a loss of $213 million, or $1.72 a share. Excluding special items, the airline posted a loss of $169 million or $1.36.

Continental posted a $154 million operating loss, which was 116% worse than the second quarter of 2008.

Those are the basics folks. Not exactly the kind of news that makes you want to jump up and down. Much less buy airline stocks. Because as we all know -- if the airlines can't make money in the second quarter -- we don't even want to see what's coming next in the third and fourth quarters.

Someone noted to me in an email this morning,

"Holly, just looking over the Continental numbers. You know I was thinking about what you wrote this week in PlaneBusiness Banter concerning why Larry [Kellner] would choose to leave the airline right now, and the strength of the management team at Continental. I think the reason Larry has decided to leave this industry is obvious when you look at these results and realize that this airline clearly has one of the best management teams around. But even as good as they are -- the airline is STILL not profitable. I can see Larry's point.

Larry, get out of this industry, go make some money and have a good time doing it."

I'm afraid our PBB subscriber speaks the ugly truth.

Posted by Holly at 2:12 PM | Permalink | Comments (0)

Frankly, there is usually very little that shocks me about this industry. Surprises me, yes. Piques my curiosity, yes. But shocks me -- no.

But I got caught out in left field on this one.

This afternoon Continental CEO Larry Kellner announced in a letter to employees, and in a press release, that he was leaving the company, effective the end of the year.

But wait, he's just not leaving as CEO. He's leaving his position as Chairman of the Board of the airline as well.

Gone.

Kellner is leaving the airline to head up a new private investment firm, Emerald Creek Group, LLC.

The airline announced that Jeff Smisek, President and COO of Continental, will succeed Larry as CEO and Chairman of the Board.

How about that?

Another good one bites the dust.

Posted by Holly at 7:01 PM | Permalink | Comments (0)

Had to chuckle this morning when I read the JP Morgan Equity/Debt review of American Airlines' earnings release.

As most of you know, Jamie Baker is the equity analyst for JP Morgan, but Mark Streeter handles the debt side.

Mark's snarky side came out today in his headline as he wrote in the note,

Some Airlines Bust Guitars, Some Also Bust Covenants - We have been worried for some time that airlines (AMR, LCC & UAUA, more so than others) could violate bank debt covenants later this year or early next year if industry conditions don't suddenly improve. AMR likely shared this concern as the company last month sought and received fixed charge coverage relief from banks. Specifically, the AMR bank debt fixed charge coverage ratio for the June 2009 quarter was waived. Going forward, the ratio remains at 0.95x for the September 2009 quarter (no change) but stays at that levels through year-end (i.e. lower threshold) with reduced step-ups through September 2010 as well. While our more bearish-than-consensus revenue forecast continues to show AMR tight (if not busting) covenants during 2H09 (along with others), additional bank relief remains achievable, in our view."

As for the all-so-important liquidity question, the duo commented,

"AMR's Liquidity Pantry Is Still Fairly Well Stocked - Unlike the pantry at USAirways, which we consider bare, and the pantry at United, which is stocked with canned goods long past their expiration date (i.e. older aircraft and parts that are very tough to finance), AMR boasts of $3.7 billion in unencumbered asset provisions, real liquidity flexibility, in our opinion (with the untapped AAdvantage forward mileage sale the most obvious component). Now, not all of the contributing assets to this estimate are readily-financeable (such as AMR's ownership of Eagle) but at least $2-$2.5 billion represents real liquidity flexibility in our opinion. Furthermore, $500 million of additional assets will become unencumbered later this year (including some not-too-old-to-refinance aircraft falling out of maturing EETCs). The bottom line is that USAirways and United are at or past V1 in their burn-the-furniture liquidity takeoff rolls, in our view, while AMR is just now nudging its throttles forward, with still-adequate runway remaining. Boiled down, we remain of the view that Chapter 11 can be averted at AMR."

Posted by Holly at 12:02 PM | Permalink | Comments (0)

This week I was happy to see an old name reappear at the top of a handful of airline research reports. That name? Dan McKenzie.

Most recently Dan was the airline analyst for Credit Suisse. Dan has now resurfaced as the airline analyst for Next Generation Equity Research.

This week Dan initiated coverage on JetBlue, Southwest and AirTran.

Dan initiated coverage of JetBlue with a "buy" rating and a $6 target price.

In his note, Dan commented,

Our 2009 profit forecast is largely in line with a consensus outlook, however, our modestly better 2010 outlook results from jetBlue’s new revenue management system, legacy carriers that continue to exit jetBlue’s largest markets, and revenues that begin to finally trickle in from a Lufthansa code share (which is not yet announced but a logical assumption in our view given the close relationship between the two carriers).

Despite its smaller size and five years of reported losses or weak profits, our outlook is on balance positive based on a number of unique findings in our proprietary capacity study.

We found the industry cutting head to head flying by 15% in jetBlue’s routes, leaving jetBlue with the industry’s best competitive dynamic. In particular, we found AMR cutting as much as of 50% of its flying in jetBlue’s top 50 markets (airport to airport), while other carriers are cutting 15-30%.

At Fort Lauderdale, a focus city, we found both AMR and US Airways shrinking 47% and 14% respectively (as jetBlue grows +16%).   

Dan also initiated coverage of Southwest Airlines.

Dan assigned Southwest a "neutral" rating and a $7 target price.

In his note, Dan wrote,

Southwest is the industry’s best fundamental story and as such, continues to be a longer-term play on the industry. However, given our anticipation of upcoming earnings disappointments, we’d wait for a better entry point.

Southwest is transitioning from a growth carrier to a cyclical carrier, but it’s not there yet. Substantial market share gains against weak legacy carriers underpin our view that the industry consolidates over the next two years, and Southwest is positioned to be a primary beneficiary.

Our slightly more aggressive valuation multiple vs the Street partially factors in earnings optionality from further industry consolidation over a 2 year time horizon.

Despite a cost structure that has inflated over the years, Southwest is still the lowest cost producer. And its cost advantage is set to widen as legacy carriers reset labor contracts higher.  

In the near term, Dan said the airline's revenues and cost headwinds are pressuring margins. Because or this, and the fact the airline now has to renegotiate its pilot contract, Dan advises, "We're not telling investors to race into thie stock, though for those that can look longer-term, Southwest continues to be a great play on the industry."

And finally, Dan also initiated coverage on AirTran this week. AirTran also received a "neutral" ranking from McKenzie, along with a $7 price target.

In his note on AirTran, Dan wrote,

Following years of growth, AirTran, along with others, is responding to a demand shock by cutting growth and spending. The network changes position the carrier to report profits and begin the process of balance sheet repair (which is in contrast to AirTran’s 2008 loss that nearly erased five years of profits).

AirTran, like others, lacks adequate pricing power given industry overcapacity which means profits will remain levered to fuel prices. However, when removing fuel from the equation, upside to our modest profit this year and next appears unlikely based on our proprietary network study.

We found competitors cutting head to head flying on AirTran’s routes by 1.9% in 2Q09 and by 5.5% when factoring in indirect competition. While it’s always encouraging to see less capacity, AirTran’s competitive dynamic nonetheless ranks last on our industry measures.   

AirTran’s smaller size and lack of dominance in its markets leaves its revenues more exposed (vs peers) to larger and better capitalized competitors. As one of the lowest cost, lowest fare carriers in the industry, AirTran’s cost structure is thus a critical source of competitive advantage.      

AirTran’s current level of liquidity is not robust and limits the carrier strategically, but it’s adequate. And while AirTran’s liquidity strengthens on our outlook, an even stronger balance sheet would aid AirTran’s competitive position and revenue stability. As a result, we don’t rule out new equity issues (perhaps in the $7 to $10 stock price range).

Posted by Holly at 4:17 PM | Permalink | Comments (0)

Just never know what news is going to come across the wires these days.

Hi guys.

It's good to be back.

Yes, moi has been a bit offline over the last month or so. No, I still love you. It was not because of anything you said. Or did. Or didn't do. Stop it.

Without going into detail, maybe this analogy will help explain. If someone is a pilot, then it's pretty hard to also work the back of the plane, sell the tickets at the counter and make sure the engine is functioning properly.

Moving, new website drama and delays, exhaustion. I just had to step back and concentrate on our flagship operation -- PlaneBusiness Banter for a bit.

But hey -- as I told PBB subscribers today -- it's time to get back into the swing of things.

And what fortuitous timing for our coming out party!

This afternoon the newswires were literally abuzz with the news that Republic Holdings is buying Frontier Airlines.

As we all know, Frontier has been trying to put together a financing deal that would allow it to exit bankruptcy protection.

We also all know that Republic had already stepped up its financial involvement with Frontier as part of its current bankruptcy process.

Yes, well -- this afternoon Frontier announced that it has entered into an agreement under which Republic will serve as the equity sponsor for Frontier's reorganization plan.

But the big newsmaking kicker is this: Republic will then purchase 100% of Frontier's equity for $108.75 million

Under the agreement, Frontier Airlines Holdings Inc. would become a wholly owned subsidiary of Republic.

Frontier Airlines and its short-haul unit, Lynx Aviation, will keep their current names and operate as they do now.

A hearing on the proposed deal is now scheduled in bankruptcy court for July 13.

Frontier’s reorganization plan calls for general unsecured creditors to get $28.75 million.

It said an additional $40 million of the sale proceeds would repay outstanding “debtor-in-possession” financing from Republic Airways Holdings.

If approved by the bankruptcy court, Frontier’s current equity “would be extinguished and holders of that equity would not receive any recovery,” the airline’s statement said.

Okay, so while this is great news for Frontier Airlines -- I think a very real question is this one -- what happens when Republic, which does a chunk of regional flying for United Airlines, essentially becomes the new owner of Frontier -- a major thorn in the side of United?

Stay tuned. This one should be fun to watch.

Posted by Holly at 8:11 PM | Permalink | Comments (0)

This week the U.S. domestic carriers have been in the throes of the usual first-week-of-the-month traffic and RASM reporting ritual.

And what have we found out from the various press releases full of mind-numbing numbers?

I think Gary Chase, analyst with Barclays started the week off on the right tone as he wrote, "We think the market was largely ready for numbers as bad as CAL posted last night, even if we had hoped for better."

Continental reported at the beginning of the week that it estimates the H1N1 scare cost the airline at least $30 million in revenue. This was more than many analysts had expected, and was clearly a big factor in the airline reporting that consolidated PRASM for May was down between 19.5% and 20.5%. Mainline only was down between 19% and 20%.

Friday morning Bill Greene, analyst with Morgan Stanley issued a note in which he said, "Recent, May traffic reports highlight the severity of the supply/demand differential plaguing the industry with RASM falling ~20% YoY at both CAL and LCC. Surprisingly, managements continue to bet on a 4Q recovery, as evidenced by the sequential acceleration in capacity growth between 3Q and 4Q09.However, even if a rebound does materialize, we worry that higher oil prices obstruct profit-improvement at many airline."

Looking towards June, as I wrote in this week's PBB, I am not hearing much of anything positive from the airline folks I am talking to -- in terms of demand uptick.

Kevin Crissey, analyst withUBS wrote this week, "Airline financials are troubling, particularly with fuel prices rising." He continued, "We are concerned about the revenue outlook after May," said Crissey, who forecasts that June traffic "will be 2 to 3 percent worse" than May and "July could look like May. The forward curve for fuel is higher."

Of course, as has been the case over the last year, there is one domestic airline that just keeps bucking the drop in demand trend. That airline is Allegiant Air, the airline portion of Allegiant Travel.

The airline reported Thursday that its total RPMs rose 20.1% while capacity was up 19%. While this resulted in only a 0.8 point increase in load factor for the month, you can pretty much be assured that this is going to be the most positive combo of demand and capacity that will be reported for the month.

Scheduled service at the airline increased 23.9% while capacity jumped 22.9%. Load factor increased 0.7 percentage points to 90.6% from 89.9%.

Both AirTran and Southwest Airlines announced drops in load factor this week.

Remember that these declines also came as both airlines were engaged in pretty stiff fare competition, so we can pretty much figure both airlines posted some healthy declines in yield and RASM as a result.

US Airways, which also reports RASM estimates, as does Continental, reported on Wednesday that its mainline traffic declined 5.2% on a 5.8% cut in capacity. As a result, the airline actually posted a .5 point increase in load factor.

However, as Bill Greene mentioned in his note on Friday, the airline also said that its consolidated PRASM fell between 18% and 20% during the month.

Also note that American Airlines saw traffic fall much more than the airline's capacity cuts -- as the airline reported that mainline traffic declined 11.7% in May, on a capacity decline of only 8.8% This resulted in a 2.6 point drop in load factor for the month. Ouch.

Posted by Holly at 10:40 AM | Permalink | Comments (0)

Monday the Bureau of Transportation Statistics of the DOT issued the latest Form 41 data for the industry. The information covered the fourth quarter 2008 numbers.

Needless to say, for airline geek types, the release of Form 41 data is like a huge box of goodies, all wrapped up with a nice big bow. The only problem is -- you have to take the time to get in the box and carefully unwrap all the nuggets.

This morning analyst Gary Chase with Barclays issued a research note on Virgin America's financial situation -- a note that was clearly based on Gary and fellow analyst Dave Fintzen's careful unwrapping of the Virgin America nuggets.

But wait -- Gary doesn't even cover Virgin America. The airline is not publicly traded.

Oh, but he does cover airlines that are currently affected by the airline's presence. Most notably JetBlue and Alaska Air Group. Of all the major airlines Virgin overlaps about 25% of JetBlue's capacity, while it overlaps about 17% of Alaska's.

In his note this morning, Gary noted that while Virgin has been in the news a good deal lately because of questions concerning its ownership structure -- "we cannot know the details of the company's ownership structure." But Gary and company can, and did, analyze the airline's operating performance for the fourth quarter as reported to the DOT.

The verdict?

"The airline is now beyond the point in its development where JBLU turned profitable; Virgin America's results would show losses in late 2008 even at sub-$1.00 fuel prices.

DOT filings point to substantial losses that go well beyond high fuel prices.  We estimate that to break even in 2009 (similar to the rest of the industry on an un-hedged basis), the airline would need to drive significant improvement in revenue or cost performance, or both.  For example, one path to break-even would be to achieve a roughly 20% higher unit passenger revenue (in an environment where industry RASM is declining by nearly 10%) and reduce non-fuel costs by almost 10% while fuel prices remain at the $1.49 level."

He continued, "Virgin America's premium strategy, including its First Class and Main Cabin Select products, does not appear to be generating a meaningful revenue premium.  Rather, unit revenue performance lags JBLU and the industry at-large.  Virgin America's unit revenue performance has shown relative improvement as the airline spools-up, but still lags a typical new JBLU markets despite having a first class option and fewer seats on an equivalent aircraft (which should translate into both higher RASM and CASM).  While Virgin America has found some relative success in short-haul West Coast markets, revenue performance in Transcon and longer-haul West Coast (i.e. Seattle) lags the industry by a wide margin."

In addition, Gary said, "The premium strategy likely contributes to the airline's relative cost problem, with non-fuel unit costs that are 40% higher than JBLU today and ~30% higher than JBLU at the same point in its life cycle.  Unit cost tends to improve dramatically during the first year of an airline's operations, but Virgin America is now beyond the point where JBLU's cost structure stabilized.  The cost structure remains significantly higher than JBLU, not to mention other low-fare airlines."   

In typical carefully worded "analyst-speak" he concludes: "We believe the Virgin situation represents a potential opportunity for the industry generally, but for JBLU and ALK in particular.  Even if the press surrounding the ownership structure proves inaccurate, operating losses could also prompt a move away from its Transcon and long-haul West Coast routes, where performance has been the weakest."

So how bad were the numbers themselves?

Virgin America’s recent DOT filings show the airline posted significant losses through its first year of operations. In total, the airline posted a 2008 pre-tax loss of ~$207mm on revenue of ~$370mm, for a pre-tax margin of negative 56%. While margins did improve, DOT reports show 4Q08 pre-tax margin was a negative 29% with a pre-tax loss of $32 million.

Now, is there anyone out there who still wonders why it was that Virgin America fought for so long to keep from reporting its results to the DOT?

I didn't think so.

Posted by Holly at 8:59 AM | Permalink | Comments (0)

In the midst of all the giddy sentiment that is starting to take hold in the industry concerning the "stabilization" in demand decline -- a fact that April RASM estimates issued by some airlines have fueled this week -- a new ugly problem is starting to make itself known. That ugly problem? Higher fuel prices.

As they say, if it's not one thing, it's another in this industry.

The big question concerning the recent relatively calm period of lower oil prices was this one -- how fast would they start to ratchet up when the economy began to shows signs of recovery?

We, unfortunately, are starting to see that apparently the answer to that question is -- pretty fast.

If you have not looked at the oil futures market lately, here is the bad news. As I post this (at about 1:30 PM CDT), the price of a barrel of crude is now sitting at 58.55, up almost $2 bucks for the day. Just two weeks ago, the price of crude closed at 50.80. Last Friday, it closed at 53.20.

Today's price is the highest price that crude has posted since November.

What is fueling the push?

A combination of some encouraging signs on the economic front, U.S. equity markets that seem to believe the worst is over (whether it is or not) and a weaker U.S. dollar.

As most of you know, a declining US dollar makes dollar-priced oil cheaper for foreign buyers and tends to encourage demand, leading to higher prices.

Yes, it is indeed a vicious circle.

And one damn frustrating one if you are an airline. Do you hedge or not? At what price levels? With what hedging instruments?

Remember that many airlines were still paying the price (and dearly) in the first quarter for making the wrong move on oil futures last year.

What makes this rapid rise in the price of oil potentially more troubling for the industry than the record-breaking rise last summer is that it is rearing its ugly head at a time when the level of demand, i.e., revenue, has fallen through the floor.

Posted by Holly at 12:33 PM | Permalink | Comments (0)

Gary Chase, airline analyst with Barclays, issued a note this morning in which he listed the exposure of different airlines to the potential short-term risk of passengers curtailing travel to Mexico.

Gary also took a look at the effect that the SARS scare had on the Asian carriers in 2003, and then extrapolated a kind of "worst case" scenario for our carriers -- in terms of their Mexican exposure.

Of course, all of this is just conjecture at this point. This analysis is only looking at one part of the puzzle -- the US carriers current exposure to Mexican flying. This assumes, which Gary pointed out, that the flu is able to be contained in Mexico.

And right now, that looks like a big assumption.

But let's say that is the case. If that is the case, Alaska Airlines, Continental Airlines, US Airways and American Airlines are the four airlines that have the biggest percentage of their passenger revenue tied up on Mexican routes. Note that even though Alaska's total O&D revenue tied to Mexico puts it fifth on the list, those flights make up 8% of the airline's passenger revenues. A huge amount.

Posted by Holly at 10:56 AM | Permalink | Comments (0)

Just in case you were so wrapped up with the NBA playoffs or the NFL draft that you didn't watch much news over the weekend, or you didn't read Jonathan's note here that was posted last night -- the reason your favorite airline stock is posting a loss this morning is directly attributable to one thing. Swine flu.

Or rather, fears that the flu, which has, up to now, been concentrated in areas of Mexico, but has already crossed the border to the U.S., has gone beyond the stage where cases that have been confirmed can be 'contained.'

As a result, memories of the SARS epidemic of a few years ago, and what it did to the industry, (the Asian carriers were particularly hard hit) has investors selling off shares of airline stocks faster than you can buy a box of Kleenex.

The major airlines are taking the brunt of the selloff this morning, with shares of Continental, Delta, US Airways, United, Southwest, and American all down by double digits. Or very close to double digits.

Posted by Holly at 10:12 AM | Permalink | Comments (0)

Continental Airlines released their traffic report last night and the result was more or less what had been expected -- in terms of what analysts had expected the airline would post in terms of its estimated RASM figures.

The airline said that it estimates RASM was down, year-over-year, by between 18.5% and 19.5%.

This was just a hair worse than the estimate of both analysts Jamie Baker with JP Morgan and Bill Greene with Morgan Stanley.

As for basic traffic, the airline said that its domestic traffic levels were down 12.4%, while international was down 7.5%. Total traffic was down 10%. Capacity, meanwhile, was down 7% overall. This resulted in a decline in load factor of 2.7 points, down to 79.9%.

The rest of the sector will begin to roll out their bad traffic news today.

One thing to remember, however. As bad as these numbers are -- remember that Easter came very early last year, and all the revenue bump associated with Easter was in March last year. So comps were going to be difficult regardless.

Not to say that this makes these abysmal numbers any easier to swallow in the big picture, but jus' sayin.

Posted by Holly at 10:03 AM | Permalink | Comments (0)

Yesterday was Media Day at US Airways. And a fine time was had by all.

Really.

Considering that the airline did not have any major news to release, the day was nonetheless helpful. Or as one newbie to the event told me late yesterday afternoon, "I'm glad I came. It helped me to understand where the airline sees itself and the niche it occupies much better."

The format of the day was much the same as it always is. The day opens with remarks by CEO Doug Parker, which are then followed by presentations by Scott Kirby, President, Robert Isom, COO, Derek Kerr, CFO and C.A. Howlett, the airline's government affairs VP. During lunch, all the top execs of the company then make themselves available for questions and answers from the floor.

After this -- the airline had a panel of those staffers who were most directly associated with the airline's response to the Flight 1549 crash landing into the Hudson River on January 15th. It was the perfect way to end the day as everyone involved, including Parker, gave their accounts of where they were and what they did after the news hit that the aircraft was in the water. Most interesting were the stories that we had not heard before -- such as the fact that Captain Sullenberger was initially told by the company's representative at the ops center when he called in that he would have to call back -- the operations center was really busy because there was a plane down. Sully managed to convince them that he was well aware of that fact.

I'll talk more about Doug Parker's opening comments in this week's PBB, but the Cliff's Notes version would be that airline managements need to stop comparing the financial performance of their respective airline to industry peers and start managing airlines like any other profitable business.

Of course, the fact that Congress tends to look at the airline industry as a type of "public good" and not an industry that is run for the benefit of shareholders is a big problem. He talked a great deal about this, and I agree, if the airlines are going to be deregulated, then they need to be truly deregulated. They still aren't, in a lot of ways.

As for the airline itself, it estimates that it will make between $400 and $500 million this year in ancillary revenues, and no, it has not been able to detect any type of "booking away" as a result of their additional baggage fees. The airline also said that this year, any new ancillary revenue changes will probably only be made in the area of seat selection -- as the airline continues to work on new technology that will allow passengers even more choice, in terms of price and seat selection.

The big story of the day was the airline's quite remarkable turnaround in operations in 2008. We're talking time of departure, time of arrival, lost bags, all those things. We told you guys last year that we liked this guy Robert Isom. And this year the numbers proved that the new COO of the company knows his stuff.

For 2009, the plan is to keep improving these operational aspects of the airline -- with more focus being put on those aspects of the customer experience that are direct -- web site ease of use, ease of rebooking, those types of things.

The most interesting thing I took from Isom's talk this year? I remember at one point in 2008, there was some grousing from other carriers that the only reason US Airways was doing so much better in the DOT statistics was because the airline had padded their block hours. Even US Airways' pilots jumped on the bandwagon, accusing the airline of being "inefficient."

Yesterday, as Robert showed us graphically, while yes, the airline did initially pad the block hours a bit earlier in the year -- the airline actually not only went back to the "pre-padded" schedule in the last part of 2008, but it even cut block hours to a level lower than when the airline started 2008. And the airline still managed to post very respectable operational numbers.

Oh, and finally -- the really important news.

Monday night the airline held a dinner for those of us in town for the event at Cadillac Ranch in Tempe. Cadillac Ranch has a mechanical bull. As I forecast in this week's PBB, yes, Elise Eberwein, SVP of Communications and People at the airline rode the bull. Yes, Scott Kirby, President, rode the bull.

But surprisingly, neither won the contest.

Al Hemenway -- the airline's VP of Labor Relations took the prize. In belted khaki chinos no less.

I was impressed.

Even after repeated second and third attempts by Elise and Scott, and other attempts by media folks and US employees, Al hung on to win the prize.

Only appropriate that he persevered, considering he deals with labor relations, right?

I'll post some pictures later. Need to get out of here. Have to go check in over at the Biltmore for the Symposium. Talk to you later.

Posted by Holly at 12:20 PM | Permalink | Comments (0)

As UBS analyst Kevin Crissey said in a research note this evening, "The headline figure is bad."

Ah, yeah. I think you could say that.

Tonight Continental Airlines issued an update to its guidance. The company now expects March passenger unit revenue (RASM) to be down more than 18% year over year. This -- despite the airline's capacity cuts. And everybody's else's capacity cuts as well.

Continental also said that it is not yet seeing any kind of "stabilization in demand" that some other carriers have indicated of late they are experiencing.

On the plus side, the airline did say that they should beat their own cost guidance for the first quarter.

Woo hoo.

Posted by Holly at 8:58 PM | Permalink | Comments (0)

That huge sucking sound you hear coming from the airline industry today is the sound of airline stock prices falling off the ledge.

We only thought airline stocks had been hammered prior to this week.

When last we looked here are just a handful of the declines we were looking at: US Airways, down 16%, trading at 1.99; Alaska Air Group down 17%, trading at 15.04; Continental down 13%, trading at 7.31; Delta down 10%, trading at 4.01; Hawaiian down 13%, trading at 2.25; JetBlue down 11%, trading at 2.86; Southwest down 4.41, trading at 4.99; and United Airlines, down 11%, trading at 3.75.

Yeoww.

This week the winged ones began to report their traffic numbers for the month of February, and folks, even taking into consideration that there was one more day in the month of February last year -- it was a leap year -- the numbers coming out this week have scared the bejesus out of airline stock traders and investors.

How bad have the traffic numbers been? Here is the latest rundown.

(RPMs are revenue passenger miles, ASMs are available seat miles. RPMs represent traffic, while ASMs represent an airline's capacity.)

American Airlines RPMs down 13.5% ASMs down 10.1% Load factor down 2.9 points to 73.9%

American Eagle RPMs down 14.1% ASMs down 9.1% Load factor down 3.8% to 65.2%.

US Airways   RPMs down 9.3% ASMs down 9.3% Load factor steady at 77.2%

Delta Air Lines RPMs down 11% ASMs down 7.8% Load factor down 2.7 points to 74.3%

United Airlines RPMs down 15.2% ASMs down 14% Load factor down 1 point to 73.2%

Southwest Airlines RPMs down 6% ASMs down 6.5% Load factor was up 0.5% to 69.1%

Continental Airlines   RPMs down 13.2% ASMs down 8.9% Load factor fell 3.5 points to 72.9%

AirTran RPMs down 13.6% ASMs down 9.1% Load Factor down 3.9 points to 74.2%

JetBlue   RPMs down 8.3% ASMs down 5.5% Load Factor down 2.3 points to 74.5%

Then of course there is PlaneBusiness favorite Allegiant Air. The airline continues to buck the trend, as it reported that its RPMs increased 9.8% in February, while the airline increased capacity by only 5.2%. This resulted in a nice 3.8 point increase in load factor to 90.2%.

Other than renegade Allegiant -- the two airlines that clearly did the best job in February at managing capacity reductions with declines in traffic were Southwest and US Airways.

But as we see today, that has clearly not helped the stock price of either airline.

Posted by Holly at 2:43 PM | Permalink | Comments (0)

Yikes. It wasn't the bad weather up and down the East Coast today that made investors shiver.

The folks on Wall Street did a find job of doing that on their own.

And not just for airline stocks.

When all the shouting was over, the Dow Jones Industrials ended the day down 299.64 points, or 4.2%. This brought the Dow down to 6763.29. This was the first time the Dow has closed below 7000 since May 1, 1997.

Meanwhile, the S&P 500 fell 4.7% or 34.27 points, while the Nasdaq lost 4% or 54.99 points, closing at 1322.85.

The big news pushing stocks lower today concerned insurance giant AIG. The federal government announced that it was increasing its stake in the company by some $30 billion. The total for both U.S. Treasury and Federal Reserve investments in the cratering financial giant is now about $163 billion.

The market was in no mood to hear this today, and stocks took the brunt of investors angst as a result.

In the airline sector, the carnage was deep, and it ran pretty much across the board.

Of all the stocks we track at PlaneBusiness, none, not one, was up for the day.

The biggest losers for the day included: AirTran, which lost 15%, closing at 2.54; Hawaiian Airlines, which also dropped back 15% to close at 2.68; US Airways which lost 13%, closing at 2.47; JetBlue, which was down 14% to close at 3.29; Pinnacle, which lost a whopping 20%, closing at 1.12; ExpressJet, which was down 10%, closing at 1.22; and United Airlines, which lost 13% to close at 4.26.

Whew.

That's all I can say.

Oh, and Southwest shares, which are plumbing unbefore seen depths of late, closed at 5.52, down 6% for the day.

Posted by Holly at 6:45 PM | Permalink | Comments (0)

Poking our head around the damage from today's Wall Street activities, it was not a good day for the airline stocks, as almost every one of them ended lower for the day.

While the Dow Jones Industrials were down as much as 200 points earlier in the day, the Dow ended the day down 80.05 points, or 1.09% for the day.

However, the Dow Transports and the AMEX Airline Index both had a more miserable run of it. The AMEX Airline Index ended the day down a little more than 4%, closing at 16.43, while the Dow Jones Transportation Index ended down 4%, closing at 2602.06.

The top losers for the day included: AirTran, which lost 9%, closing at 3.27; Alaska, which lost 7%, closing at 22.27; JetBlue which lost 7%, closing at 4.26; US Airways, which lost 10%, closing at 3.30; Southwest Airlines, which dropped another 7%, closing at 6.07; and Continental, which ended the day down 6%, closing at 11.15.

Ugly day.

Posted by Holly at 3:59 PM | Permalink | Comments (0)

I wrote this week in PBB that the last week or so has been one where we've been focused on the regional sector. First, we saw again how poorly most of the regionals performed in the recent DOT Airline Consumer Travel Report. Particularly Comair, Atlantic Southeast and American Eagle.

Then we had the less than positive numbers reported by the regional airline that used to outperform all the other regionals -- hands down. While SkyWest reported a profit for the fourth quarter last week -- the future looks murky for the regional powerhouse in terms of growth, as Delta AIr Lines continues to pull back on its contract flying. Even, as we learned in the airline's call, below contract minimums.

Top this off with Mesa's share free fall last week, in which shares of the airline dropped to 4 cents a share -- and Pinnacle suffered a crash involving its Colgan operation, and well, it was a week when the regionals were continually in the forefront, but not for very positive reasons.

Today the regional airline that has been consistently posting the strongest results in the sector for the last year or so, Republic Holdings, reported its earnings for the fourth quarter.

So how did the airline do?

The good news is the airline posted a profit. It also posted a 9.1% operating margin. Excellent. (Although that margin was 1.3 points lower than the fourth quarter of 2007).

The bad news is that this profit was much less than the one the airline reported for the same period in 2007, and that growth prospects are, well, you know.

Republic reported today that net income slipped 21.7% for the fourth quarter, to $18.9 million or $0.56 a share.

This compares to the fourth quarter of 2007, when the airline posted a profit of $24.27 million, or $0.65 per share.

However, on the positive side, the results were better than what analysts had forecast. Consensus had the airline coming in at around a $0.47 a share profit.

The company took delivery of eight new E175s during the fourth quarter, while it removed seven CRJ200s and the last two E135s from service. As of Dec. 31 Republic operated 221 aircraft, only two more than at the end of 2007.

Overall, in listening to the call, we were once more reminded of just how difficult it is to run a regional airline these days. There really is no script beyond 30 days, it seems, and your major partners are concerned with one thing -- trying to squeeze as much profit out of their operations as possible. If that means putting more pressure on their regional partners, then so be it. The same was true with Republic in the fourth quarter. And as utilization levels drop, costs are going to go up.In the case of Republic it also got hit with Frontier's bankruptcy this year. All of a sudden there were a lot of planes coming back to them -- what were they going to do with them? How much were the carrying costs going to be on these aircraft?

But having said all that -- the airline really did do an excellent job of navigating a rough quarter.

The problem now is -- what about 2009?

For those of you with really inquiring minds, you can read the public posting of the airline's earnings call transcript here.

Posted by Holly at 11:51 PM | Permalink | Comments (0)

The headline on Gary Chase's research wrap-up piece today was entitled, "Thoughts After A Tiring Airline Earnings Season."

That is exactly how I feel today, after the onslaught of reports this week. Particularly yesterday's almost non-stop roll out of reports.

Chase, airline analyst with Barclays, commented today, "Mercifully, airline earnings season is over."

Not quite. We still have a number of regional airlines to hear from. Then there are all the international carriers who report on a very different schedule. But as far as the big guns in the U.S. are concerned, yes, the noisy din that was created from a slew of very "noisy" earnings reports this quarter has now, finally, ended.

I'm still not sure which airlines we are going to take a closer look at in this week's issue of PBB, because we had too many report in during the week. The issue would simply be too unwieldy in terms of size if we were to go into our usual detail on all eight. But after finishing up the last earnings transcript reading this morning, I'll pick four for this week, and the rest will get their look-see next week.

But let's get away from the specifics for a minute and look, as Gary did today, at the overall sense we got from listening to the calls over the last two weeks.

I'd sum it up by saying this: there is a lot of fear out there concerning demand. The immediate revenue landscape looks frightening and it's not clear where the revenue versus demand level is going to settle. And god forbid if the price of oil starts to move up again.

As Gary said in his note this morning,

"We have entered the stage of the airline story where the thesis gets tested. We all know it takes a lot of revenue erosion to offset the benefits the industry will reap from extraordinary capacity reductions and breathtaking declines in fuel (now materially more than 9/11). However, now comes the hard part. The part where we actually have to observe the revenue declines rather than analyze sensitivities in our models. With revenue fading quickly, as it always does, faith is suddenly hard to come by.

The near-term isn’t going to be easy, in our view. The next potential catalysts will likely come on the revenue front and as CAL previewed yesterday, the RASM comps are going to be negative. In fact, our largely unchanged forecasts contemplate negative RASM comps in every single month of the year, with the exception of November. We currently believe 1Q will see the toughest comparisons."

Translation? If you thought the fourth quarter numbers looked bad -- just wait until mid-April when the first quarter numbers roll out.

However, as far as we can tell -- most analysts continue to hold onto the belief that the benefits that come from the drop in the price of oil will more than compensate for whatever drop in demand the airlines continue to feel.

One PlaneBusiness Banter subscriber wrote me this week, "I think these guys on Wall Street are not connected to the real world. In your last issue in December you asked your readers to tell you how they felt about 2009. And you said yourself that you were surprised at the overall level of negativity readers expressed. I wasn't. And I think your readers were, and are, closer to the mark than these guys who make their living transposing spreadsheets and getting lost in the numbers are."

Thoughts? I think it's time we open this up to PlaneBuzz readers for their take. Is 2009 still going to be the blockbuster earnings year for the airline industry that every Wall Street analyst on the planet said was going to be the case?

As always, you can comment here on Buzz -- or you can send your notes to me directly.

Posted by Holly at 11:34 AM | Permalink | Comments (0)

Delta Air Lines was not the only airline that reported earnings yesterday.

One of our PlaneBusiness Banter stock faves, Allegiant, took its turn at the 2008 Fourth Quarter Confessional. The big difference with Allegiant? There were no "Hail Marys" proscribed as penance for their less-than-satisfactory performance.

Quite the opposite.

The airline with the screwy business plan once again posted what I thought were very strong earnings. Allegiant Travel Co., the parent of Allegiant Air, reported that earnings nearly quadrupled for the quarter, on 21% higher revenue.

The company posted earnings of $18.2 million, or $0.88 a share. This was up from $4.8 million or $0.23 a share the year before.

Operating revenues were up 21.3% while operating expenses were down 1.2%. The airline saw operating income soar 373.6%.

And remember what the price of oil was doing during the fourth quarter. Then remember that yes, these are the guys who fly those gas-guzzling Maddogs. (MD-80s).

Load factor? Up a sizzling 8.8 points over the fourth quarter of 2007 -- to 86.5%.

And the astonishing results just continue to go on and on and on.

I'll take a full look at the airline's results and talk about their earnings call in this week's PBB.

In the meantime, kudos to the management at Allegiant. I've said this before, and I'll say it again -- this is one of the few management teams in this industry that knows who they are, what their business model is, and how their airline makes money. Or doesn't.

Posted by Holly at 1:56 PM | Permalink | Comments (0)

While analysts continue to wax poetic about revenue forecasts for the industry in 2009, the market took a baseball bat to many of the major airline stocks today -- after Delta Air Lines rolled out its disappointing numbers for the fourth quarter.

This morning Delta reported it lost $1.4 billion in the fourth quarter or $2.11 a share. This compared to a loss of $70 million or $0.18 a share for the previous year. This number included $904 million in charges related to employee equity awards that were a part of the Delta/Northwest deal.

Excluding special items, Delta lost $340 million or $0.50 a share. This was much worse that the $0.34 figure that had been forecast in the analyst consensus. However, Delta said that the analyst consensus figure did not take into consideration a 12 cent per share loss related to the "non-cash impact of purchase accounting."

Okay.

But as bad as these numbers were, this was not the news that has pushed shares of Delta, and other airline stocks to the floor today.

The news that is doing that is the "forward guidance" comments the airline made today.

You know .. little things like...."unit revenue projection is much worse than what had been previously suggested." When it was "previously suggested" ...in December.

Traders don't like to hear things like that. If those forecasts are that far off after only one month, that is not a good omen.

As a result, shares of Delta are taking a sharp dive today, down 20% as I write this, trading at around 7.95.

And because what affects one major airline is assumed to affect all of them to one degree or another, shares of US Airways are also getting punished, as they are down 17%, trading at 6.36. Shares of AMR are not exempt, as they are now trading down 13%, hovering around the 6.27 mark.

Shares of Continental are not being left out of the carnage today either. Shares here are now trading down about 16%, at 14.17, while shares of United are trading down 11%, around 10.85.

Posted by Holly at 1:18 PM | Permalink | Comments (0)

I'm working on this week's PBB. This week's Market Review section to be more specific.

Just thought that it was worth noting that while shares of Southwest Airlines bounced around all over the place this week -- when all the shouting was over, shares of the Dallas-based airline ended down 7% for the week, closing today at 8 bucks even.

They were not even a member of the select PlaneBusiness Basement Double-Digit Loser Group for the week.

No, the airline stock that took the award for posting the biggest loss for the week was AMR, parent of American Airlines, which saw shares drop a hefty 33% for the week, ending the week at 7.62.

This was far and away the worst performance notched by an airline this week, although Continental Airlines was down 17% for the week, closing at 17.22, as it took second place honors at the bar in the basement.

Other major airlines to post a double-digit decline for the week were Alaska Air Group, which was down 11%, closing at 26.56, and Delta Air Lines, which lost 10% to close at 10.26.

The vast majority of stocks we track at PlaneBusiness finished down for the week. The reason? The price of oil once again raised its ugly head as the week came to an end.

Oil futures closed Friday at 44.65/barrel -- up 22% for the week.

Ouch.

I told you guys OPEC was going to get serious about cutting production this time. And....they seem to be doing just that.

Posted by Holly at 6:14 PM | Permalink | Comments (0)

I've had a couple of emails this morning from readers wondering why Southwest Airlines' shares, which rose yesterday on the news that the airline was essentially shutting down the growth faucets, are now moving in the opposite direction today.

As of this posting, shares of Southwest have lost 17% for the day, now trading around 8.10 a share, down from their close yesterday of 9.81.

So what gives?

Simple. The market reacted positively yesterday to the headline news: growth being curbed.

Today, investors have had more time to think about the rest of the news the airline gave us yesterday. And, investors have also had the benefit of a number of airline analyst research notes on the results.

From Gary Chase, analyst with Barclays:

...LUV results were better than we expected, largely on better passenger revenue performance. Non-fuel costs came in a touch better, but remain under pressure. We expect LUV will benefit from industry capacity reductions and lower fuel prices, but don’t see nearly as compelling an opportunity in LUV shares as we see in other names.......2009 estimate is reduced from $0.65 to $0.45, principally on lower passenger revenue assumptions.We’ve been modeling RASM out-performance for LUV relative to other LFCs and the industry at-large given its revenue initiatives, but think it will be increasingly difficult for the company to outperform the industry to that extent given economic slowing."

..."Our view on the stock

We view LUV’s valuation as getting stretched. It is trading at we view as an ‘okay’ 6x 2009 EV/EBITDAR but a robust 16x our 2009 EPS estimate. With growth non-existent, unit costs rising, economic fuel prices above peers and the balance sheet okay but less impressive, we question whether there is upside potential to valuation from here. We are cautious on LUV and rate it Neutral..."

From Ray Neidl, Calyon Securities:

"We believe investors should take profit," Neidl said in a research note this morning as the firm dropped its target price on the shares from $8 to $7. The firm also cuts its rating on the stock from underperform to "sell."

When was the last time we saw a "sell" rating on shares of Southwest?

Posted by Holly at 11:59 AM | Permalink | Comments (0)

Southwest Airlines was the third major airline to report earnings this quarter, as the airline rolled out their results this morning.

The verdict?

The airline posted its second quarterly loss in a row.

The reason? Just as we saw with American and United yesterday -- getting caught on the wrong side of the hedges. Fuel hedges that is.

Including special items, the airline posted a loss of $56 million or $0.08 per share. Last year the airline posted a profit of $111 million or $0.15 a share. Excluding special items, the airline posted a profit of $61 million or $0.08 a share. This compares to last year when the airline posted a profit of $87 million or $0.12 a share.

For the year, the airline posted net income of $178 million. This compares to 2007, when the airline posted net profit of $645 million or $0.84 a share. Excluding special items, full year 2008 net income was $294 million or $0.40 per diluted share, compared to $471 million, or $0.61 per share in 2007.

While these numbers would not look like numbers that would push shares higher -- shares in the airline are now up about 17% on the day. Why?

The quarterly numbers are not what is pushing the shares higher.

The fact that CEO Gary Kelly came out and said that growth at the airline has been "suspended indefinitely" is the reason the shares are up.

I know, it's convoluted.

But in the world of Wall Street -- the biggest fear was that Southwest would NOT make a serious attempt to cut back on growth. Since the airline now seems determined to do so -- that is seen as a positive. It is anticipated that fewer ASMs will result in higher loads and better revenues in 2009.

"I definitely want Southwest Airlinesto grow," CEO Gary Kelly said on the airline's conference call today. "I believe we will be able to grow, but that is certainly a secondary objective in this kind of an economic environment."

The airline has now reduced its 2010 Boeing delivery schedule of new aircraft down to 10. The airline previously had 16 aircraft on firm order and six options for the year.

Southwest ended December with 537 aircraft. It expects to end 2009 with 535 -- as lease expirations and retirements cancel out the 13 new Boeing 737-700s now expected to be delivered during the year.

Posted by Holly at 3:04 PM | Permalink | Comments (0)

The future does not bode well on the cost side.

We wrote earlier today that while we thought United Airline's numbers today were worse at first blush, that investors were punishing shares of AMR much more severely.

Here's why.

The airline gave what could at best be called less than encouraging cost guidance for 2009.

Analysts Jamie Baker and Mark Streeter with JP Morgan issued a note today concerning the results in which they said,

"Unlike UAUA, We’re Discouraged By AMR Cost Guidance – Pension expense appears to lie at the heart of what we consider to be discouraging 2009 ex-fuel cost guidance from AMR, a phenomenon that may have implications for CAL & DAL, though not LCC or JBLU. Specifically, AMR is guiding to a 2009, consolidated ex-fuel CASM increase of 7.6%, materially higher than our ambitious +4.1% forecast and representing over an untaxed dollar in negative earnings variance – holding other inputs constant. On the fuel side, Q109 $2.04/gallon all-in guidance is consistent with our $2.10, as is AMR’s full-year $2.06 all-in (identical to our forecast)."

And while United Airlines has garnered the most negative publicity over the last month or so concerning the high cost of its ill-placed fourth quarter fuel hedges, AMR got hit in the fourth quarter as well.

As Jamie explained,

"Similar to UAUA's release this morning (and to what we expect to hear from those who have yet to report), AMR's liquidity was clearly hurt by incremental cash collateral deposits posted with fuel hedging counterparties. AMR ended 4Q08 with an unrestricted cash balance of $3.1 billion, compared to $4.6 billion as of 3Q08. The implied $1.5 billion sequential net cash burn was driven by the company's cash collateral postings on under-water fuel hedges ($575 million in cash collateral with counterparties at the end of 4Q08), debt and capital lease principal payments, capital expenditures, and changes in working capital (exact figures for debt amortization, capex, and change in working capital were not disclosed in the press release). At the end of 3Q08, AMR held $240 million in cash deposits from fuel hedge counterparties, but with falling oil prices during 4Q08, the company saw a reversal of approximately $815 million, resulting in the $575 million figure mentioned above. The worse than expected pension cost guidance is worth monitoring. Nevertheless, we expect AMR's liquidity profile to improve significantly in 2009 as under-water hedges roll-off and the airline is able to benefit from much lower y/y oil prices."

Posted by Holly at 9:06 PM | Permalink | Comments (0)

It's that time once again dear friends. That time when we get the straight scoop on just how bad, or how good, the previous quarter was for our friends, The Things With Wings.

This morning both AMR, parent of American Airlines, and UAL Corp., parent of United Airlines, reported their fourth quarter 2008 earnings.

Top line assessment? Both airlines reported numbers that came in comfortably within previously anticipated analyst forecasts.

That does not mean, however, that the numbers were overly pleasant to digest.

Especially in the case of United, which reported a net loss of $1.3 billion or $9.91, compared with a loss of $53 million or $0.47 a share the previous year. Excluding non-cash, net mark-to- market hedge losses and certain accounting charges, the airline reported a pre-tax loss of $547 million for the quarter. This figure compares to an adjusted pre-tax loss of $105 million in the fourth quarter of 2007.

A huge contributing factor here was the fact the airline got caught on the wrong side of some very expensive hedge positions during the fourth quarter. The effect of this wrong-way bet was clearly seen in the sharp drop in the airline's cash balance for the quarter.

At the end of the quarter, United was sitting on only $2 billion in unrestricted cash, a restricted cash balance of $272 million, and $965 million in cash deposits held by its fuel hedge counterparties. The airline saw $989 million in cash go out the door during the fourth quarter in operating cash flow and it posted a negative $1.1 billion in free cash flow during the quarter.

Excluding one-time items, the airline said it lost $4.22 per share compared with Wall Street analyst consensus forecast of $4.42.

In the case of American, the airline reported a loss of $340 million or $0.77 a share, excluding special items. This performance was more or less in line with expectations as well.

A year ago the airline reported a loss of $184 million or $0.74 a share, without special items.

The full American Airlines' release has yet to hit the wires.

We'll also learn more about the results from both airlines later today, after their respective earnings calls.

In the meantime, go have some more coffee.

Posted by Holly at 9:14 AM | Permalink | Comments (0)

As of this posting, airline stocks are mixed in trading today as the market has turned downward as a result of more bad banking news.

Why anyone in the market would think that all the bad news about banks was already "out there" is beyond me.

Today Citibank and Bank of America are the two hot topics du jour.

But for the airlines -- there is a bit of very good news.

As more estimates of energy demand continue to trickle in -- and as the numbers continue to show a growing drop in that demand being forecast -- the price of crude oil continues to drop.

As of this posting the price of crude is trading at around 34.64/barrel. Can you believe it? Yep, it's true. Happy days are here again folks!

Well, maybe not. But in terms of airline economics -- this is very good news.

Biggest loser as for the airline sector as of this posting is Mesa Air Group. The stock is down about 11% for the day as we post this -- hovering around 18 cents and change.

Posted by Holly at 11:54 AM | Permalink | Comments (0)

If it's the first week of the month, that means it's time for airline traffic reports.

And it's time for all of us who look at them with a jaundiced eye to try and figure out what they mean. Actually all they mean is that for the month of December a particular airline did this.

In this environment, the question of whether they portend any kind of trend or not is a rather risky assumption.

The good news overall is that demand held up fairly well in December for the most part. However, one caveat. Remember that for the purposes of the reporting month, the backend of Thanksgiving travel fell into the "December" reporting month this year.

In addition to the usual traffic reports, Continental Airlines also issued its RASM estimates for the month. On that front, the news was not bad either.

Commenting on both topics, JP Morgan analyst Jamie Baker wrote this week,

"Demand weak but steady, for now. November was a noisy month, requiring yr/yr adjustments for the portion of Thanksgiving travel falling in December and a higher November weekend-to-weekday ratio (weekend revenue production is typically penalized by lower business travel). Additionally, disproportionate leisure demand in the final two weeks likely resulted in higher revenue retention as weather deteriorated across much of the country (vacationers are more apt to push on, whereas business travelers give up more easily – as did this analyst in the week before Christmas). So while December offers no assurances as to F2009’s demand outcome, the aforementioned adjustments do suggest that while weak, December does not appear to have gotten any weaker than November for Continental. Furthermore, given Continental’s recent relative RASM outperformance, our ATA December mainline RASM forecast of 2.5% does not appear to be in jeopardy."

In terms of Continental's RASM performance, Jamie added, "December better than feared. Continental December mainline and consolidated RASM rose 4.5% and 4%, respectively, a respectable outcome versus our more dire +1% consolidated forecast. Based on the midpoints of this guidance, consolidated revenue fell 4.5%, while yield rose 2.4%. Additionally, November’s initial 1.5% consolidated RASM midpoint was slightly lowered to +1.2%."

As for the basics, Continental reported that consolidated RPMs were down 6.7% while capacity was down 8.1%, resulting in a 79.9% load factor, up 1.2 points from December of 2007.

United Airlines

RPMs were down 11.5% in December, as the airline slashed capacity by some 12.7%. This resulted in a load factor of 79.9%, an increase of 1.1 points from December 2007.

Note for you trend watchers: The airline reported that traffic fell faster on its Pacific and Atlantic routes. (More ammunition for the idea that the glory days of continued international growth are coming to a screeching halt.)

Southwest Airlines

RPMs were up 1.1%, while capacity declined 1%. This resulted in 1.5% increase in load factor.

This was a nice rebound from Southwest's rather anemic November numbers.

Allegiant Airlines

RPMs were up 9.6% while capacity was down 2.6%. Ah....now here are some healthy numbers.

This resulted in the airline posing an 88.7% load factor, up from 78.9% last year. That's a 10.2 point increase - the largest posted so far by a U.S. carrier.

Delta AIr Lines

Delta reported that RPMs were up 0.7% for the month, while capacity was down 2.4%. This resulted in a load factor increase of 2.4 points over December 2007 numbers.

Again, however, as we saw with the United numbers, the international numbers were not too pretty. The airline reported that international RPMs were up 9.2%, but capacity was up 13.7%. This resulted in a decline in load factor of 3.2 points.

American Airlines

American reported that both domestic and international traffic declined in December, unlike United and Delta, which both posted increases in their domestic traffic.

This makes sense, in that American is taking a bigger hit because of its previous heavy investment banking/Wall Street trans-Atlantic business. A fact the airline supported by its comment that its sharpest decline in international traffic was on the trans-Atlantic segment, which was down 8%.

The airline reported that domestic RPMs were down 9.6% while capacity was down 11.8%. Meanwhile international traffic was down 5.7% on a capacity reduction of only 3.2%.

Overall, the airline ended the month with a 79.2% load factor, up 0.4 points from December 2007.

AirTran

AirTran saw RPMs up 2.3% in December, while capacity was down 6.9%. This resulted in a very nice increase in load factor for the month -- up 7.1 points to 79.8%.

Posted by Holly at 1:59 PM | Permalink | Comments (0)

I received a handful of notes today from readers asking me about the sharp drop off in the price of Allegiant Travel Company shares.

As you can see by the chart the stock took a beating today on the street.

So what gives?

Nothing to worry about as far as I can tell.

This stock is proving itself to be a classic airline "trading" stock, and as such whenever the folks who have ridden the stock get the feeling that the good times may be over for the time being -- it's time to sell.

And with all the press the stock received over the weekend in regard to its stellar 2008 performance, that is a classic signal for traders to sell. And sell they did.

It's not, as far as I can tell, a fundamental issue of any kind.

Nor have we heard rumors of CEO Maury Gallagher suffering from any kind of "hormonal imbalance."

Posted by Holly at 6:57 PM | Permalink | Comments (0)

When all was said and done, and the crystal ball descended in Times Square Wednesday night -- I know that you were, just as I was, chomping at the bit to know the answer to one burning question.

Which airline stock was the top performer in 2008?

Against all odds, including floods, snow, sleet, testy employees and the darkness of oil (prices), which airline stock still managed to shine brightly against the setting sun of demand?

I am very happy to report that the airline stock that posted the highest return to shareholders in 2008 was one of our favorite airline stocks here at PlaneBusiness.

That stock was -- Allegiant Travel Company. The company is the parent of Allegiant Airlines.

The airline, which managed to continue to post profits in 2008 -- even though it was flying fuel-guzzling MD-80s, saw its shares climb a whopping 51% for the year, ending 2008 at 48.57 a share.

Not surprisingly, this year was one of the worst on record in terms of yearly gains and losses for the things with wings, collectively speaking.

Of all the airline and airline-related stocks we track, only four managed to post a gain for the year.

Those four were:

Allegiant 51%

Hawaiian Airlines 25%

JetBlue 20.3%

Alaska Air Group 17%

*Alaska and JetBlue are also two PlaneBusiness favorite stocks.

To see how your favorite (or not-so-favorite) airline stock performed in 2008, click here.

Posted by Holly at 6:51 PM | Permalink | Comments (0)

Yours truly is in the midst of my usual two week holiday hiatus from publishing PlaneBusiness Banter this week -- and in fact I'm not at either the main Worldwide Headquarters in the swamp or at the branch office in Dallas.

Today I find myself in the lovely confines of Tucson, Arizona. The sun is out -- but it was a bit chilly here this morning. 33 degrees to be exact. Yes, we are on the back end of the same storm that dumped the almost four inches of snow on Las Vegas this week. The same storm that is now making life in much of the rest of the country more than miserable.

My condolences to those of you trying to fly out or into Chicago today -- but for those of you on the East Coast -- it's coming your way later today. Oh, boy. Just what our friends, the things with wings, need to contend with on the weekend before Christmas.

But enough of my frigid travel travails. Let's talk about some news of note involving the things with wings. Southwest Airlines to be precise.

Chief Executive Magazine Cites Southwest's CEO for "Wealth Destruction"

Chief Executive magazine used its end-of-year issue to note those CEOs who they think are both doing the best and worst jobs at creating value at their respective companies.

In its first annual Chief Executive/Applied Finance Group Wealth Creation Rankings -- the magazine partnered with Applied Finance Group -- creators of the Economic Margin (EM) value metric and Drew Morris, CEO of Great Numbers!

As the magazine noted in its introduction to its rankings,

"As we have seen with the recent meltdown in financial markets, value isn’t always what it appears to be. And traditional accounting measures do not count what really counts. Earnings per share (EPS) and price/earnings (P/E) ratios are based on accounting profit, which is prone to distortion and has no real relationship to wealth creation. Trying to grow earnings or EPS in the belief that the stock market will reward you with a higher share price no longer works, as investors really seek to understand the company’s underlying economic performance.

To state the obvious, navigating with instruments that mislead is dangerous. CEOs need to look at their businesses with the same wealth-creation measures that, for example, private equity and institutional investors use. Investors want to know how good a company and its leaders are at preserving and growing their capital.

Many companies have moved from accounting to economic approaches to measuring this. A few, such as EVA, are good because they reckon with the true cost of capital, but none are perfect. Our rankings rely on Economic Margin, a measure with which executives can readily manage wealth creation, and which is applicable at all levels of a company. EM is calculated as the difference between operating cash flow and an appropriate capital charge, all divided by invested capital. EM is suitable for both private and public companies and useful for making comparisons with competitors, as it’s an economic-profitability percentage, not a monetary amount.

The ranking method we used also considers management’s demonstrated ability to protect shareholder wealth and create truly valuable assets. Our intent is to advance the art, science and practice of creating wealth for a company’s owners and the associated results creation skills of its executive team."

So who were the top ten best "wealth creators" according to this methodology?

And which CEOs were the best "wealth destroyers?"

Clearly, for our purposes here in PlaneBuzz, the only CEO of interest to us in all of this was Southwest's Gary Kelly. Particularly because when Kelly was named as CEO of the airline, the bulk of the scuttlebutt around the announcement dealt with the fact that because he had been such an excellent CFO of the airline -- that he would help shore up the airline's financial side -- and most importantly to stockholders -- its stock price.

According to Chief Executive's metric, however, Gary hasn't fared too well over the last three years. Here is what the magazine said about Southwest.

"Gary Kelly, Southwest Airlines
Score: 6

Southwest’s low score may come as a surprise considering it’s arguably among the best-managed airlines. But it’s an airline; the only one in the S&P 500. That means planes, airport fees and lots of competition. The market is far from wild about the value of its assets. In the EM sector rankings, Southwest was grouped with other transportation companies, all of which performed better. Southwest’s EM ranged between -.5 percent (-.005) and -0.9 percent (almost -1 percent) over the 2005-07 period. While its SEC filings show a profit during this time, when Southwest’s off-balance sheet leases and other adjustments are accounted for, the picture reverses. For example, applying those adjustments to Southwest’s 2007 results increases its invested capital by $5.9 billion, or 35 percent. The $1.7 billion capital charge on this amount exceeded its $1.5 billion operating cash flow, resulting in a negative Economic Margin."

The article is a very interesting read. Well worth it. And not just for its rather low opinion of Mr. Kelly's ability to create and/or protect shareholder wealth at Southwest Airlines. You can access the entire article here.

Posted by Holly at 12:38 PM | Permalink | Comments (0)

While many readers probably wish they had simply put their money under their mattress starting about 7 years ago, and left it there -- considering what has happened in the markets the last year -- there are those of you out there who are the more adventuresome types.

And some of you may have money invested not just in stocks or bonds or mutual funds, but in ETFs. ETF stands for exchange-traded fund. All-knowing Wikipedia defines them thusly:

An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value."

I like to say that it's similar to a mutual fund that can be traded -- just like a stock.

Why am I getting into this Investing 101 discussion today? Because the first airline-only ETF was announced this week.

No nasty comments please. (Like, why in the would would anyone be interested?) Personally, I think the timing is excellent.

Claymore Securitiesis set to launch the first exchange-traded fund focusing on the passenger airline industry -- the Claymore/NYSE Arca Airline ETF next month.

The ETF will hold 24 global airline stocks, 70% domestic and 30% international. The top three stocks in each category will be weighted 15% in the case of domestic, and 4.5% in the case of international airlines. That puts the remaining index weights for the 18 other stocks in the ETF at 25% for domestic and 16.5% for international. All holdings must derive at least 50% of their business from passenger airline activity.

For those of you with really inquiring minds, you can read the SEC registration docs here.

Posted by Holly at 3:36 PM | Permalink | Comments (0)

I'm sorry dear readers.

I should have posted this news yesterday. Wednesday, actually.

But I did not want to have to be forced to type the word "MESA" on my birthday. Or even 24 hours ahead of my birthday.

I'm sure you can understand.

But now it is Friday, so here it is.

As we wrote here the other day, Mesa announced last week that it had cut a deal with the major shareholder of Aloha Airlines that would see that shareholder, Yucaipa Cos. receive a rather sweet deal in return for the rights to the Aloha Airlines trademarks, names, logos, internet presence, corporate identity items, etc. Actually the extent of the deal was not made clear until Mesa posted an SEC filing on Monday, but, well, you can read our post on all of it here.

The only catch was that Yucaipa would need to be the highest bidder at the scheduled auction for the rights to these items, which was scheduled for Tuesday.

Tuesday, the auction took place, and Yucaipa did indeed beat out all comers, including Hawaiian Airlines, bidding $750,000 for the rights to the name. Hawaiian's all-cash bid was $575,000, which was the required overbid after Yucaipa had initiated the auction process as the so-called "stalking horse" with a bid of $525,000.

But then a funny thing happened on the way to Mesa getting the right to use the Aloha name. And the livery. And everything else.

The deal was temporarily blocked by the federal Bankruptcy Court judge who is presiding over the case.

Judge Lloyd King postponed the scheduled hearing on the licensing pact between Mesa and Yucaipa Cos. until Feb. 19 to give supporters and opponents of the deal more time to respond.

"How about all the people whose lives were devastated in this case?" asked King, noting that Mesa and go! are largely blamed for Aloha's demise. "Doesn't that count? Is it just the money?"

"I don't think anyone is sensitive who's involved in this settlement," King said. "If this isn't approved, are people from Yucaipa going to lose their health benefits and their jobs? There hasn't been enough time for people to react."

He said that the extra time would give both supporters and opponents more time to respond.

You know, that's the thing about those federal bankruptcy judges. You just never know what they are going to do. And sometimes -- this turns out to be a good thing.

I guess there's a Santa Claus after all.

Posted by Holly at 5:36 PM | Permalink | Comments (0)

Since we started on this traffic, capacity and load factor watch this week, we might as well continue it.

Today American Airlines and US Airways reported their November numbers.

At American, RPMs fell 14.5% compared to a year earlier, but this was more than the airline's reduction in capacity of 9.3%. This resulted in a drop in load factor of 4.6 points to 76.6%.

For American Eagle, things were even worse. RPMs here were down 21.5%, while capacity was down 15.9%. This resulted in a load factor drop of 4.6 points to 67.3%.

For US Airways, consolidated RPMs dropped 6.9% for November. But this pretty much matched the airline's reduction in ASMs as the airline posted a drop in load factor of only 0.8 points. Basically flat.

For mainline only, the airline actually did quite well, as it saw RPMs down 3.6%. With capacity down 5.2%, this resulted in an increase in load factor -- up 1.4 points to 81.9%.

Posted by Holly at 3:13 PM | Permalink | Comments (0)

Last week Mesa Air Group issued a press release in which it talked about a deal the airline had cut with bankrupt Aloha Airlines' major shareholder, the Yucaipa Cos. According to the release, in return for Yucaipa dropping all claims associated with the Aloha Airlines antitrust suit that it filed against Mesa, and in anticipation of Yucaipa being the highest bidder for the various Aloha trademarks, logo, and other naming rights at today's Aloha bankruptcy auction -- Mesa said in its release that it had agreed to:

Pay Yucaipa $2 million;

Issue 2.7 million common shares of Mesa Air Group stock;

Provide inter-island travel benefits to former Aloha employees.

Note that in the release Mesa did not say it was going to issue the shares and give them to Yucaipa, a fact that a handful of you pointed out to me this last weekend. It really was stated in a very ambiguous way. But apparently this is indeed the case.

Be that as it may, as I said in this week's PlaneBusiness Banter, the fact that Mesa Air Group would think that it could simply purchase the name "Aloha Airlines" and start using it -- and that this was perceived by Mesa management as a positive marketing tactic -- given the fact that many in Hawaii still blame Mesa (rightly or wrongly) for Aloha's demise -- was nothing short of mind-boggling.

However, an alert on the company's 8-K SEC filing came sailing through in our email box late last night and it seems that there were more than a couple of details of this deal that Mesa did not talk about in its press release.

Here's the verbiage straight from the filing:

In addition, under the Settlement Agreement, Mesa and Yucaipa agreed to establish a licensing and profit sharing arrangement whereby, in the event that Yucaipa is able to acquire from Aloha in an upcoming bankruptcy court auction the rights to the names "Aloha" and "Aloha Airlines," Yucaipa will enter into a license agreement with Mesa to license such names to Mesa for ten years (the "Term") in exchange for royalty payments by Mesa and Mesa will pay to Yucaipa a set percentage of the pre-tax operating profits from Mesa's operations in the Hawaiian inter-island market. Specifically, for each year during the Term, Mesa will pay Yucaipa 1% of the passenger ticket revenue generated from all Hawaiian inter-island flight operations, subject to a minimum annual revenue payment of $600,000 (the "Revenue Payments"), and will also pay Yucaipa 30% of the pre-tax operating profits from Mesa's operations in the Hawaiian inter-island market less the Revenue Payments.

If Mesa ceases inter-island flight operations in Hawaii, Mesa has the right to terminate the licensing and profit sharing arrangement. Mesa will provide Yucaipa with a $5 million promissory note payable over five years, at LIBOR +350 basis points interest, reset quarterly, that will become payable if Mesa ceases operations in the Hawaiian inter-island market or breaches the Settlement Agreement. If, at the end of the first five years of the Term, the note has not become payable as a result of Mesa's cessation of operations or breach, the principal owing on the note will decrease automatically on a straight-line basis over the remaining five years of the Term. If Mesa ceases operations in Hawaii or breaches the Settlement Agreement during the final five years of the Term, the amount payable on the note would be the principal remaining at the time of such cessation or breach. The note will be secured by a first priority lien on certain Mesa assets with a fair market value equal to 125% of the principal amount of the note.

Yes, indeedy. It does appear that there are a lot more ifs, ands, or buts to this deal than had been publicly disclosed in the Mesa press release.

Essentially, in return for the use of the "Aloha Airlines" name, Mesa has agreed to pay Yucaipa 1% of the passenger ticket revenue generated from all Hawaiian inter-island revenue AND it will also pay Yucaipa 30% of the pre-tax operating profits from the operations. If Mesa stops flying in Hawaii, then Yucaipa gets a $5 million promissory note payable in five years at a rather hefty interest rate.

Amazing. Just simply amazing.

Wonder what Yucaipa gets if Mesa declares bankruptcy?

Posted by Holly at 2:47 PM | Permalink | Comments (0)

It seems that we have news of a merger a minute these days -- but nothing U.S. based. Yet.

This morning, hot on the heels of the news that Ryanair was once again mounting a hostile attempt to take over the 70% of Aer Lingus it does not currently control (a move which, not surprisingly the Aer Lingus management team quickly denounced) today we have news of an attempt at a true blockbuster link-up.

British Airways and Qantas are apparently in discussions to do the dastardly deed.

According to Bloomberg,

"The airlines are discussing a combination after the Australian government said today in a policy paper that it might ax a rule barring individual foreign holdings of more than 25 percent and total foreign airline holdings of more than 35 percent. Still, there are no plans to abandon the so-called "Qantas Sale Act” that says the carrier must remain 51 percent locally owned.

'Any transaction would also comply fully with Qantas’s Sale Act and Australia’s international Air Services Agreements,' Qantas said separately.

Negotiations on a merger are "advanced," the Australian Financial Review said earlier. British Airways, Europe’s third-biggest carrier after Air France-KLM group and Deutsche Lufthansa, said it issued today’s statement in response to "media speculation."

A merger of the two airlines would create an entity with annual sales of about $23 billion.

What a coincidence.AMR, parent of American Airlines also generates about $23 million in annual revenue.

And yes, you'd have to a blind person not to see why it is that the American Airlines-British Airways anti-trust piece of the pie is so important to this oneworld concept of world domination.

According to various reports out this morning, both airlines would retain their own brands. Sounds like another Air France/KLM type of set-up that is being proposed.

Posted by Holly at 11:49 AM | Permalink | Comments (0)

I love the airline stock sector. Just when you think it's safe to stay in the water....

<Insert the theme from "Jaws" here>

Last week the sector enjoyed one of the best week's it has had in, well, weeks, with the majority of the stocks we track here at PlaneBusiness posting nice double-digit gains.

Today? Not so much.

And tomorrow? Probably worse. Much worse.

After the close of trading late this afternoon Continental Airlines announced its traffic numbers for November, along with its RASM estimates.

The numbers were not good. Ugly might be a better way to describe them.

You can read the release here, but here's the Cliff's Notes version.

Consolidated load factor was down 2.8 points to 77.3%, while mainline posted a load factor down 2.6 points to 77.8%.

On a consolidated basis, traffic was down 10.5% while capacity declined only 7.3%.

But here's the nasty news. Consolidated passenger revenue per available seat mile is estimated to have increased only between 1% and 2% compared to November 2007. while mainline passenger RASM was up between 2% and 3%.

To put these numbers in perspective, last month the airline posted a consolidated RASM figure that was up 9.5% over October 2007, while mainline passenger RASM was up 10.4% year-over-year.

In addition, these estimates are also below recent analysts' estimates, and the airline's own recently revised guidance, which had the airline posting RASM increases of between 4% and 6%.

For those of you who don't follow the sector that closely, the RASM numbers that Continental reports are looked upon as an indicator for the rest of the industry. Sometimes the airline can be a bit above or below the rest of the pack for various reasons, but most of us airline financial types still use their "first out of the box" look at RASM as a kind of indicator as to what's on the horizon.

If this is what Continental did for the month, I'm not sure I want to see any more numbers.

Posted by Holly at 7:28 PM | Permalink | Comments (0)

It's Friday and Wall Street is up to its volatile tricks again today. Should be interesting to see where the numbers end at the close of the day.

Meanwhile, Continental Airlines and Southwest Airlines reported their third quarter earnings Thursday.

The Cliff Notes version of the results?

The numbers for both airlines -- on their face -- were very weird. Just as we saw yesterday with American and Delta. Weird in that with capacity being pulled out and oil prices through the roof for much of the third quarter, we again saw cost per ASM figures solidly in the double-digit category for both airlines.

But revenues were also up -- especially at Southwest.

Continental reported a loss of $236 million or $2.14 a share. Excluding $91 million of previously announced special items, Continental recorded a net loss of $145 million or $1.32 a share.

Southwest's numbers are a bit more complicated to break down -- as a result of the airline's fuel hedges.

Southwest reported net income excluding special items and SFAS 133 unrealized gains and losses of $69 million. Or $0.09 a share. This was two cents better than analyst consensus.

However, because of the drop in the value of crude oil, the airline had to write down the value of its fuel hedging transactions. (That is the bulk of that "SFAS 133 unrealized gains and losses" accounting mumbo jumbo up there.)

When you factor in those write-downs, the airline lost $120 million for the quarter, or $0.16.

That's right. All those great fuel hedges the airline has stocked up on aren't so great when the price of oil begins to plummet.

As for honest-to-gosh cash in the bank? The airline ended the quarter with $1.5 billion. With an incremental $200 million of a revolving credit line still available.

Four fully detailed reports on the earnings results from American, Continental, Southwest, and Delta Air Lines will be included in this week's PlaneBusiness Banter.

Posted by Holly at 11:38 AM | Permalink | Comments (0)

Both American Airlines and Delta Air Lines kicked off the earnings season this quarter by announcing third quarter earnings today.

The results?

Not especially heartening -- yet, as analyst Jamie Baker with JP Morgan wrote this morning -- third quarter results are going to be somewhat of a major aberration. Or as he said, "3Q jet fuel averaged over $1.00/gallon higher than today’s spot, the industry hadn't undertaken unprecedented capacity cuts, and demand had yet to reflect the most recent global malaise. As such, we broadly consider 3Q industry results to be irrelevant, offering little to no insight as to the industry’s 2009 profit potential."

Delta Air Lines reported a loss of $50 million, opposed to a profit of $220 million last year, while American Airlines reported a loss of $360 million. This compared to a profit of $175 million last year.

Yes, the airline DID lose that much.

Headline numbers are touting the fact the airline posted net income of $45 million, but that number includes a huge one-time gain and other items. That one-time $432 million gain came from the sale of American Beacon Advisors.

Posted by Holly at 12:04 PM | Permalink | Comments (0)

United said in an SEC filing late Friday that Jake Brace, United Airlines' CFO, will be paid $2.42 million after he retires at the end of the month.

Brace will receive two times his $653,125 salary and $555,156 target bonus.

In exchange, Brace agrees not to take a position with a competing airline for the next two years "without consent of the company." (No, I'm not saying a word, although the temptation is great.)

It's so nice that Jake will be paid this lovely parting gift. Dontcha think? I'd hate to think he was going to leave the airline empty-handed.

Posted by Holly at 4:53 PM | Permalink | Comments (0)

It's official.

The Dow Jones Industrial Average posted its worst week in history this week.

The average had its worst week on record in both point and percentage terms, as did the Standard & Poor's 500 index.

The Dow Jones Industrial Average, after starting the day down more than 700 points, finished down only 128 points, but it was one wild road in between.

Over the last eight days, the Dow has lost just under 2400 points.

As for airline stocks, it was also a volatile mix today as several airlines stocks posted record-breaking one-day gains. But we had some losers in the bunch as well.

On the huge plus side for the day, shares of Republic Holdings picked up a whopping 29% today. Yes, you read that correctly. Shares here closed at 8.94.

But wait -- we had one airline stock do even better. Shares of Alaska Air Group shot up 31% on the day, closing at 18.80.

Shares of US Airways also had a great day, as shares here were up 27%, closing at 4.60.

AMR, parent of American Airlines saw their shares pick up 20%, closing at 8 bucks even.

AirTran also had a good day, as shares here picked up a nice 18%, closing at 1.96.

Shares of SkyWest didn't have a bad day either, as shares here shot up 17%, closing at 13.75.

On the loser side, we really just had a small handful of notable drops for the day.

Shares of Pinnacle were down 10%, closing at 2.37, while shares of Mesa dropped back 15%, closing at 25 cents.

Embraer and Bombardier didn't have good days either -- not surprising considering the action in the market as a whole. Embraer shares closed down 8%, ending the week at 17.20, while shares of Bombardier closed down 16%, ending the week at 3.50.

And, last, but by no means least -- where did crude and jet fuel end up today?

Crude futures closed at 77.70, down 8.89 on the day, while the average spot price for jet fuel closed at 2.33, down 21 cents on the day.

Taken by itself, this would be great news for the things with wings.

Unfortunately, there is that elephant that is blocking the view to the nice new HD flatscreen -- the rest of the financial/economic mess on a worldwide basis and the recognition, finally, that no, this is not just a little "subprime" mortgage problem centered in California, Arizona and Florida.

Posted by Holly at 4:13 PM | Permalink | Comments (0)

"Hi Holly, Its 2:05pm on Friday MDT, 4:05 pm EDT. I am sitting in the President's Club waiting for a delayed LH. The delay allowed me to witness a spectacle. At about 1:59 people started getting up and gravitating towards the TV screen by the bar. It wasn't a scandal, it wasn't an assasination, it was the closing bell in New York. The bell rang at 2pm local and half the room walked over to see the news (flat). You'd think the Superbowl was on though people's faces weren't quite that excited.

Posted by Holly at 3:45 PM | Permalink | Comments (0)

It's Friday and it's already been another rough day in the financial markets.

You guys are smart folks. You knew this was going to be the case.

The Dow Jones Industrials are now down another 275 points or so, after a sharp drop of almost 700 points at the open.

Okay, enough of the bad news.

Yesterday analysts Jamie Baker and Mark Streeter with JP Morgan issued a research note in which they wrote, "We’ve never witnessed such a disconnect between fundamentals & equities. True, AMR & CAL treaded water for a month after DAL & NWA filed, despite Ch11 plans to cut capacity by an amount sufficient to restore industry profitability. But nothing we’ve experienced comes close to explaining a recent $5 share price for United, considering we expect it to earn something similar (untaxed) in 2009."

As I talked about in PBB this week, with the price of oil dropping like a rock, there is no logical reason for the corresponding battering of airline stocks.

And yes today, the price of oil continues to drop like a rock. As of this posting, the price of crude is trading at around $80 bucks and change. Yes, $80.

And no, this is no mystery. If the world is heading into a recession, the price of oil has to come down. It's simple economics. No voodoo speculative manipulation involved in this drop whatsoever.

In Jamie and Mark's note, they also said, "Sure, oil could ruin the forecast – We readily admit that unprecedented demand declines coupled with $140 oil would support multiple bankruptcies. But it is difficult for us to reconcile the implied global economic backdrop of this scenario with sharply higher oil. Always a risk, but a poor base-case assumption, in our view."

They continued, "Simply put, we are having a tough time modeling losses – Fundamentals appear to be going one way, equities the polar opposite. Perhaps seasonality comes to the rescue, perhaps the flight to quality eases and redemptions moderate, or perhaps investors simply need more time to accept the profit implications of an industry rolled back to its 1998 size while enjoying fuel prices below those of last year. In any event, our conviction in 2009 profitability and bullishness for legacy equities has yet to waver and exceeds that of any prior point in our career."

I agree.

Then again, with what is going on with Wall Street right now, maybe the thought of airline stocks being a potentially screaming "buy" opportunity is the least of what is top of mind of most investors right now.

Posted by Holly at 10:07 AM | Permalink | Comments (0)

I had an errant thought yesterday as I watched the Dow fall and not get back up again.

And that thought concerned pensions. And the airlines that still have pension plans for their employees.

Remember that the last time the airline industry had to deal with the "pension issue" was following the market meltdown that followed the "internet bubble" that burst in 2000.

(If you note a bit of sarcasm in that description...good.)

Going into 2001 and 2002, airlines were suddenly looking at pension plans that required more and more in cash infusions -- because the value of the underlying securities in the pension funds had declined so precipitously.

Rewind the clock. Start it over again.

We are now looking at exactly the same situation. With equities in a free-fall -- all pension funds are gasping for air.

Tuesday, Congress' top budget analyst estimated that Americans' retirement plans have lost as much as $2 trillion in the past 15 months. And you can add more to that total, because you can bet his number crunching did not take into consideration the free fall in the market during the last two weeks.

Public and private pension funds and employees' private retirement savings accounts - like 401(k)'s - have lost some 20% overall since mid-2007, said Peter Orszag, the head of the Congressional Budget Office.

So just a little red flag for the radar screen.

Airlines such as American Airlines and Continental Airlines that have worked hard to keep their employee pension plans in place are going to face tough times ahead -- as pension plan funding requirements balloon.

Then again, an airline like United, which was successful in blowing up its employee pension plans as part of their bankruptcy proceedings, won't have to worry.

Something just doesn't seem right about all this, does it?

Posted by Holly at 1:06 PM | Permalink | Comments (0)

In case you've been occupied with feeding the cat, doing Sudoku, or eating a late lunch, the world financial markets are one big mess today.

So much for the power of politicians in Washington to snap their fingers and hope that the rest of the world simply agrees to sit back and let Treasury Secretary Hank Paulson do his "magic." A couple of problems with that $700 billion gift from the U.S. taxpayers that Congress okayed last week. One, it's going to take weeks before any of that buy-back of crappy debt even begins. Two, credit markets are frozen NOW. Third, now world markets are starting to unravel.

Which brings us to the big news if you are an airline investor, or someone who simply owns shares of your own airline that you work for.

Not only are world financial markets one big mess today -- but airlines stocks are getting hit very hard.

You'd think that with the price of oil now down below $90 today that investors would be snapping up airline shares right and left.

After all -- think of the potentially lethal profit cocktail we have going on -- sharply lower fuel costs on their way, coupled with sharply reduced capacity. It would seem like the perfect recipe for higher airline stock prices.

Unfortunately that is not how the market is thinking today. Then again, the market is not thinking very clearly about much of anything. This is definitely one of those days when fear rules.

As for the airline sector, the biggest decliners as of this posting include: United, which is down 18% at 6.68, Continental Airlines, down 20% to 12.15, Republic Holdings down 16% to 7.86, AMR, parent of American Airlines, down 18% to 7.65, and US Airways, down 14% to 5.58.

Posted by Holly at 1:03 PM | Permalink | Comments (0)

Good morning from the Louis Armstrong International Airport. Yes, for you without GPS capability, that means I'm in New Orleans. I'm leaving this morning for Dallas, where I will attend the Southwest Airlines' Media event Tuesday and Wednesday.

I'm sitting here looking out the window at the US Airways Piedmont retro livery. What a cool airplane. Then again I'm a sucker for most any retro paint job.

Actually, I'm looking at the Piedmont livery in-between reading about the meltdown in the financial markets, both here and overseas.

All jokes aside (re: the Origami Bank folded overnight) it's not good out there folks. As the ex-CEO of Salomon Brothers, John Gutfreund, said this morning on CNBC, the problem is -- nobody knows what the hell is going on or how bad things really are. Either here or in Europe. Much less Asia.

My personal take is that John is exactly right.

The FDIC announced a deal this morning between Citi and Wachovia. I was not able to hear just what Citi is taking over and what it is not. But it sounds very similar to the WaMu deal last week.

While they are both being cloaked as having been "absorbed" or "taken over" by other banks -- the truth is that both banks failed. Period.

And I doubt they are going to be the last.

Meanwhile on the other side of the pond, Belgian-Dutch banking and insurance group Fortis was propped up as the governments of Belgium, the Netherlands and Luxembourg took a 49% interest in the financial, banking and insurance group, in return for an injection of $16.4 billion.

But that's not all.

The U.K. Treasury said Monday it took control of Bradford and Bingley and will transfer the midsized mortgage lender's retail deposits business and branch network to Abbey National. B&B is a major provider of mortgages in the U.K.

Meanwhile back on this side of the pond, the Federal Reserve announced a massive injection of liquidity -- a deal that involves the central banks of a number of European countries

I'm not sure I want to see what's going on when I get off the plane at Love Field.

Hang in there folks. It's going to be a very rough day on Wall Street.

Posted by Holly at 10:49 AM | Permalink | Comments (0)

A reader just sent me this news update. It seems that the credit crunch is now hitting Japan fairly hard.

"The Origami Bank has folded and the Sumo Bank has gone belly up.

The Ninja Bank has taken a hit, but is still in the black.

The Kamikaze Bank shares have nose-dived, and 500 staff at the Karate Bank have got the chop. The Karaoke Bank has been put up for sale and is going for a song!

The Bonsai Bank has to trim some branches, while there is something fishy going on at the Sushi Bank. Staff there are expected to get a raw deal."

Hey, if we don't keep our sense of humor, what are we going to have left? Right?

Posted by Holly at 9:54 PM | Permalink | Comments (0)

Back at the WHQ today. More from me later today. But first -- as they say in TV land -- an update on something I wrote earlier this week in regard to US Airways. In my post the other day about how quiet the flights were -- sans the usual drink service -- I alluded to the fact that perhaps the airline was also saving some money in terms of not having to provision as many soft drinks, etc. on board.

The airline continues to stock just as much, in terms of provisions, as it did before. I heard this first from one of the flight attendants on my flight yesterday and a quick check with the folks in Tempe today confirmed that yes, this was the case.

So the airline is not really saving any money, in terms of any weight issues onboard. And no -- there is no danger of passengers being without ample refreshment should a long delay occur.

Where the airline is saving money is in the fact that fewer people are drinking soft drinks, which, obviously, means that in the big scheme of things the bill from Coca-Cola or whomever is lower than it would be normally.

Then there is the actual revenue the airline is making from charging for drinks.

Another point -- several readers wrote me the last two days and asked more or less the same question. "Does this mean I think all airlines should do this? Have I lost my mind?" Or words to that effect.

No.

As I said in my speech at TheBeat Live Conference on Tuesday, we are in the middle of an extremely creative time for the airlines right now. The question is -- given an airline's brand and the level of service it wants to provide -- against its current revenue and cost structure -- what is an airline going to do in terms of ancillary revenues?

In the case of US Airways -- the airline has continued to push to be more of a low cost carrier since America West merged with US Airways. In effect the airline really has no definable "brand" right now. So for them, I don't think it is that big of a problem.

But -- would I recommend that Continental Airlines do it? No. Never. It would be a total 180 degree turn to the airline's continued attempt to stress a particular level of passenger service.

And I doubt Continental Airlines will do it. They may do some other things. But they are not going to charge for Cokes.

Just how to tweak an existing airline brand right now is a huge question -- given the revenue and cost scenarios. But I don't see this as a negative. I see it as a very opportunistic time for the industry. Or at least for those who are willing to break the old mold of "well if airline A is doing it, we must all have to do it."

I just don't think that holds anymore. Some things are going to work well for some airlines. But they are not going to work for all airlines in the same manner. Yes -- those "marketing" people at airlines may just have to start earning their stripes. Instead of simply thinking about what routes to add next week.

Posted by Holly at 2:22 PM | Permalink | Comments (0)

Getting ready to make my way back to the WHQ today so just a quick note.

I see that late on Monday the Air Transport Association issued a press release in which President James May exclaimed, "The market's extreme volatility suggests that speculators, who withdrew tens of billions of dollars from the commodities markets when Congress threatened to tighten oversight of excessive and harmful speculation, breathed a sigh of relief last week when action in the Senate seemed unlikely and returned to the energy markets in full force. Well, speculators are back and prices are up."

Not hardly Jim.

Oil futures contracts for October expired on Monday. The price climbed on Monday because those who had taken short positions had to cover their rears. This was made clear yesterday when the price went back down -- ending at $107 and change.

Putting out press releases in which it is clear you don't know what you are talking about doesn't help build confidence in your credibility. I'd suggest the ATA consult with a professional next time before spouting out nonsense.

Posted by Holly at 9:58 AM | Permalink | Comments (0)

One last datapoint before yours truly hits the sack.

For you history buffs out there, you need to mark down this date in history. Because today the price of oil gained more than $16 a barrel. This was the biggest one-day gain in dollar terms since 1984 -- when crude futures began trading on the New York Mercantile Exchange.

Crude for October delivery rose $16.37, or 15.7%, to close at $120.92 a barrel on the New York Mercantile Exchange.

MarketWatch reports that the gain surpassed the previous price-gain record of $10.75, registered on June 6 of this year. The highest percentage rise in a single day was seen on Jan.3, 1994, at 20.9%, according to FactSet.

So how did jet fuel fare today? NY Harbor Jet was up 17 cents to 3.34/gallon while Gulf Coast was up 7 cents to 3.35 gallon.

Posted by Holly at 10:36 PM | Permalink | Comments (0)

Yesterday Continental Airlines said in an SEC filing that it now estimates that Hurricane Ike will cost the airline at least $50 million.

"This is a preliminary estimate and is subject to change depending on, among other things, insurance recoveries and how quickly traffic returns at the carrier's Houston hub," the airline said.

The airline added that the storm had also affected its liquidity. The airline had previously estimated that it would end the current quarter with $2.8 billion in cash and cash equivalents. The new estimate is $2.7 billion.

Posted by Holly at 8:51 AM | Permalink | Comments (0)

We only thought that those 10 billion in shares traded on the NYSE yesterday was a big deal.

Wait until the market closes today.

The Dow Jones Industrials Index has already been up more than 400 points this morning, on the back of a plan that is just now being announced by the Feds that will basically cover the losses of those financial institutions that went way too far in the mortgage banking fiasco of the last few years.

Yes, that means that you and I -- the American taxpayers -- are going to be on the hook for all this ultimately.

And who is responsible for all this? I still say, as I did for years in the Market Review of PlaneBusiness Banter -- former Fed Chairman Alan Greenspan and the Federal Reserve. The Fed let the housing bubble get bigger and bigger and bigger -- and did nothing to rein it in.

Why?

It was pretty obvious.

The housing bubble gave the appearance that the economy was healthier than it actually was.

And now?

Now we are all going to pay the price as Secretary Paulson from the Treasury Department just formally announced a plan where the government is going to allow financial institutions to package up all those bad loans and sell them to the U.S. government. A new government entity is also going to back up money market accounts. The only good news about this? It will finally, I would assume, allow the financial markets to put a value on these problematic mortgages that brought down Lehman Brothers, Bear Stearns, and Merrill Lynch. (And had threatened Morgan Stanley and Goldman Sachs as of yesterday.)

Treasury Secretary Paulson just finished speaking -- giving more details on exactly what the government plans to do to correct the "illiquid mortgage" situation. His estimate of the price tag? Hundreds of billions of dollars.

So let's cut to the chase -- what could all of this mean for the airline industry?

It means that we have only begun to see the first peek at massive write-offs that are going to continue from many of the largest financial entities. As Bank of America officials said this week when they announced the deal with Merrill Lynch, they foresee continued issues into 2010.

Remember, even though this announcement from the Feds says that they are going to buy back all this bad paper -- we don't know how that is going to be accomplished, or at what price. So that means more losses for financial institutions. We just don't know how much at this point.

Translation? Lousy economic conditions for at least the next two years, which doesn't bode that well for increasing numbers of high paying fliers.

Oh, and secondly, the price of oil continues to hang around $100 and change today. As of this posting, oil futures are trading at $101.01, up over $3 on the day.

Posted by Holly at 8:26 AM | Permalink | Comments (0)

Monday morning I thought we had lost another airline analyst as Lehman Brothers filed for bankruptcy. And not just any airline analyst -- Gary Chase. Gary, who is a former Institutional Investor "Star" analyst and Dave Fintzen, his trusty associate, had packed up their belongings and were waiting their turn to run the gauntlet of news hounds outside the doors of their employer the last time we heard from them.

But as Scarlett said, "Tomorrow is another day."

Today, a deal in which Barclay's bank will take over the more profitable chunks of the bankrupt investment bank was revealed, and voila! It looks like there was no need for Gary and Dave to pack up their belongings in banker's boxes after all.

According to a note from Gary this morning,

"The last few days have been a roller coaster ride (not the fun kind). We knew things were fluid, but we didn't think they'd be this fluid. As late as yesterday in the afternoon, we really thought that twelve years and, more importantly, that the collective efforts of a group of people we had tremendous pride in had come to an abrupt end. Today, we're very excited to be back in business with Barclays behind us.

We very much appreciate all the support and concern many of you expressed. It made a very difficult situation easier to take and we can't thank you enough."

Meanwhile, today Wall Street had a lot to digest. The biggest piece of news was, of course, the fact that the Federal Government -- yes, that means you and me -- has loaned mega-insurance behemoth AIG $85 billion in an attempt to give the company some time to get its affairs in order.

As I wrote this weekend in PBB, one of the things the company will probably try to do is divest itself of a number of its subsidiaries, and one of those companies is airline leasing giant ILFC.

The problem with this is that it's going to have to be one heck of a huge company.

One of the reasons that ILFC thrived as a part of AIG is that the company could lean on AIG's massive financial clout in getting much better than market rates on financing deals.

This is the same business model that GECAS uses -- as it depends on Daddy General Electric to serve basically the same purpose.

But those days are now gone. Today, the financial arm of GE is the part of the company that is dragging the rest of the company down, and in the case of AIG, the company is now being forced to look at its assets from a "what ones can we extract the most premium from" perspective.

And clearly ILFC is one of those potential jewels in the sell-off bag.

Posted by Holly at 4:27 PM | Permalink | Comments (0)

Interesting news from across the pond today as Scandinavian carrier SAS said in a statement that the airline is conducting "talks about a possible structural solution." That's an interesting way to put it.

News reports say that Lufthansa is apparently about ready to make a takeover offer for the airline.

Shares of SAS were up 18% on the news, ending the day with a 16% increase, up to 55.25 kronor or $8.09.

According to Reuters, Lufthansa is mulling a bid for the airline after SAS approached Lufthansa. This news comes as Lufthansa is already in talks to buy Brussels Airlines. A bid by Lufthansa for Austrian Airlines also appears to be in the wings as well.

Bloomberg quoted Exane BNP Paribas analyst Geoff van Klaveren today, as he outlined the current position of SAS. "SAS is not in a financially strong position. SAS can't be a standalone airline, so something will happen, whether it'll be a complete takeover or a joint venture on something like long-haul flights."

Meanwhile, Glitnir analyst Mats Hyttinge told the Associated Press that investors had speculated for a long time about SAS being a possible takeover target for Lufthansa, which has been looking at possible acquisitions for some time.

"I think it would be a good solution for SAS. They need financial backing," Hyttinge said.

However, he noted that SAS' complicated ownership structure could be an obstacle. "Considering there are several different states among the owners it would turn into a political process," he said.

The Swedish government has been considering selling its 21.4 percent stake in SAS, while the Norwegian government, which owns 14.3 percent, has said it would rather buy more shares in the company, he said.

In Denmark, which also owns 14.3 percent, the signals have been mixed and a decision would probably depend on the price offered, Hyttinge said.

Posted by Holly at 2:43 PM | Permalink | Comments (0)

Yes, there are more!

Here are just a few of the creative Jake Brace Captions you sent to me Friday. I haven't even gleaned through all the Saturday offerings as of yet.

1. "We were this close to finishing the Continental merger when Big-Mouth Glenn blurts out he wants to manage the new company!!! I mean, BAM! it was just Glenn and me sitting in a room with 6 other empty swivel chairs a spinning..."

2."Tell them that the idea is to not necessarily kill the golden goose but to squeeze every last….oh, that’s been used?”

3. "What a bunch of saps! I can't believe how United's employees let me get away with filling my saddle bags with all this loot at their expense -- freaking unbelievable how they just stood there & took it lying down! A sucker is born every minute!"

4."No, it was Glenn who dropped the ball."

5."I am not a criminal."

6."No, I'm 'retiring'."

7."Believe you me, Glenn, crude oil will never be more than $50 a barrel."

8. "See this brown spot on the end of my nose?"

9. "Yes, I have to admit, we've succeeded in making our financials so hard to understand, nobody even understands how much money we're losing."

10. "Listen, I was surprised as you when Glenn said he would groom Doug instead of me."

My favorite of this bunch? Number one. And number ten. Stayed tuned for more!

Posted by Holly at 6:51 PM | Permalink | Comments (0)

Interesting news crossing the wires this morning as United Airlines has announced that Jake Brace, long-time CFO, is "retiring" from the company on Nov. 1.

A couple of things. One this is great news. Should have happened a long time before now however.

Secondly, Kathy Michaels, the former head of IR at United, is going to succeed him. That is also good news.

Of course, no news like this is what it appears to be on the surface, and the obvious question hitting my email box this morning more or less runs around this theme -- did CEO Glenn Tilton finally push Jake out, in an attempt to put a lid on mounting calls for Glenn's dismissal?

Could be.

Or it could be that Jake has come to the conclusion that his days at United are numbered anyway -- and he might as well get out now, with a fat retirement/consulting package, before things get much worse.

Speaking of that no-doubt bloated "retirement/consulting" compensation package -- we, along with everyone else will be awaiting the details --when the company outlines the deal in an SEC filling.

Posted by Holly at 9:49 AM | Permalink | Comments (0)

The pilots at United Airlines have decided to crank up their anger against Chairman and CEO Glenn Tilton a couple of few notches.

Monday the United Airlines' ALPA MEC issued a press release in which it  called for Tilton's resignation.

Fine. Except it's a bit late.

But in what is clearly now a new benchmark of new labor/management relations going forward utilizing the latest in Internet techonlogy,  the ALPA MEC also coupled the release with the announcement of a new website located with an apt Internet address: GlennTilton.com.

Visitors to the site can send Glenn an email, can send a complaint about customer service or airline experience, or merely occupy their time reading background blurbs on such topics as financial failures, strategic failures, and operational failures.

There is even a multiple choice quiz as to where members of the UAL board stay when in town for board meetings. This one was a no-brainer, though, as I figured they stayed where Glenn more or less lived for a long time. Yep. I was right. (I won't give the answer away -- I'll give you something to look forward to.)

I always like to think that we here at the PlaneBusiness Worldwide Headquarters are ahead of the curve. So I would humbly point out our Special "Glenn Tilton Self-Enrichment Award," which was bestowed upon Mr. Tilton and his close associates in 2006.

Technorati Tags: airline CEOs, airline unions, airlines, ALPA, Glenn Tilton, United Airlines

Posted by Holly at 12:39 PM | Permalink | Comments (0)

In the wee hours of this morning, analysts Jamie Baker and Mark Streeter of JP Morgan issued a huge upgrade of the airline sector. Not only were airline stocks upgraded, but the investment bank also upped its recommendation on airline credit.

From their research note this morning:

"We do not believe equities (or credit for that matter) have sufficiently responded to sharply lower fuel prices and resulting likelihood of profit resumption in 2009. Given the combination of improved non-fuel fundamentals, bolstered liquidity for many, and equity values meaningfully below March levels, we are significantly revising our estimates and equity/credit ratings for North American airlines."

The two then went on to explain:

"This Isn’t Just An Oil Call – Jet kero prices have plummeted over $1/gallon from recent highs, representing $13 billion of reduced annualized expense. This represents both the most rapid and most significant expense savings ever realized for the airlines, standing well in excess of any historic precedent for demand weakness.

The Industry Has Also Changed – This isn’t the same industry that gave us pause last March. Annualized system capacity cuts have reached 8%, liquidity defenses have been bolstered for many, other revenue trends (bag fees, etc) are surging, one merger appears set to close . . . and the sell side largely has settled into a period of uncharacteristic bearishness.

Best Yet, Equities Are Down – Sure, equities haven’t ignored oil’s descent. But many Legacy equities are still well below their March levels despite the aforementioned fundamental changes. Continental is 22% lower, Delta 23% lower, United 54% lower, to name a few."

On the balance sheet side of the equation, Baker and Streeter also re-ranked the capital structure ranking. Yee haw.

So if you are about to run out and purchase airline stocks, which stocks do the JP Morgan Dynamic Duo suggest you take a strong look at?

No surprises here.

Baker and Streeter said in their note that the legacy carriers they cover are all now "overweight," they are "neutral" on the "discounters," and "underweight" on the regionals.

With a few exceptions.

"LUV downgraded from N to UW, having outperformed as fuel made its ascent. PNCL maintained as an OW and RJET as N. AMR, CAL, and LCC upgraded from UW to OW; DAL and ALK from N to OW; NWA from UW to N. AAI and UAUA maintained at OW, JBLU at N."

Traders are standing by now to take those buy orders.

Posted by Holly at 10:58 AM | Permalink | Comments (0)

The week ended on a great note for airline stocks.

The price of oil took another drop today, closing at 115.20, down almost $5 today alone.

So why is the price of oil continuing to drop?

Fears that the U.S. economic slowdown is now beginning to spread around the world is one reason. That is what has more or less caused the dollar to rise and the euro to fall this week. So much so that the dollar posted what appears to be its biggest one-day gain in the last four years today.

Couple this with continuing sentiment that the recent higher prices really have dented demand to a certain extent, especially in a number of Asian markets, and well -- there you go.

For airline stocks, the screen was all green this afternoon, with only two exceptions. Shares of Air Canada were down on that airline's earnings revelations today -- and ADRs of China Eastern Airlines got smacked around a bit as the stock market in China took a big hit today on what some were calling a "Post-Olympic" wake-up call.

The biggest gainers for the airline sector today were:

US Airways. The stock here ended the day up 18%, closing at 7.96.  The stock picked up a whopping 54% for the week as it posted the biggest gain for the week of any airline stock we track here at PlaneBusiness.

Shares of United Airlines rose 16% Friday, closing at 11.13. Shares here were up 36% for the week.

Shares of Continental wrapped up the top three spots for the day, as shares here picked up 12%, ending the week up 26%  at 16.48.

Posted by Holly at 4:13 PM | Permalink | Comments (0)

A reader alerted me to an article in Tuesday's online Wall Street Journal concerning JetBlue.

If you are a WSJ subscriber, you can access the entire column by clicking here.

The column was written by Heidi N. Moore, who writes under the moniker "Deal Yenta."

Her topic for the day was "Should JetBlue Sell Itself?"

Predictably, Deal Yenta opened the column by jumping all over JetBlue's announcement concerning how passengers will now be able to purchase nice clean sealed pillows and blankets for $7 on their longer haul flights, as an alternative to the free nasty germ-laden things that should never be used by anyone.

But, for some reason, this move then prompted the Deal Yenta to come to the conclusion that perhaps the airline should sell itself -- to Southwest Airlines.

Needless to say, when our reader told me about the column, I thought he was kidding.

No, he wasn't.

And I quote from this rather amusing-in-a-sad-sort-of-way piece,

"Many analysts have said the best way for airlines to cut capacity is to merge. JetBlue is far from desperate right now. Morgan Stanley analyst William Greene recently noted that the airline industry isn’t yet at the tipping point where carriers have to wrestle with consolidation or bankruptcy. That means that if JetBlue were to consider selling itself now, it wouldn’t be a desperation move. And that is the point. Wouldn’t it be better to do something while there is still plenty of time to maneuver and get the best deal possible?"

Lufthansa now owns a nice chunk of JetBlue, the airline did okay in the second quarter, and frankly, Dave Barger did not sound remotely desperate in the airline's second quarter call. Or, at least he didn't sound any more desperate than most other CEOs we've listened to of late. In fact, I'd say he almost has reason to be relatively calm, compared to some other CEOs.

Oh, and the $7 pillow and blanket package? I don't have a problem with it at all -- and my guess is that a lot of the JetBlue passenger base on the longer-haul flights will appreciate the opportunity to have a nice clean pillow and blanket. And hey, they can keep them and bring them back on the return flight!

So why in the world should this move indicate that JetBlue should consider selling itself? Much less to Southwest? Oh, and yes, while she did briefly acknowledge the obvious glaring incompatibility -- the two have absolutely nothing in common in terms of fleet types -- that problem was just as briefly -- dismissed.

This, after the Deal Yenta also mentioned, "If JetBlue does decide to flip its script and consider a sale, the most obvious fit might be Southwest Airlines. Both Southwest and JetBlue are so-called point-to-point airlines."

Is JetBlue a true point to point airline? What the heck is that huge operation at JFK? Ahhhh. Last time I looked I think it was a hub.

As we all know, there are a few true point-to-point airlines and then there are hub carriers, and then we have all the in-between hybrids. Both Southwest and JetBlue are hybrids to a certain extent. Just in very different ways.

Sheesh.

Columns like this just make me crazy.

Posted by Holly at 2:44 PM | Permalink | Comments (0)

Frankly, this proposal makes much more sense to me than the DIP deal that was announced recently with Perseus. I was not a big fan of the deal -- or at least what I had read about it. As I said then, I had anticipated there would be another airline involved in any deal for Frontier. For two reasons. One, it makes more sense than some kind of stand-alone venture, and two, if it was a good airline, with a reasonably strong management team, the sharing of management bench strength would be a plus.

This one hits on both counts, as best as I can tell at this early stage of the game.

Today, Frontier Airlines announced that it was going to go with an alternative DIP financing proposal that is anchored by members of the airline's Unsecured Creditors Committee. The three key players in this deal are Republic Airlines Holdings, Credit Suisse, and AQR Capital.

The three are offering the airline up to $75 million in DIP financing, with an immediate firm commitment and funding of $30 million.

This new DIP facility provides Frontier with lower financing costs, less restrictive covenants and greater flexibility to pursue strategic opportunities without being constrained by more restrictive DIP provisions, according to a release the airline put out.

Sounds much better to me.

Posted by Holly at 5:37 PM | Permalink | Comments (0)

Last week in the United Airlines' earnings call, CEO Glenn Tilton more or less dismissed a question from reporter Dan Reed from USAToday concerning increasing pilot staffing issues and cancelled flights at the airline.

The question was relevant, as we talked about in PlaneBusiness Banter two weeks ago. Why? Because based on conversations we were having with folks close to the situation, and comments from subscribers, it was pretty obvious that a situation was developing at United that resembled, in many aspects, the showdown between pilots and management at Northwest Airlines last summer.

There didn't seem to be any question that pilots at the airline were engaging in a little "work to rule" as the end of the month rolled around. Just as we saw with Northwest last year, if you have pilots who refuse to pick up extra flying, along with higher than normal sick time calls, and you've got flying schedules maxed out because of summer schedules -- all the ingredients are there for an opportunity to force the airline into flight cancellations.

This week, apparently United Airlines does consider the issue relevant, as today the airline filed a lawsuit seeking a preliminary injunction against the pilot union, ALPA,  and a group of individual United pilots, for allegedly abusing sick time.

The injunction request accuses the ALPA of  encouraging a sick-out, which is not allowed under the Railway Labor Act. It also said that pilots were refusing to pick up extra flying, and that others were being intimidated into not taking on additional flying.

"ALPA's communications are essentially a guide describing how to use sick leave inappropriately," United's injunction request said.

United said in its request that the first officers on its Boeing 737s and Airbus A320s had called in sick the most frequently. First officers on Boeing 737s had called in sick more than twice as much over the past seven weeks versus the prior three years, and sick calls by Airbus 320 first officers had risen 61%, the airline said.

United said it canceled 329 flights between July 19 and July 27, costing it about $8 million in lost revenue and $3.9 million in operating profit.

Talks between the union and the airline apparently broke off last week, according to United COO John Tague, who issued a message to employees this afternoon in which he said,

"Despite these significant steps, unlawful job actions escalated, intimidation of pilots continued and the impact on our customers and other employees grew to truly unacceptable levels," he said.

Specifically, according to the Associated Press (we have not seen a copy of the actual request to the Federal Judge as of yet, we're off to find one) the airline accused pilot Anthony Freeman of starting a Web site to organize the sick-out by junior pilots. It said the group was called "the 2172" because they were among the 2,172 pilots furloughed by United in 2001.

The other three pilots named by United — Steven M. Tamkin, Robert J. Domaleski, Jr., and Xavier F. Fernandez — are members of the Industrial Relations Committee of the Master Executive Council at United's ALPA unit.

All of this comes three days after we received a missive in our in-box from the United ALPA MEC. The missive was entitled, "The beatings will continue until morale improves."

According to the "Unity Update #6",

"The Beatings Will Continue Until Morale Improves

How’s your summer going?  Just in time for the long, hot, busy summer season, United Airlines is implementing and refining some new methods to erode your job and quality of life even further.  This company’s contempt for its employees is further proof  that United is flying itself into the ground and doesn't care who it takes down with it -- not you, not me, not its customers.  In the meantime, the executives continue to enrich themselves from the company’s coffers.

Here are some examples of management’s patented morale-boosting initiatives that make United Airlines such a desired place to work.

● For starters, we've all heard of United's plans to use our pilots and their families as expendable commodities in an attempt to correct its inability to contain costs or adequately plan for the future.  Some of the soon-to-be-furloughed pilots, who relied on United’s good faith to come back, are being let go a second time.  Who will ever again have faith in United Airlines?  But first, United will work your heinies off for the summer with maximum hours and minimum days off (flex months), and then fire you.  How's your summer going?

● To assist United in its unwillingness to maintain any workable and flexible trip trading system, management will refocus and lower the trigger points for Absence Monitoring System (AMS) events, questioning a pilot’s compliance with FARs regarding "fit to fly.”  And if they don't believe you, you will be required to visit a doctor and pay for it out of your own pocket since our company will not reimburse you.  Oh, and we understand from reliable sources that the company plans on taking away pass travel while you’re on sick list and, this time around, your family too.  How's your summer going?

● In a blatant attempt to erode, if not eliminate, Captain’s Authority, First Officers are soon to replace Captain’s as FODMs.  As you are aware, FODMs have the ability to order Captains to fly.  Even though many First Officers have the experience and capability, United will be breeding an environment where there will be First Officers ordering Captains to fly, questioning Captains’ decisions and placing Captains in defensive positions.  How’s your summer going?

● With the expected shift in flying, many domiciles will temporarily pick up other domiciles’ flying.  This will result in many W-patterns, flying 6 day trips with 4 oceanic crossings.  When the flying becomes aligned with the domiciles, your reward for having worked your keisters off will be more surpluses.  Reread the first bullet point.  How’s your summer going?

To summarize, United’s managers will force pilots to work extra days with longer hours, they will bully pilots to prove their non-fitness to fly at their own expense, they will attempt to take away pass travel for you and your family, they will attempt to diminish Captain’s authority, they will take away United mainline flying and give it away to Express, and then they will either furlough you or surplus you at the end of the season.  No one will be unaffected by the continually bad decisions United makes every day.  Fatigue, stress, illness, exhaustion, anger, fear, depression, resentment, uncertainty, frustration and disrespect are all being crammed down our throats by a company that gives not a damn about goodwill, morale, its employees or its customers.

So, how’s your summer going?

Leverage does not just show up, unannounced, on one’s doorstep.  Unified pilots create leverage.

UNITY OF PURPOSE BRINGS POWER

THERE IS POWER IN UNITY"

How's my summer going? I'll have my cheeseburger in Paradise now, thank you very much.

Posted by Holly at 7:00 PM | Permalink | Comments (0)

Just never know who is going to come out of the woodwork these days.

This morning former Continental CEO Frank Lorenzo and S&P's Jim Corrodore talked airlines on CNBC.

Posted by Holly at 12:25 PM | Permalink | Comments (1)

In this week's 64 page PlaneBusiness Banter, we take a closer look at the earnings results and the earnings calls for six major airlines -- United Airlines, JetBlue, US Airways, Alaska Air Group, Southwest Airlines, and Allegiant.

There is one issue that I think needs to be discussed as widely as possible, and that is the issue of how airlines account for out-of-period hedge gains or losses.

Without getting into too much accounting mumbo jumbo, if an airline engages in hedging activities, in an attempt to mitigate the high cost of fuel -- that is going to, hopefully, create a situation where those hedging instruments essentially make money, thereby lowering the effective price the airline pays for fuel.

The issue is -- how does an airline then account for these gains?

In the case of Southwest, Alaska Air Group, and US Airways, for instance,  the airlines have, I believe, chosen to break out these gains in the proper fashion.

But other airlines, such as United Airlines, do not do this.

So why should you care? Because it can make a huge difference in what an airline's true net income is. Or perceived to be.

In the US Airways' earnings call this quarter, analyst Mike Linenberg with Merrill Lynch asked management at US Airways, why they chose to report the unrealized gains or gains that relate to future periods the way in which they do - as a special item.

Mike, inaccurately, I would add, claimed that 'the rest of the industry' is running the numbers through their P&Ls.' (Note, not everyone is doing this, as I note above.)

As Mike then correctly observed, "It seems like perception is what trumps reality with respect to stock price and call it overall financial strength. Is-- is that something that you would reconsider just so you're on the same page as everybody else?"

US Airways' CEO Doug Parker responded that the airline thinks it is the proper accounting method to use.

We agree.

In the Southwest Airlines' call, CFO Laura Wright also clearly explained why they do what they do in accounting for the gains -- and again, it makes sense.

To give you an idea of how much difference this accounting difference makes -- let's just take the example of US Airways and United Airlines for the second quarter.

Using what we believe to be the correct method of accounting, US Airways reported a loss of $101 million. Had they run the hedging related gains through their P&L, the airline would have reported a profit of $89 million.

On the other side of the coin, United Airlines reported a loss of $151 million  for the quarter. However, if they had reported their hedging activity in what we think is the proper way, the airline would have reported a loss of $380 million or $2.99 a a share, a fact that analyst Dan McKenzie with Credit Suisse emphasized in his research report on the airline's earnings.

It's a big difference.

And one that all airline investors, employees, and interested bystanders need to remember when they look at the numbers being reported this quarter by a particular airline.

Posted by Holly at 11:53 AM | Permalink | Comments (0)

This morning Frontier Airlines announced that it has received a $75 million debtor-in-possession (DIP) financing commitment from Perseus, LCC, a private investment firm based in Washington, D.C.

Perseus has also agreed to act as equity sponsor for Frontier's plan of reorganization, allowing Perseus to purchase 79.9% of the equity in the reorganized company for $100 million.

Frontier filed a motion today with the U.S. Bankruptcy Court for the Southern District of New York. Upon court approval, Perseus will provide funding under the proposed DIP credit facility in two installments to support the company's working capital needs.

"The proposed DIP funding, coupled with Frontier's negotiations with partners to improve liquidity, reduce expenses, and preserve cash, is expected to provide sufficient working capital for the Company's operations. The Company continues to work with its partners and employees to obtain additional liquidity, reduce expenses and enhance revenues," the airline's release said.

Okay, so are we taking bets on how long it will be before Southwest Airlines announces a quadrupling of its service out of Denver?

As for the infusion of capital on the part of Perseus, I have to kind of wonder ....why? You would almost think maybe there was another shoe to drop -- that there was another airline involved at some level.

Maybe there is, but we just don't know it yet.

But given the airline's current position in the Denver market, and the fact that Southwest has clearly determined that they are going to take the Denver market away from Frontier -- I'm not sure why a third party investor would be interested in making a bet like this -- at this time.

Then again, this is the airline industry, and as one analyst said not too long ago, "The airline industry's ability to find new sources of equity never ceases to amaze me."

Amen to that.

Posted by Holly at 11:59 AM | Permalink | Comments (0)

Hello everyone. Yes, I know. This week has not been one of my more active ones here in PlaneBuzz. Things will be more normal next week.

Yours truly has been scouring the countryside the last week or so -- looking for potential new Worldwide Headquarters' locations.

Unfortunately it is also the heaviest week of the quarter for airline earnings reports, so today I am so buried in numbers I can't add two plus two, as I try to catch up and start working on this week's issue of PlaneBusiness Banter. I definitely think we are looking at another one of those 55-plus page issues this week.

But you know, when numbers overwhelm you, there are always photographs to cut through the clutter.

And here's the photograph of the day that will cut through any end-of-week earnings clutter that may be hanging around in your mind.

This is a good shot of the Qantas 747-400 that decompressed at 29,000 feet. Or rather, a good shot of the section of fuselage that flew off the aircraft at 29,000 feet, leaving a gaping hole that extended into the cargo hold of the aircraft.

According to the ATSB:

“At approximately 29,000ft (8,839m), the crew were forced to conduct an emergency descent after a section of the fuselage separated and resulted in a rapid decompression of the cabin. The crew descended the aircraft to 10,000 ft in accordance with established procedures and diverted the aircraft to Manila where a safe landing was carried out. The aircraft taxied to the terminal unassisted, where the passengers and crew disembarked. There were no reported injuries.”

It adds: “Initial information indicates that a section of the fuselage has separated in the area of the forward cargo compartment.”

A spokeswoman for the Manila International Airport Authority says the aircraft is registered as VH-OJK. According to Flight’s ACAS database it has a serial number of 25067 and was delivered new to Qantas by Boeing in 1991. It is powered by Rolls-Royce RB211-524G engines."

Technorati Tags: decompression, Qantas

Posted by Holly at 11:02 AM | Permalink | Comments (0)

Hi guys. Just a quick note to let you know that we are out of pocket today. Will be returning to the Worldwide Headquarters late tomorrow.

In case you didn't look at your favorite airline stock today -- you are in for a pleasant surprise.

It seems that because the majority of airlines are not reporting second quarter earnings results that are as dire as analysts had expected, and because oil prices continue to move downward, investor sentiment in the sector has gone off the charts. Again.

I thought we had a week last week that could not be improved upon, in terms of airline stock gains, but when all the shouting is done, I may very well be proven wrong when Friday rolls around.

But forget the end of the week. Today gains were off the charts all by themselves, as shares of US Airways soared 59% to 4.27. Shares of United Airlines, which also reported earnings today, were up 69% to 8.41, and shares of, which also reported today, were up 16%, closing at 4.50.

Whew.

So what has changed? As analyst Kevin Crissey from UBS wrote in a research note late this afternoon -- sentiment.

"Today was another good day for the airline stocks. Good day of course being a big understatement. Combined with the upward moves last week, the legacy airline stocks are up 90% in the last five trading days and the low fare stocks are up 30%.

* Sentiment has improved
But what really changed today? United sold miles forward (expected), United’s credit card holdback was lowered (positive surprise although we hadn’t expected it to be increased), United, US Airways and jetBlue cut more capacity (not really a surprise although timing/magnitude is arguably better), and fuel prices fell. Ultimately though we think what changed is sentiment. Sentiment regarding the chances that fuel prices will continue to fall, and sentiment regarding the probability and timing of a liquidity crisis.

* Our view on the stocks
We believe the airlines can offset weak demand or high fuel prices but not both. So upside to the shares comes from either fuel prices falling or demand being better than expected. We are skeptical that analysts are underestimating revenue growth and therefore view fuel as the primary driver. Fuel prices may or may not continue to fall but based on the forward curve our analysis indicates that the stocks are roughly fairly valued.

* Updating EPS estimates
We are reducing our EPS loss estimates for UAUA, LCC and JBLU.

Posted by Holly at 8:00 PM | Permalink | Comments (0)

Relatively speaking.

The price of New York Harbor jet fuel closed today below $4/gallon. At $3.92 to be exact, down 10 cents.

Meanwhile, the price of oil was down to $129.29 at the close of trading today, down $5.31 on the day.

Another day, another day of demand questions, as more traders look at the potential of the one-two punch of a slowing economy both here and abroad, in addition to rising inflation.

One of those "good news, bad news" situations that Wall Street loves so much. The good news? Energy prices are falling. The bad news? They're falling because more and more estimates of demand worldwide are being tempered because of more problems on the economic front.

But hey, we'll take it.

Posted by Holly at 4:47 PM | Permalink | Comments (0)

Continental Airlines became the third major airline to report second quarter earnings this week, as the airline reported it lost $3 million, or 3 cents a share, compared with a profit of $228 million, or $2.03 a share, a year ago.

Excluding $22 million in one-time gains, the carrier lost $25 million, or 25 cents a share for the quarter.

Revenues came in basically on target, and were up 9% for the quarter. Analysts had been expecting the airline to post a loss of 49 cents a share, so the airline's loss was much much better than had been expected.

Continental said it ended the second quarter with about $3.4 billion in unrestricted cash and short-term investments. It expects that figure to fall to $2.8 billion by the end of the third quarter.

Technorati Tags: airline earnings, airlines, Continental Airlines

Posted by Holly at 11:43 AM | Permalink | Comments (0)

Delta Air Lines reported second quarter profits of $137 million, or $0.35 this morning, excluding special charges and despite a $1 billion year-to-year increase in fuel costs. This was more than triple the $0.10 per share figure projected by analyst consensus provided by Thomson First Call.

Including special charges of $1.2 billion, Delta said its net loss for the second quarter was $1 billion, or $2.64 per diluted share.

Delta also reported total operating revenue of nearly $5.5 billion for the second quarter, a 10% increase from the year-earlier total of $5 billion.

As we are also seeing with shares of American Airlines, investors are happy, happy, happy, with the news, with shares of Delta Air Lines up more than 17% as of this writing, to $5.48.

Technorati Tags: airline earnings, airlines, Delta Air Lines

Posted by Holly at 12:08 PM | Permalink | Comments (0)

American Airlines kicked off the second quarter earnings season for the things with wings today as the airline reported second quarter earnings.

AMR, the parent of American Airlines reported a second quarter net loss of $1.45 billion or $5.77 per share compared to a profit of $317 million or $1.08 per share in the quarter a year ago.

Excluding one-time charges to ground planes and employee cutbacks, the quarterly loss was $284 million.

Last July shares of AMR were trading as high as $28.83. Today, shares were trading up 21% on the earnings news, at $5.35 as this was posted. Yes, as bad as the numbers were, the operating results at the airline were better than expected.

Time for the party hats and horns.

Well, maybe not.

Technorati Tags: airline earnings, airlines, American Airlines

Posted by Holly at 12:07 PM | Permalink | Comments (0)

Hi guys.

I've been away from the Worldwide Headquarters for a couple of days, and look what happens.

Delta and Northwest announced who is going to stay and who is going to go, in terms of the new "merged" management team; Bill Warlick, analyst at Fitch Ratings sent the chill of potential bankruptcy back into the mix as he wrote Monday, "Rising energy prices and weak cash flow may result in "multiple bankruptcies and liquidation" for U.S. airlines in 2009; American and the APA finally announced publicly that as many as 200 pilots may be put on furlough, beginning in September; and finally, the Air Transport Association said Tuesday that U.S. passenger airlines saw first-quarter 2008 costs grow at the fastest pace since the second quarter of 1980. The costs were up 31.3% compared with the first quarter of last year.

On average, fuel accounted for almost 30% of first-quarter operating costs.

Meanwhile, it's been nuts on Wall Street the last two days with Fed Chairman Ben Bernanke telling everyone on Capitol Hill yesterday essentially what we all already knew: that while the Fed has to remain "particularly alert" to any indication that inflation is about to take off (I'd argue that it already has to an extent) that "The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth."

Wall Street was not amused.

But that brings us to the price of oil.

Yesterday the price of oil closed down more than $6 in one day after the Organization of Petroleum Exporting Countries (OPEC) said that it had lowered its world oil-demand growth estimates for 2008 and 2009.

It was a wild day in the trading pits as first oil was up more than $1 to $146.73. But then things started to shake, rattle and roll and the price of crude began its rather sharp fall downward, as it ended the day at $138.74.

Against this volatile backdrop, we will have two airlines report earnings today (Wednesday) -- American Airlines and Delta Air Lines. Tomorrow? Continental Airlines.

Next week we have a full list of reportees making their way to the podium, headed up by Southwest Airlines. 

Posted by Holly at 4:30 AM | Permalink | Comments (0)

Take one shot of ramped up fears in the Middle East involving Israel and Iran, throw in lower crude inventories here in the U.S. last week, and then on top of that add Fannie Mae and Freddie Mac -- both of whom are watching their equity value disappear right before our eyes this morning on real fears that the two government mortgage backers are basically insolvent ....and what do you get?

One ugly Friday on Wall Street.

Of course, a big run-up in oil means airline stocks are getting hammered. Yes, again.

But in addition to the higher price of crude this morning, United Airlines did not help matters for the sector either, as it announced it is going to take a whopping 2.7 billion in total charges for the second quarter.

Yes, you read that correctly.

"The company has concluded that the entire value of goodwill on its books has to be written off," United Airlines parent UAL said in its SEC filing.

That may be a more telling statement than intended.

As of this posting, crude is now trading at 146.40, up 4.75 since the close Thursday.

Biggest losers on the PlaneBusiness stock list this morning include: United Airlines, now down 13%, trading at 3.64; Mesa Air Group, down 14%, now trading at 33 cents; Continental Airlines down 11% to 7.42; Alaska Air Group down 13% to 11.84; and AirTran, getting beaten up again, with shares here down 9%, closing at 1.68. Yes, you read that number correctly too.

Posted by Holly at 10:09 AM | Permalink | Comments (0)

Yesterday Northwest Airlines came out with more details on how they plan to cut back on operations and employees.

The airline said that it is going to eliminate 2500 jobs, which represents 8.1% of the airline's total employee workforce.

But the big news yesterday from Northwest was the fact that it joined the $15/bag fee crowd. The airline also announced fees for frequent flier ticket redemptions that ranged from $25 to $100. These are the steepest redemption fees yet announced by a U.S. airline.

Today, Delta finally announced a move that all of us in the industry had expected -- even though Delta CEO Richard Anderson and Northwest CEO Doug Steenland have repeatedly told employees and analysts that the two airlines did not plan to make massive cuts in the hub operations of either airline.

Well, Richard and Doug can now thank high oil prices for a nice cover.

Today Delta announced that it plans to cut its capacity at the Greater Cincinnati-Northern Kentucky International Airport by 23% this fall.

We're still waiting for those Memphis announcements. Trust me. They're coming.

This news comes after Comair said Tuesday that it was cutting 300 pilot positions, as well as 220 flight attendants, after it grounds 14 aircraft.

Technorati Tags: airlines, comair, Delta Air Lines, Northwest Airlines

Posted by Holly at 11:17 AM | Permalink | Comments (0)

Just a head's up. Something seems to be afoot with Virgin America.

I'm hearing everything from a major "restructuring" of the airline to rumors that the airline is going to abandon long-haul transcons completely. (A little hard to believe since their entire business product is geared to long-haul flying, but anyway....we all know they are losing their butts on that flying...and well... whatever.)

Could CEO Dave Cush and company be out the door? Or will we just see some major shift of the product offering? Not sure, but we've just received too many related notes concerning the airline today and read too much chatter on our usual airline geek hangouts not to think there is not some truth behind them.

Stay tuned, as they say.

In addition, we've been following the latest developments in the ongoing attempt by Virgin America to block the DOT from releasing its operational and financial numbers in PlaneBusiness Banter.

Essentially Virgin had requested that the DOT treat this information as "confidential" so that it would not be released publicly.

Right.

The move was made in an attempt to keep competitors and folks like you and me from accessing the airline's financial and T-1 data.

We all know what the procedure is with the DOT. Because the airline filed for the request, then it starts an entire procedural process that takes up time. On June 30, the DOT finally denied the airline its request. But not before other major airlines told the DOT that if they did not hurry up and deny the request, that they all would ask for the same "confidential" treatment.

Tuesday Virgin filed a response to the DOT's ruling.

We're getting closer.

On a quick side note, actually Virgin, Republic and Shuttle America all filed responses -- as Republic and Shuttle America have also been trying to pull the same stunt.

You can access the DOT dockets here. The Virgin docket is DOT-OST-2008-010.

Posted by Holly at 4:54 PM | Permalink | Comments (0)

The official uniform of Wall Street traders is now our worn, but still usable Ratty Old Bear Suit.

As of today, both the Dow and the Nasdaq have now fallen more than 21% since October. The Dow ended today down 236.77 points, or 2.08%, while the Nasdaq was down 59.55 points or 2.6% on the day.

While oil prices ended up only a penny on the day, closing at 136.05, airline stocks still got hammered.

The biggest losers in the sector included: AirTran, which took a huge 17% drop today, closing at 1.82; Continental, where shares dropped 11%, closing at 9.16; Delta Air Lines, which posted a 9.6% drop to 5.28; Northwest Airlines which saw shares drop a hefty 16% to 6.30; and Mesa Air Group, which saw its shares down by 12% to 37 cents on the back of a less than positive June traffic report.

As for the hefty drop in AirTran stock, was this a "delayed" reaction? Or is there something else out there about to drop? The airline announced yesterday that it plans to furlough 180 pilots, 300 flight attendants, cut capacity further, and cut other wages by 10%.

As for the Mesa drop, the traffic report for the airline was telling. Especially the go! results.

For June, the airline reported that load factor fell to 78.62% from 81.02% a year earlier.

Traffic fell 15% to 526.2 million revenue passenger miles in June 2008 from 621.1 million revenue passenger miles in June 2007. Capacity also fell 13% to 669.3 million available seat miles in June from 766.6 million available seat miles in the year-ago period.

As for go!, the airline reported a load factor of 68.6%, which is down about 3.5% from a year earlier. Yes, while total passenger numbers were up - the airline threw so much capacity in the market after Aloha shut down that its loads were actually lower than when Aloha was still flying.

Brilliant. And probably not very profitable at current fuel prices.

Not a good day for the things with wings ...at all. Of all the airline stocks we track, the vast majority posted losses on the day.

Technorati Tags: airlines, AirTran, Aloha Airlines, Continental Airlines, Delta Air Lines, go! airlines, Mesa Air Group, Mesa Airlines, Northwest Airlines

Posted by Holly at 4:16 PM | Permalink | Comments (0)

The hits just keep on comin' today.

American Airlines apparently sent out at least one of the official WARN letters today, outlining how it may reduce the number of union employees as of Aug. 31.

The only union that has apparently received their letter, or at least the only one that has gone public about it is the Association of Professional Flight Attendants. The letter sent to them says the airline may furlough as many as 900 of the airline's most junior flight attendants.

The airline says that it will offer those flight attendants who are at least 50 years old and with at least 15 years of seniority an option that would let them retire early with a $15K payment and limited travel and medical benefits.

The airline is also offering employees the option of taking a leave of absence, while maintaining their seniority, or the option to "buddy up" so to speak, with another attendant to "share" a position.

I imagine we'll be hearing more from the mechanics and the pilots at American later in the day or in the morning as to what good news their WARN letters contained.

Technorati Tags: airline unions, American Airlines, flight attendants, furloughs

Posted by Holly at 4:10 PM | Permalink | Comments (0)

Not much to say guys.

Not only did oil move up today on less than robust inventory numbers from the U.S. Department of Energy, but when all the shouting was done and oil closed up almost $3 to $143.57, jet fuel had hit new record levels as well.

Sitting down? Well, you might want to lie down.

New York Jet A closed at $4.32/gallon today.

Probably a good idea if you just stay prone for a while before attempting to get up.

Technorati Tags: aviation fuel, jet fuel, oil prices

Posted by Holly at 3:54 PM | Permalink | Comments (0)

This week in PlaneBusiness Banter, I wrote about how I feared we'd seen the video now unrolling at Midwest Airlines once too often.

The airline recently told employees that they would have to agree to major concessions - because new majority owner TPG would not consider any additional financing to the airline unless the airline could come up with a more healthy looking business plan.

Unfortunately, no matter how much Midwest cuts salaries, we all know the end of this story, and it's not going to be pretty.

Midwest minority owner Northwest Airlines orchestrated this deal from the get-go, in an attempt to keep AirTran out of its backyard. Now all that's left is for Northwest to figure out what it wants to keep from Midwest and let the rest of it ...go away.

But for now, the fantasy of "sacrificing to keep the airline alive" will apparently continue.

As one reader said to us this morning, "It's just sad." Yes it is. For more than one reason.

Here's the letter Midwest CEO Tim Hoeksema sent to employees this morning.
----------------------------------------------------------

To: All Midwest and Skyway Employees
Date: July 2, 2008
From: T.E. Hoeksema
Subject: Additional Details -- Wage Reductions

In keeping with the promise I made to keep you informed, I am writing today to give you additional details on one of the action items in our restructuring plan regarding our employees -- wage reductions.

Record-high fuel prices have put us in this predicament. As a result, we are taking action to restructure our airline: adjusting our fleet and network, and aligning our organization and costs to be able to compete and be profitable in this new energy economy. I believe that all domestic airlines will eventually need to restructure. We are implementing our restructuring in a comprehensive way, working to make significant and sustainable change quickly, whereas other airlines may make changes incrementally.

Unfortunately, there is no way to avoid deep and painful reductions to our current compensation. Our cost structure today, in advance of this restructuring, resembles that of airlines much larger than we are, with national and even global networks, flying larger aircraft. Following our restructuring, we will not have the larger aircraft and revenue generation capacity to support our current cost structure. Even the exemplary service you provide and the customer loyalty it engenders cannot overcome this disadvantage in the new energy environment of $140-a-barrel oil. Our choices are to fix this disparity so our costs better match our revenues, file for Chapter 11 and try to fix it there, or ignore it and fail as a business.

We believe our best choice -- for ourselves, our customers and the communities we serve -- is to step up to the difficult work in front of us and to restructure now on our terms. Many employees I've talked to over the last week agree with this decision when it's presented in these stark, but realistic, terms.

If that's our path, as we believe it should be, our guiding principles are clear:

·        Everyone participates in compensation reductions, productivity improvements or employee count reductions; no exceptions.
·        The reductions are fair and equitable.

"Fair and equitable" means applying the same standard to each work group and resetting everyone's compensation to the market. That means benchmarking against airlines that fly aircraft of similar capacity, which is the basic component of our ability to generate revenue. Our commitment to set all employees' wages and benefits to a consistent standard extends across all of our work groups, with the actual percentage wage reductions varying by work group.

Represented Work Groups

Our top-of-scale rate for pilots is currently 32% higher than the average hourly pay for pilots who fly aircraft of similar capacity for other airlines. The cost of pension, health and other benefits for our pilots is 45% higher than the average at comparably sized airlines. Productivity per pilot is also less than at comparably sized airlines.

Similarly, our flight attendants are earning above-market wages and benefits, although in this case the premium is smaller. Our top-of-scale rate for flight attendants is currently 23% higher than the average hourly pay for flight attendants in the cabins of aircraft of similar capacity.

Given these realities and the actions we need to take to adjust our fleet and network, we are proposing pay reductions, benefit adjustments and productivity improvements to the Airline Pilots Association and the Association of Flight Attendants to align pay and benefits for our pilots and flight attendants with comparably sized airlines.

Non-Represented Work Groups

According to salary surveys, many Midwest non-represented employees earn wages on average that are at or below those of employees at comparably sized airlines. Based on this, the average reduction in compensation for non-represented employees will be:
·        Maintenance technicians -- 10%.
·        Professional staff (Grade 9-13) -- 5%.
These reductions will be effective upon ratification of the ALPA and AFA agreements.

Midwest administrative staff (Grade 1-8) and Skyway employees will not experience a compensation reduction, nor will Midwest station employees. This decision is based on what the market currently provides in terms of compensation for these work groups, in conjunction with them taking significant reductions in employees through improvements in productivity and changes in capacity.

Senior management will earn wages and benefits below their peer group average. This reflects our belief as a management team that we should lead by example and that we bear ultimate responsibility for keeping our airline competitive.
·        As CEO, I will take a 40% reduction in my total pay.
·        Senior vice presidents will take a 25% reduction in total pay.
·        Officers (vice presidents) will take a 17% reduction in total pay.
·        Directors and senior managers will take an 11% reduction in total pay.

My pay reduction and those of the senior vice presidents will be effective July 15; the reductions for other members of senior management will be effective upon ratification of the ALPA and AFA agreements. I want to clarify two points regarding management pay. First, members of senior management have a greater percentage of their total pay "at risk." Total pay includes salary plus incentive compensation awarded for the achievement of individual goals and on overall company performance. Second, the notion of incentive compensation based on our airline's profit target this year is largely a moot point, since we're in a restructuring mode, not a profit-achieving mode.

Some may say that our proposals aren't fairly allocated "across the board" because the percentages aren't uniform from one work group to the next. I understand the appeal of that argument, but it's a false appeal; the pay and benefit reductions are fair, equitable and based on the market rates for similar positions at comparably sized airlines.

Please don't misunderstand me; these are significant reductions by any measure and will cause great hardship to our employees and their families.

Regarding reductions in staffing, there is no way to minimize the depth of reductions we need to make to implement a comprehensive restructuring. We are still working through a position-by-position evaluation of every function within our airline, so it's not yet possible to tell each employee whether the reductions will directly impact her or his job. But we promise to complete those efforts as quickly as possible and to communicate them in the most compassionate way possible.

Be assured that I do not underestimate the stress and concern this situation is causing you and your family, and I wish it could be avoided. At the same time, I cannot overstate the admiration and respect I hold for each member of the Midwest family as we continue day in and day out to deliver "The best care in the air." It is that strong spirit and pride that has made us successful and will sustain us through this difficult chapter in our history.

Thank you.

Technorati Tags: airlines, Midwest Airlines

Posted by Holly at 11:36 AM | Permalink | Comments (0)

Some mildly surprising news out today from British Airways, which announced it was buying  French airline L’Avion for about $108 million.

L'Avion is an all business-class trans-Atlantic carrier, a lonely survivor in a niche that not too long ago was populated by Silverjet, EOS, and MaxJet. The airline has been flying Boeing 757s between Paris-Orly and Newark twice a day, Monday through Friday.

The move comes after British Airways recently unrolled its new OpenSkies airline -- which began daily flights between Paris and JFK.

British Airways says it is going to combine the airline with its existing OpenSkies operation, which will allow it to fly three daily flights between Paris Orly and the New York market.

On first blush, it would appear that British Airways believes this was a quick and dirty way to grow its operation. It also gives them access to more slots at Orly, which is probably worth more than a few francs.

Technorati Tags: airlines, British Airways , L'Avion

Posted by Holly at 10:46 AM | Permalink | Comments (0)

According to reports out tonight, AirTran management has asked ALL of its employees for "temporary, short-term concessions as part of its efforts to address the current industry crisis."

The company also said it is planning to furlough pilots as part of its capacity reductions scheduled to take place in September. The company apparently outlined its plans today in memos to employees.

The National Pilots Association, which represents pilots at the airline, said today that it is anticipating at least 180 furloughs. The official notification is scheduled in the next couple of days.

In addition, the airline said in its memo to the pilots that it has "requested an 11% wage reduction for captains and an 8% wage reduction for first officers."

Remember when the word "furlough" meant something pleasant?

Technorati Tags: airline pilots, airlines, AirTran

Posted by Holly at 9:57 PM | Permalink | Comments (0)

One of our PlaneBusiness Banter subscribers wrote this afternoon,

"AMR types had a milestone moment today (not the good type either) the stock options issued in 03 are now officially underwater! ($5 strike price).

P.S. maybe can I write the loss off on my taxes ;-)"

That's one way to look at it.

Yep. Another bad day in the airline sector today as oil closed up almost a buck, ending the day at $140.97.  This was after it shot up as high as $143 and change earlier in the day.

Once again, the airline sector took a hit today. Not as bad as some of the days we've seen of late, but of all the airline stocks we track, only two posted small gains on the day -- Ryanair which saw ADRs up 2%, closing at 29.10, and Hawaiian Airlines, which saw shares up 1%, closing at 7 bucks even.

Just a sampling of the losses posted for the day.

AMR, parent of American Airlines: down 5% to 4.85.
Alaska down 4% to 14.70
Allegiant, down 7% to 17.33
Delta down 3% to 5.53
Continental down 1% to 9.96
US Airways down 4% to 2.41
Northwest down 2% to 6.52
Southwest was essentially flat on the day, closing at 12.99
ExpressJet down another 5% to 52 cents/share
United Airlines down a whopping 12% -- ending the day at 4.60.

Technorati Tags: airline stocks, airlines, Alaska Airlines, Allegiant Airlines, Continental Airlines, Delta Air Lines, ExpressJet, Northwest Airlines, oil prices, Southwest Airlines, United Airlines

Posted by Holly at 5:38 PM | Permalink | Comments (0)

The AMEX Airline Index closed at 16.20 points Friday. But earlier in the day the index sank to 15.83 points, a new all-time low.

Technorati Tags: airline stocks, airlines, AMEX Airline Index

Posted by Holly at 3:34 PM | Permalink | Comments (0)

Another Friday. Another record breaking oil price notched in the record books.

While at one point today, oil traded as high as $142.60/barrel -- when all the excitement was over, oil closed at "only" $140.21.

I guess this is what they mean when they say, "Be thankful for small favors."

Another rotten day for most of the airline sector on Wall Street as well. For those few airline stocks that posted gains on the day, the gains were quite small.

Posted by Holly at 3:17 PM | Permalink | Comments (0)

What do they say -- better late than never?

Mesa Air Group has finally scheduled its fiscal second quarter (quarter ending 3/31) earnings call for Monday. Time is now scheduled for 2.P.M. EDT.

Posted by Holly at 1:36 PM | Permalink | Comments (0)

Another day, another horrible milestone in terms of oil prices as the price of a barrel of crude shot up today more than $5 a barrel. In intraday trading the price hit $140.39, but when the markets closed here in the U.S., oil futures closed at $139.64, up a whopping $5.09 for the day.

The news comes as we hear of 8% cuts in management employees at American Airlines, in addition to flight cuts at both American Airlines and United Airlines.

And not too long after these cuts were announced, Southwest Airlines came out and said it had modified their fall schedule -- picking up a lot of the pieces that were just discarded by the legacy airline pair.

American said Wednesday that it plans to eliminate 62 flights at Chicago O'Hare: 28 departures on mainline American Airlines flights and 34 flights on American Eagle.

By November, American's presence at Chicago O'Hare will be down 13%, year over year.

The airline is also pulling back flights out of St. Louis, Dallas-Ft.Worth, and New York's LaGuardia.

American is ending service completely to Albany, N.Y.; Providence, R.I.; Harrisburg, Pa.; San Luis Obispo, Calif.; Samana, Dominican Republic; and Barranquilla, Colombia.

Meanwhile, United announced that it was ending service to Fort Lauderdale and West Palm Beach.

Today, Southwest Airlines followed-up on these announcements by announcing that it will eliminate 31 flights from its existing schedule and add 40 flights to growth markets. This will see the airline not retiring two aircraft that it had said previously it was going to retire.

Big winners in the new schedule? Denver and ....Ft. Lauderdale.

Posted by Holly at 2:57 PM | Permalink | Comments (0)

Home prices post record 15.3% drop
Stocks tank along with confidence
Consumer confidence tumbles to 16-year low
Crude rises in volatile trading

Okay.....just went to check on where oil was trading, and those were the financial headlines that hit me in the face. Kind of makes you want to get back in bed and pull up the covers.

Don't think it's going to be a good day for the airline stocks -- as oil futures were up before trading began and prices are up, as of this posting. Currently oil is up a little more than 50 cents, trading at 137.25.

Parting the red sea of losses that are stacking up already in the airline sector, ExpressJet is leading the pack. The airline's shares continue to get just hammered. Shares here are now down 13% already, trading at 88 cents. And how much was that offer that SkyWest had on the table earlier this spring for ExpressJet? Yeah. It was for a lot more than 88 cents.

By the way, lost in all the hubbub of rising oil prices, I know it is June, and we are looking at record heat across much of the country -- but just a little peek at what will begin to affect some of you just a scant three months from now.

Know where a gallon of heating oil is trading today? 3.83/gallon.

Posted by Holly at 9:47 AM | Permalink | Comments (0)

Forget airlines. We all know what the problems are with this industry and with its stocks.

But for years haven't we also heard how the airfreight/cargo boys would always be able to prop up their profits by simply adding fuel surcharges to the mix -- something their passenger-flying cousins were not able to do as easily?

Well, something funny has happened to that old "rule of thumb" thinking.

It doesn't appear to be working anymore.

When FedEx last announced earnings, the company was not particularly bullish on the quarter coming up.

Today, the company took it a step further -- and as expected, Wall Street was not happy.

Alan B. Graf, Jr., FedEx's executive vice president and chief financial officer said in a statement that the next year is expected to be "very difficult due to the weak U.S. economy and extremely high fuel prices." (The FedEx fiscal year ends May 31, 09.)

If one is an economic observer like me, this news says a couple of things. One -- obviously FedEx, even with fuel surcharges, is now seeing a "significant" slowdown in their trending. So much for the recession-proof surcharge idea. Secondly, if FedEx is saying this, and we already know the trucking industry as a whole is getting killed with high fuel prices, there is going to have to be a tipping point here in terms of additional transportation costs being absorbed into higher prices for all manner of goods. But if the economy is as sluggish and consumers are as tapped out as they seem -- there does not seem to be a lot of room for any higher prices.

As of this posting, shares of FedEx are down about 2.5% on the day, as shares are trading around 82.27. Shares of UPS are down about 2%, trading around 66.01.

Posted by Holly at 3:02 PM | Permalink | Comments (0)

Ah, I'm not sure you want to look at the price of oil. Much less jet fuel.

But, I guess, alas, there is no choice.

After oil futures posted their biggest one-day surge in history yesterday -- $5.49 -- oil prices closed up almost $11 Friday, ending trading at $138.75/barrel after European Central Bank President Jean-Claude Trichet suggested the bank could raise interest rates. This news caused the  euro to climb against the dollar.

As all good readers of PlaneBuzz know, when interest rates rise in Europe, or fall in the U.S., the dollar tends to fall against the euro. The falling dollar then also makes oil that much cheaper for buyers everywhere except the U.S.

The current record high of $135.09 was hit on May 22.

Prices were also pushed today by comments made by analyst Ole Slorer of Morgan Stanley, who wrote in a note that he expects a "short-term spike" in oil prices -- the result of rising demands in Asia.

I'll be back in a bit with an update on jet fuel prices.

Posted by Holly at 2:13 PM | Permalink | Comments (0)

This morning Mesa Air Group filed an 8-K stating that on May 23, the company accepted the resignation of William Hoke as the Company’s interim Chief Financial Officer. Coincidentally, the resignation is effective today,  June 6, 2008.

"Mr. Hoke has resigned to pursue another career opportunity" the filing said.

Uh-huh.

The filing continues, "Mr. Michael J. Lotz, the Company’s current President and Chief Operating Officer and Principal Accounting Officer, will serve as interim chief financial officer of the Company until a suitable replacement is found."

No mention of chief cook, bottle washer, and baby-sitter duties, but one has to think that perhaps those are a part of the new gig as well.

Notice there has still been no mention of when the airline is going to announce its earnings results for the quarter ending Mar. 31.

Which would then tend to lead one to believe that, with the departure of Hoke, we may not see these earnings details for awhile.

It's never a good sign when the CFO abruptly leaves a company when it has yet to report overdue earnings for a particular period of time.

Ticker: (Nasdaq:MESA)

Technorati Tags: airlines, Mesa Air Group

Posted by Holly at 1:09 PM | Permalink | Comments (0)

Along with the wings and the engines.

This morning Silverjet, the last remaining business niche trans-Atlantic airline, shut the doors.

You may recall that the airline, which halted trading in its shares on the London Alternative Stock Market a little over a week ago, claimed earlier in the month that it was going to receive another $100 million in capital from Viceroy Holdings, LLC., based in the U.A.E.

Apparently the money never came, and this morning the airline announced it was ceasing operations. Its Dubai-London flight Friday morning was it's last.

Technorati Tags: Silverjet

Posted by Holly at 12:35 PM | Permalink | Comments (0)

I always said that this stock was a bad bet -- because the company did not control its own destiny.

And yesterday, that fact hit home for employees of ABX Air and ASTAR Air Cargo, as Deutsche Post, parent of DHL,  announced that it had, for all purposes, given up the fight to set up its own competing delivery service here in the U.S.

The company has lost hundreds of millions of dollars in trying to establish DHL as a credible third option to UPS and FedEx. Yesterday, the company's parent, Deutsche Post World Net, said at a press conference in Bonn that it is going to partner with UPS for all of its air shipments and sorting operations in what it called a "radical" shake-up of it's U.S. operations.

The hard and cold facts for employees of ABX Air? More than 6000 employees will lose their jobs, including a good number of pilots.

Someone needs to write a book about the FedEx-DHL-UPS saga from start to finish. Would make a great read. I would, however, hate to think how much money all three players have expended over the last 15 years or so -- fighting each other in court almost continuously over the right of DHL to enter the U.S. domestic market.

Know anyone that would like to buy 39 DC-9s?

Ticker: (Nasdaq:ATSG)

Posted by Holly at 6:00 PM | Permalink | Comments (0)

Fitch Ratings has downgraded the debt ratings of US Airways Group:

--Issuer Default Rating (IDR) was dropped to 'CCC' from 'B-';

--Secured term loan rating was reduced to 'B/RR1' From 'BB-/RR1';

--Senior unsecured rating was reduced to 'CC/RR6' from 'CCC/RR6'.

Fitch's ratings apply to approximately $1.7 billion in outstanding debt.

"The downgrade follows the unprecedented spike in crude oil and jet fuel costs that continues to erode margins and operating cash flow generation for LCC and all of its competitors in the U.S. airline industry. Given the dramatic rise in energy prices, Fitch believes that the potential for a liquidity squeeze in early 2009 has increased significantly. Assuming no dramatic pull-back in jet fuel prices later in the year and increasing softness in domestic air travel demand as the U.S. economic slowdown continues, Fitch believes that LCC's unrestricted liquidity could decline toward the covenant level in its secured term loan facility by early next year. The 'CCC' IDR reflects the growing likelihood of a constrained liquidity position, as well as LCC's limited flexibility in raising additional cash through asset sales or new financings.

Because LCC's average length of haul tends to be shorter than that of the other legacy carriers, the airline's financial results are relatively more sensitive to swings in the price of jet fuel. Each 10-cent change in the average price of jet fuel for LCC drives approximately $120 million of annual mainline operating costs. While the carrier has hedged a considerable portion of expected 2008 fuel consumption, an increase in the full-year 2008 average jet fuel price to $3.30 per gallon from $2.20 per gallon in 2007 would result in approximately $1.2 billion of mainline expense pressure from fuel alone this year. With current jet fuel spot prices near $4.00 per gallon, a quick reversal in fuel prices would be necessary if LCC is to avoid an erosion of its cash position by Q109.

On the revenue side, industry fare initiatives aimed at offsetting the intense fuel pressure will likely boost yields on reduced domestic capacity, particularly after August as legacy carriers reduce their domestic schedules. Corresponding adjustments in domestic capacity will be somewhat constrained at LCC in 2008, however, by pilot contract fleet and aircraft utilization minimums that could reduce the airline's near-term flexibility in dealing with a worsening revenue and fuel environment. In 2009, LCC is expected to have more flexibility to reduce capacity, if needed."

Technorati Tags: airlines, US Airways

Posted by Holly at 5:45 PM | Permalink | Comments (0)

It's about time.

Then again, there is no telling how long the lull will last.

We have had a slew of conflicting influences this week on the oil markets.

But when everything was put in the Vitamix today, and swirled around, the markets decided that perhaps oil has finally reached a point where lessening demand is starting to have an effect.

The price of crude closed down $4.41 today, ending at 126.62.

Woo hoo.

Where are those sparklers and the Twinkies?

Posted by Holly at 4:30 PM | Permalink | Comments (0)

There was good news and not-so-good, but not unexpected news today for Mesa Air Group.

The good news is that  a Federal Court in Atlanta has granted Mesa a preliminary injunction that prevents, for the time being, Delta Air Lines from terminating its contract with Mesa's subsidiary Freedom Airlines.

This news sent the penny stock traders into a frenzy, as shares of the airline ended the day up 39% to 70 cents.

As for the not-so-good, but not unexpected news, the airline also acknowledged today that Nasdaq has sent the company an "Intent to Delist" letter.

However, this letter was not apparently a result of the airline's shares having traded below $1 for a given period of time. No, this delisting warning came because the airline still has not filed its quarterly earnings report for the quarter ending Mar. 31.

On May 13, the airline said it was delaying the report, and would file on May 20. But May 20 came and went and no filing. The airline now says it expects to file its quarterly report on or about June 2, which would be next week.

Ticker: (Nasdaq:MESA)

Posted by Holly at 4:06 PM | Permalink | Comments (0)

Is there an echo in here? Ah, we'll at least use another chart.

Fitch also lowered the boom and the ratings on United Airlines' parent UAL today.

- Fitch Ratings has revised the Rating Outlook for UAL Corp. and its principal operating subsidiary United Airlines, Inc. (United) to Negative from Stable. Debt ratings for both entities have been affirmed as follows:

--UAL & United Issuer Default Ratings (IDR) are now rated at 'B-';

--United's secured bank credit facility (Term Loan and Revolving Credit Facility) is now rated at 'BB-/RR1';

--Senior unsecured rating for United is now rated 'CCC/RR6'.

The bank facility rating applies to approximately $1.3 billion of funded term loan debt, and the unsecured rating applies to approximately $1.4 billion of outstanding notes.

Fitch said in its release:

"The Negative Rating Outlook reflects Fitch's view that the unprecedented rise in crude oil and jet fuel prices witnessed over the last several weeks will put increasing pressure on United's margins and cash flow generation capacity through the remainder of 2008, potentially forcing the carrier to consider asset sales or new financing to shore up liquidity in an increasingly challenging industry operating environment. United has taken steps in recent weeks to counter the fuel shock by cutting domestic available seat mile (ASM) capacity after the summer, while negotiating covenant waivers with its credit facility lenders to ensure access to its $1.5 billion secured credit facility. Still, the magnitude of the recent fuel price spike is leading United and other large U.S. carriers to pursue fare and fee increases that may well begin to crimp air travel demand and undermine the industry's ability to partially offset fuel-related cash outflows in a weak macroeconomic environment.

Ratings for UAL and United reflect the airline's highly levered balance sheet, volatile cash flow generation capacity, and ongoing susceptibility to intense fuel and revenue shocks in an industry that remains particularly vulnerable to macroeconomic risk. Following two years of improvements in cash flow generation and steady debt reduction in 2006 and 2007, United faces an increasingly difficult operating environment in 2008 that will likely lead to a deterioration in credit quality over the next few quarters.

In a prolonged high fuel cost scenario that assumes no significant pull-back in crude oil and jet fuel prices through early 2009, United and all of the major U.S. carriers will face intensifying liquidity pressures--particularly if an extended economic slowdown drives a sharp reduction in air travel demand. However, it is important to note that United's unencumbered asset holdings give it some room to maneuver with respect to liquidity preservation in a deep industry downturn. United's current unencumbered fleet of 113 aircraft could be financed to shore up cash balances if free cash flow trends deteriorate further. The potential sale of other assets such as United's maintenance, repair and overhaul (MRO) operations, spare parts, advance sales of Mileage Plus frequent flier miles and London Heathrow slots all represent sources of liquidity that could be tapped in the coming months if unrestricted cash balances fall closer to the $1.0 billion covenant level.

Taking into account the impact of fuel hedges, United remains highly sensitive to volatility in jet fuel prices. Fitch estimates that the annual mainline fuel cost impact of a 10-cent change in jet fuel prices is approximately $220 million. A full year 2008 post-hedge average fuel price of $3.20 per gallon (well below current spot prices of about $4.00 per gallon) would translate into approximately $2.2 billion of incremental mainline fuel costs this year versus 2007."

The rating agency added, as with US Airways, that "further negative rating actions, including a downgrade of the IDR into the 'CCC' category) could follow if sustained high jet fuel prices (above $3.50 per gallon) through the summer, coupled with weakening revenue per available seat mile (RASM) trends and softening air travel demand drive substantially negative free cash flow and force United to borrow heavily to avoid intensifying liquidity pressure moving into 2009."

Ticker: (Nasdaq:UAUA)

Posted by Holly at 4:00 PM | Permalink | Comments (0)

Hi guys. I know. I've been absent for a couple of days. And look what happens when I go off and leave you on your own.

First, the US Airways/United deal appears to be floundering, or at least that is what the New York Times reported late yesterday. Although for those of us who read such reports carefully, if I was a betting woman, it would appear that there were some union "sources" talking to Ms. Maynard and Mr. Sorkin because of that one telltale line in the story.

The line? "In particular, it became clear that the labor agreements would have to be sorted out before the combined airline could see any of the savings from the deal, which could have been in the hundreds of millions of dollars."

My translation of this is that union leaders wanted a seat at the table - before negotiations could go any further. And having listened to US Airways' Chairman and CEO Doug Parker talk this spring about how he did not think giving labor a mandate to sort out their differences ahead of time was such a hot idea (aka Northwest and Delta) -- I doubt that US Airways would agree to give labor that kind of position in a potential deal up front.

If the deal is indeed dead, this certainly puts Mr. Tilton and United in a strange position. After putting themselves on the block openly for years -- this will be the second deal to fall through involving the airline in less than two months. So much for the great deal hunter.

I wish management at United would figure out that it's more important to actually run a good airline, as opposed to constantly running numbers on various merger scenarios.

Alas, now it looks like the airline is rather inept at both.

Meanwhile, Airbus warned earlier this week about additional problems with its manufacturing process, and American Airlines has been announcing cuts in routes right and left -- including JFK/Stansted.

American said Tuesday it is discontinuing flights between Chicago and Buenos Aires, as well as its Boston to San Diego route. It will also reduce its flights from Chicago to Honolulu to only  "peak demand days." The airline is also restructuring its operations in San Juan, Puerto Rico.

Today the airline announced it is cutting service between New York's John F. Kennedy International Airport and London's Stansted Airport effective July 2.

As one of our industry buddies wrote today, "I'm shocked. Simply shocked."

Wise guy. Yeah, right.

No one should be shocked at this news, as American added this flight less than a year ago in response to competitive service on the route by EOS. EOS is now gone, so bye bye American.

Anyone taking bets as to when American finally shuts down its money-losing Love Field adventure?

But hope springs eternal at JetBlue, which this week not only announced it was delaying a slew of new aircraft deliveries -- 21 aircraft for as long as five years -- the airline also issued a prospectus on a $160 million bond offering.

Gotta hand it to them -- it's probably better to do an offering now than later this summer. Stock up those cash assets while you can.

Finally, while there were a lot of headlines yesterday talking about "lower" energy prices, remember that term is soooo relative. Prices yesterday were not that much lower. Not only that, but today, prices were back up again.

Crude oil closed at $131.03/barrel today, up almost 2% on the day, while N.Y jet fuel closed at $3.96/gallon. West Coast jet fuel is still running above $4/gallon.

Ticker: (Nasdaq:UAUA); (NYSE:LCC); (NYSE:AMR), (Nasdaq: JBLU)

Technorati Tags: airline CEOs, airline mergers, airlines, American Airlines, jet fuel, jetBlue, United Airlines, US Airways

Posted by Holly at 5:37 PM | Permalink | Comments (0)

Bloomberg reports this morning that trading in shares of Silverjet have been suspended in London because the airline has yet to receive a promised $5 million investment.

The airline said today in a statement that it had asked for the money as part of a loan agreement from Viceroy Holdings LLC, a U.A.E.-based fund. But the airline said that it has yet to receive all of the money. Shares were suspended from trading on the London Stock Exchange's Alternative Investment Market at the request of the Luton, England-based airline.

In the statement, the airline said, "Silverjet's working-capital reserves are limited and advances under the loan facility are required as a matter of urgency,'' the carrier said. "Silverjet continues discussions with other parties, which have confirmed an interest in investing in the company.''

Uh-huh.

Technorati Tags: airline stocks, airlines, Silverjet

Posted by Holly at 12:40 PM | Permalink | Comments (0)

Or would that be a "smudge"?

We got a small bit of relief on the energy price front today, but not much.

Crude closed at 130.81 for the day, but jet fuel prices pretty much stayed the same, with the average closing price for New York Jet, Gulf Coast Jet, Mid-Continent, and West Coast Jet coming in at $4.09/gallon.

For the day, shares of ExpressJet posted the biggest loss for the day, as they dropped back a whopping 41%, closing at 1.61. Another day of decline for the airline -- after it said Wednesday it was cutting its branded flights by 30%.

Shares of Mesa Air Group didn't have a good day either, as the airline was forced to talk about its dwindling cash situation and potential revenue shortfall as a result of the loss of the Delta Air Lines/Freedom Air contract today in SEC filings. Shares here dropped back 16%, closing at 48 cents after the airline's discussion of a potential bankruptcy filling. With the equity in this stock already shot for the most part, one has to wonder why the airline has not already filed for bankruptcy protection.

Republic didn't have a good day either, as shares here were down 12%, ending the day at 12.45.

SkyWest was the one regional that pretty much held down the fort, as shares here were only down 1% on the day, closing at 15.48.

As for big Wednesday loser AMR, parent of American Airlines, the stock posted a small recovery today -- but nothing to write home about. The shares recovered 5%, closing the day at 6.56, after its 24% jump off the cliff on Wednesday.

Things didn't get much better for airline stocks after hours as S&P put the ratings of nine U.S. airlines on CreditWatch negative.

"The dramatic increase in jet fuel prices has increased airline costs significantly over the past two months, and, if sustained, could threaten their liquidity and financial profiles," said Standard & Poor's credit analyst Philip Baggaley in a statement.

S&P placed the following airlines on CreditWatch: AirTran Holdings Inc.; Alaska Air Group Inc., the parent of Alaska Airlines: AMR Corp., parent of American Airlines; Continental Airlines Inc.; JetBlue Airways Corp.; Southwest Airlines Co.; UAL Corp., which owns United Air Lines: and US Airways Group Inc., which owns both US Airways and America West Airlines.

Southwest Airlines, the most heavily-hedged U.S. airline, and Alaska Air Group, the second-best fuel hedged carrier, are in a "somewhat better" position than others, according to S&P.

Northwest Airlines Corp. and its Northwest Airlines unit are already on already on CreditWatch due to the proposed merger with Delta Air Lines Inc., which is currently on positive CreditWatch.

Technorati Tags: airline stocks, airlines, AirTran , Alaska Airlines, American Eagle, AMR, Continental Airlines, debt ratings, Delta Air Lines, ExpressJet, jetBlue, Northwest Airlines, regional airlines, Republic Airways, SkyWest, Southwest Airlines, United Airlines, US Airways

Posted by Holly at 8:14 PM | Permalink | Comments (0)

Herb sits down with CNBC after yesterday's annual meeting talking high oil prices, airline bankruptcies, employee productivity, and the lack of clear understanding on Capitol Hill about the problems affecting the U.S. airline industry.

Ticker: (NYSE:LUV)

Technorati Tags: airlines, Herb Kelleher, Southwest Airlines

Posted by Holly at 11:16 AM | Permalink | Comments (0)

Along with all the other emails in my box this morning was an SEC alert on Mesa Air Group.

The airline says in the filing that if it loses in its effort to keep the Delta Air Lines' contract in effect with its subsidiary Freedom Airlines, that it could be forced to seek bankruptcy protection. This shouldn't come as a surprise to many folks -- if you can simply do the math concerning the business that Mesa is slated to lose as a result of losing the contract.

As we reported here last month, a hearing on the matter is now scheduled to be heard beginning next week in Federal District Court in Atlanta.

I think the deal here is now pretty clear. If the judge agrees that Delta had the right to cancel the contract for just cause, Mesa will have no choice and will probably be forced into bankruptcy.

Ticker: (MESA:Nasdaq)

Technorati Tags: airlines, bankruptcy, Mesa Air Group

Posted by Holly at 10:48 AM | Permalink | Comments (0)

Oh wow guys. It's been a busy, busy day.

It all started this morning with the Southwest Airlines' annual meeting. Herb Kelleher's last meeting as Chairman of the airline that he helped to start. Here you see Herb engaged in one of his favorite activities -- the kissing of women. Any woman. I think this proclivity of his probably ranks behind only drinking and smoking on Herb's list of his most favored activities. I still remember the night he grabbed me at an ISTAT convention and kissed me. So do a number of folks who witnessed the-feet-off-the-ground event.

Today was an emotional affair. Herb cried. Colleen cried. We all cried. Ginger Hardage, Southwest Airlines' SVP of Corporate Communications told me that she only had one Kleenex with her, but hearing CFO Laura Wright sniffling in the seat in front of her, she tore her one tissue in half and shared it with Laura.

Yes, it was a very special day. Only fitting, because folks, Herbert David Kelleher is one special man.

Then, as we started the press conference part of the annual meeting, all the media types who had been at the American Airlines' annual meeting joined us (as the American meeting is always held earlier the same morning....something that someone should change).

It was at that point that I first heard about the changes American had announced, including the $15 charge for the first checked bag. (I want to see the nightmare this causes at check-in ....), the many employees who stood up and talked at the meeting, the hundreds of protesting airline employees there, major cuts in capacity, and on and on.

Meanwhile over on Denton Drive, it was a Herb LUV fest.

As Herb and Colleen left the press conference, Gary "The King" Kelly strode in. While technically he is not "King" of Southwest, I guess he is pretty close. The board of directors named Kelly Chairman of the airline today, and he will also assume the "President" title in July when Colleen steps down officially from her Presidential Perch.

He did tell me I could kiss his ring.

It is also always great to see all my Dallas media friends such as Dan Reed with USA Today, Terry Maxon and Suzanne Marta with the Dallas Morning News, Mary Schlangenstein with Bloomberg, and others.

Not long after Gary had left the building, and all of us were back and connected to the outside world, news hit that shares of AMR were down 25%  on the day.

The shares didn't move much for the rest of the day, as shares of AMR, parent of American Airlines ended the day at 6.22, down 24%. It was the biggest decline posted by any airline on the day.

While AMR posted the biggest decline, it was a horrible day for the entire airline sector as a whole -- driven by the record uptick in fuel, the dire tone set by the American Airlines' news and its annual meeting, and Kevin Crissey's downbeat research note comments.

Posted by Holly at 8:31 PM | Permalink | Comments (0)

Or so said UBS analyst Kevin Crissey in a research note today.

"The legacy airlines have grown passenger revenue 7% so far this year. Although this is a good result by historical standards during a period of weak economic growth, it is not remotely close to what’s needed (think 4x this amount). Spot gulf coast jet fuel prices are up an incredible 85% y/y. The industry needs to shrink in a huge hurry to be able to raise fares and reduce fuel burn and other expenses.

It is difficult to make a compelling (or even decent) case to buy any US airline stock right now. The status quo in terms of fuel prices likely results in multiple bankruptcies. We continue to have no Buy recommendations and have Sells on AMR and JBLU."

Just food for thought. This note was published this morning -- BEFORE oil picked up more than $4 on the day, setting a new all-time high of $133.17 a barrel.

Jet fuel? Another new record, and this one is a big one.

Jet fuel closed today at over $4 a gallon. $4.09 a gallon to be exact.

Posted by Holly at 7:33 PM | Permalink | Comments (0)

Oil prices bounced around a bit today, but when all the shouting was done, crude oil futures closed at 126.29, up $2.17 on the day.

Spot price for New York Jet Fuel closed at $3.88/gallon.

Posted by Holly at 4:52 PM | Permalink | Comments (0)

One of our regular readers sent us an email this morning that I thought was a great opening for a short story.

"In the morning, I wake up, turn on CNBC to check the price of oil, utter a few curse words and head to the fridge for a Diet Pepsi."

He added, after I sent him a note about his very descriptive prose, "And yes, it happened today!  I saw $126 and change and said 'F**k, here we go again!!' That oil ticker provides more of a jolt on some days than either Diet Pepsi or coffee!!"

As of this posting, crude is running at about $126.65, up 2.53 on the day, but off the $127.40 mark it hit earlier in the day.

The price of oil: our industry's contradictory equivalent of Jolt. Twice the caffeine, providing twice the incentive to just go back to bed.

Posted by Holly at 12:10 PM | Permalink | Comments (0)

Moody's Investors Service cut its liquidity rating on United Airlines today amid concerns about higher fuel costs, a slowing economy and rising costs.

The rating firm lowered the speculative grade liquidity rating to SGL-3 to SGL-2, and the outlook to “negative” from “stable.”

Moody's meanwhile affirmed the carrier's corporate family rating and other debt ratings, which remain at B2, which is a speculative or "junk" rating.

Moody's said it lowered the outlook because it expects the airline's operating and financial performance to deteriorate.

"Weaker results are likely because of materially higher fuel costs, but also the weakening economic conditions that are likely to reduce demand and limit recovery of higher fuel costs by raising ticket prices. United also faces continued challenges to control the growth of unit costs," Moody's said.

Sounds about right to me.

Ticker: (Nasdaq:UAUA)

Posted by Holly at 12:13 PM | Permalink | Comments (0)

$600 million of them.

While Southwest Airlines has the strongest balance sheet in the industry, apparently even they are not taking the prospect of the current financial situation lightly.

The airline has borrowed $600 million, leveraging its ownership of 21 Boeing 737 aircraft, the airline disclosed yesterday.

Beth Harbin told Terry Maxon at the Dallas Morning News, "We felt it was wise to bolster our cash position with today's soaring fuel prices and uncertainty in the economy and the credit market. We want to be prepared for whatever happens."

At the end of the first quarter, Southwest had $3.12 billion in cash and short-term investments.

No word on whether or not Southwest CEO Gary Kelly is considering dressing up like one of these wacky squirrels next Halloween, but we think the idea has merit.

Ticker: (NYSE:LUV)

Technorati Tags: Southwest Airlines

Posted by Holly at 3:15 PM | Permalink | Comments (0)

Thanks so much to a reader who just dropped me a note to let me know that ExpressJet cancelled their call this quarter.

Yes, there was a line about this at the bottom of their earnings release. I just blew right past it.

Thank you again to our reader friend at Continental for the news. No wonder I couldn't find the audio of the call, much less the transcript.

That's a shame. There should be a rule against canceling an earnings call when another airline is trying to buy your airline.

Don't you think?

Posted by Holly at 8:04 PM | Permalink | Comments (0)

Closing price for oil today was $125.96. That is an increase of 2.27 on the day.

Looking at this news today, and absorbing all that has been swirling around the industry this week, including the testimony of both Northwest and Delta Air Lines' execs on Capitol Hill this week, I think there are some things that need to be said.

This week Steve Wallach, chairman of the United MEC of the Air Line Pilots Association issued a statement that said, "We are aware of continued speculation in the media of a possible merger between United Airlines and US Airways, and have serious concerns that the highly touted financial benefits to be derived from such a merger are unlikely to be achieved because these benefits are based on assumptions that have no basis in reality," Wallach said. "We therefore believe that a merger with US Airways should be a last resort and not a first choice for United."

I've been thinking about this statement.

First, who has been touting the "financial benefits" to a merger between US Airways and United?

I certainly haven't heard any, and you sure as heck haven't heard anything remotely close to this coming from Doug Parker or Glenn Tilton.

At least not yet.

So I'm not sure what benefits he's talking about, nor what assumptions. I think it's kind of hard to judge anything until you have something in front of you to pick apart. This smacks to me of the pronouncements from the Delta MEC when US Airways tried to do a deal with Delta. Before the details of the deal were even delineated, the MEC was out trashing it.

And why wasn't the United MEC making similar comments about a potential deal with Continental Airlines? Probably because the pilots at United were too mesmerized with the possibility they could bump up to the Continental pilots' pay rates. As this tidbit was mentioned to me by more than one United pilot -- I have to assume this was the case.

As to his comment that a merger with US Airways should be a "last resort," and not a first choice, I have to really scratch my head on this one.

Steve, Continental Airlines management has rejected a merger with your airline. There are no other reasonable potential partners out there. The out-of-bankuptcy financing package that United entered into when it exited bankruptcy was predicated on a merger or buyout occurring. The airline is too leveraged not to do a deal.

Did you look at the first quarter earnings report from United?

If you did, it should be pretty clear that if things stay "status quo" the airline is going to blow through whatever cash it now has (minus that nice shareholder Christmas present in December) in no short order.

In a perfect world, I don't think anyone would be looking to mergers as an answer to a problematic airline industry. Unless it was maybe those greedy investment bankers.

But this is not a perfect world.

In fact, I'd argue that with oil prices in this range, we're looking at the worst possible world for an airline to make a buck.

We're talking survival here.

And I think that all employees of this industry need to understand that union squabbles and pay rates and everything else are going to have to take second seat to something else -- survivability.

Oh, don't get me wrong. I'm the one who annointed United's Glenn Tilton as the Master of Greed. He received his own special award from PlaneBusiness Banter for it. And I think management at United has not done enough to overhaul its underlying operation. And they did little that required heavy lifting during bankruptcy -- except try and wrangle an ATSB loan and do away with their employee pensions.

But we all have to understand that we have to start looking at airlines as big companies with big infrastructure costs, and lots of moving parts. Some of those parts are making money and some aren't. Some made money at $60/barrel oil. Some still made money at $90/barrel oil. But most of them are not going to continue to make money at $125 or $130 barrel/oil or higher.

When it gets right down to it, the parts that are making money are going to be kept, and the parts that aren't, are going to have to be divested, put on a shelf, or parked in Arizona.

Passengers are going to have to get used to higher fares and fewer flights.

And airline employees are going to have to understand that we should not be surprised if we see airlines pulled apart, with pieces going here and other pieces going there. Furloughs, lay-offs. They are both very distinct possibilities. Talking to one analyst this week he and I were wondering just what airline is going to be the first to announce an across the board cut in employees -- beginning in the fall.

Unless oil drops -- we're going to see this happen.

Delta- Northwest is a perfect example.

Either Delta's Richard Anderson is living in la-la land, (which I don't believe) or I think it's a safe bet that after the merger of these two airlines is approved -- we are going to see cuts and changes that no one has even begun to guess about at this point in time.

So -- a potential merger with another airline should be a "last resort?" I think United and its employees should be happy that there exists an airline that would even consider merging with it at this point in time.

There are many more horrible fates that could befall United Airlines than a potential merger with one of the best management teams in the industry. We all have to understand what the situation is now in the U.S. airline industry. No airline is really immune from potential extinction. But the bigger you are, the better you are managed, and the more resources you can tap -- the better your chances for survival are going to be.

Tickers: (Nasdaq:UAUA), (NYSE:LCC)

Technorati Tags: airline earnings, airline industry news, airline mergers, airline stocks, airlines, ALPA, Continental Airlines, United Airlines, US Airways

Posted by Holly at 5:16 PM | Permalink | Comments (2)

They lower earnings estimates for airlines of course.

What else do they have to do?

This morning analyst Kevin Crissey from UBS issued  a research note in which he said, "The outlook for the US airline industry is changing very rapidly as fuel prices play an increasing role in painting the industry’s profit (well..loss) picture. As a result, our estimates have been getting stale quickly. In response we are moving to a periodic update schedule. We will be updating our forecasts at a minimum every two weeks to reflect changes in fuel and other factors."

He continued, "There is little to like about the financials of the airlines right now. We forecast 2008 losses as large as $10/share (UAUA and LCC) and only LUV will be profitable if our numbers are correct. The extent and duration of the cash burn is the question rather than whether or not there will be profits. We have no Buy recommendations and have a Sell on AMR and JBLU."

As for earnings revisions, Kevin noted, "We are updating our forecasts to reflect recent industry news, most of which has been negative. Our estimates now incorporate the 10-day moving average of forward fuel prices (~$3.40/gal) and include the unit revenue and traffic reports from the carriers. US Airways reported April passenger unit revenue (RASM) growth of flat to down two percent and jetBlue announced an April RASM increase of 3%. Both numbers are on tough comparisons given the shift of Easter to March this year but each also prompted us to slightly lower our Q2 revenue forecasts."

My apologies for the fuzzy chart, but it was reproduced from a PDF and had to be "upsized" before converting it so you could read it.

Posted by Holly at 12:46 PM | Permalink | Comments (0)

Oil closed up 16 cents on the day, ending the day at $123.16.

For those of you with really enquiring minds, the spot price of NY Harbor Jet Fuel closed today up six cents to $3.71 a gallon. Remember that this is just the raw fuel cost - no tax, no "in-plane" expenses.

Posted by Holly at 4:28 PM | Permalink | Comments (0)

As of this posting, crude oil futures are trading at......you sitting down?

$123.69.

This is up $1.85 on the day. Not only that, but once again as we have seen more than once over the last couple of weeks, higher than expected inventory numbers this morning from the Energy Information Administration did nothing to make traders back off from driving the price even higher.

Simply reinforces the belief that U.S. demand is taking second seat to the larger problem of the falling value of the U.S. dollar.

Technorati Tags: airline industry news, airlines, Economy, oil prices

Posted by Holly at 1:36 PM | Permalink | Comments (0)

Hey, don't shoot the messenger.

Posted by Holly at 4:10 PM | Permalink | Comments (0)

As of this posting, crude oil futures are trading at $121.65, up 1.68 just since the open.

But that's just the tip of the iceberg this morning when it comes to bad news about oil prices.

Those who have been watching the rise of oil the last few years may recall when Goldman Sachs issued a research note in the spring of 2005. To say the note was controversial at the time would be an understatement. In that note, analysts at the investment firm wrote about a "super spike" in oil prices that could occur pushing oil prices between $50/barrel and $105/barrel until 2009.

This morning Goldman Sachs analysts issued an updated note saying that crude prices are now poised to potentially rise between $150 and $200/barrel. "The possibility of $150 to $200 per barrel seems increasingly likely over the next six to 24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the up-cycle remains a major uncertainty," the note said.

Why?

No surprises in their reasoning.

Demand growth is outpacing output growth. China has more than doubled oil use since New York crude dropped to $16.70 a barrel in November 2001. That has basically taken up most of the world's spare capacity, while at the same time supply has been cut in Nigeria, Iraq, and Venezuela.

Spare production capacity of the Organization of Petroleum Exporting Countries (OPEC)  is low, and the group's exports could easily fall because of "lackluster" supply growth and rising domestic consumption in member countries, the Goldman analysts added.

Underscoring this, Indonesia yesterday said it might quit OPEC as it consumes more oil than it produces, and lowered its oil sales estimate for 2008 to 927,000 barrels a day from 950,000.

Posted by Holly at 10:30 AM | Permalink | Comments (0)

Not quite $120, but close enough.

Posted by Holly at 4:30 PM | Permalink | Comments (0)

And you wonder why I opened up today with sports musings?

Earlier this morning the price of a barrel of crude hit $120 plus in trading. As of this posting, it's hovering around $119.90 and change. Stay tuned.

Not too far removed from the issue of higher oil prices is the news today that United Airlines is probably going to ask its bankers that hold its debt, which include JP Morgan Chase, and Credit Suisse for some "concessions." Or to put it another way, United looks like it wants more "wiggle room" in terms of its credit facilities.

The Financial Times reported today that "While United has maintained that it has enough cash and earnings to remain in compliance with the credit facility's terms, concerns about its financial health helped persuade Continental Airlines Inc. (CAL) to end merger negotiations, people familiar with the matter have said."

Sounds about right to us.

Wouldn't it be nice if you and I had the same option? You know -- your car payment putting just a bit too much strain on your monthly finances? Well, just call up Chase and ask them to re-negotiate that car loan. Piece of cake. Or call  Bank of America and ask that your mortgage be re-negotiated for a longer term.

Unfortunately things don't seem to work that way.

Posted by Holly at 12:55 PM | Permalink | Comments (1)

Hi guys.

Just taking a break from writing this week's issue of PlaneBusiness Banter, and I thought I'd drop in here for a bit and get you caught up on few things of note.

One, the price of crude took a hefty bounce upward today, after having lost some ground on the news Wednesday that crude inventories had risen in the U.S. this week.

Light crude futures closed Friday at 116.32, up 3.80 for the day.

As for airline stocks, it was one crazy week in the airline sector, as shares of Mesa Air Group really took off after the airline announced that it had settled with Hawaiian Airlines earlier this week. Shares of Mesa, which closed last Friday at 47 cents, closed today at 1.10. Woo hoo. That's what happens when a potential bankruptcy filing is able to be put off -- at least for now.

Oh, and that gain? A cool 134% on the week.

The second biggest gainer on the week was Allegiant. The airline posted great first quarter numbers this week, as did WestJet. But Allegiant is the one investors jumped on after the news. Shares here ended the week up 39%, closing today at 27.99.

Shares of WestJet were up 3% for the week, ending at 17.03 today. The deal here in a nutshell? The airline posted excellent first quarter earnings this week, but the airline also talked about the challenge of fuel going forward. I think this spooked some folks. But actually the numbers WestJet posted were nothing short of stellar.

All in all, it was a drop dead great week for the airline sector, as we had the vast majority of stocks we track post gains on the week, and we had seventeen airline stocks post double-digit gains for the week.

Not a bad recovery from last week's carnage on Wall Street for the things with wings.

Technorati Tags: airline stocks, airlines, Allegiant Airlines, Hawaiian Airlines, Mesa Air Group, WestJet

Posted by Holly at 8:49 PM | Permalink | Comments (0)

Hi guys. I see where our friend Godzilla reported the news from yesterday concerning the Mesa Air Group/Hawaiian Airlines settlement. One thing he didn't mention but was fairly telling as to why the suit was settled for the amount it was. Mesa was forced to put up a bond for $90 million as a result of the original trial verdict in which U.S. Bankruptcy Judge Robert Faris found the airline guilty of using confidential information about Hawaiian as part of its planning for its start-up airline go!.

Subtract the $52.5 that Hawaiian received in the deal and what do you end up with?

That's right. Basically $37.5 million.

And how much cash does Mesa Air Group need to pay off its convertible bond owners in June - when that convertible issue becomes due? That's right. About $37.5 million.

So, you say -- so what? Well what it says to me is that Mesa is not, obviously, going to go into bankruptcy without putting up a fight. The other reason this is good news for Mesa is that they would have found it hard to get any traction on any kind of potential "deal" involving the airline or parts of the airline, as long as that verdict stood and the appeal was still in motion -- and it did not seem like it was going to be possible to get an answer from the appeals court until after the convertible note was due in June.

So it works out well for Hawaiian, as I think they are probably ecstatic to get their hands on $52.5 million in cash, especially in this environment, and for Mesa's immediate financial situation -- it gives them more time to figure out their next move. But make no mistake -- they just coug