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.

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.

I say that because I have yet to talk to an America West pilot who has paid USAPA dues. While USAPA claims to have 5800 members, I think the number is probably closer to 3000 or less.

Yes, USAPA. The same union that was voted in, after the US Airways East pilots refused to go along with an ALPA arbitrator's award decision in the union seniority process to unite the two separate (at the time) ALPA memberships.

Yesterday, the brain trust of this organization, and I use that term loosely, decided to run a full page ad in USAToday, accusing management at US Airways of "pressuring pilots to reduce fuel levels for your flight in order to save money."

The ad then continued,

"We ask that you remember this: although we consider US Airways to have embarked on a program of intimidation to pressure your Captain to reduce fuel loads, US Airways Captains are committed to maintaining their right to exercise their "Captain's Authority," granted by the Federal Aviation Administration, to ensure a fuel load that will safely fly you to your destination with all the reserves necessary to handle any contingencies related to the flight."

Uh-huh.

Those of us who know and work in this industry know what this is. It's a very sad attempt by grown men who should have better things to do with their time to get media attention by crying "Safety, Safety."

Thankfully, no major media outlets paid much attention to the effort -- because, frankly, they also knew it was a bunch of crap.

However -- then there is Larry King. And CNN.

Last night, US Airways' CEO Doug Parker and ATA President Jim May were scheduled to be on King's show to discuss the issue of rising fuel costs, the industry's cost problems, whatever.

But what the show turned into was a discussion of how unsafe US Airways was -- because of this "problem." Not only that, but Parker, because of commitments in Washington, was unable to be on the show. The show's producers apparently thought it was okay to bash the supposed "unsafe" practices of the airline without having the courtesy of having a representative of the airline on the show at all.

As one reader noted in a letter he sent to CNN today,

Yesterday I tuned into your show with the hopes of seeing the CEO of US Airways speak to the crushing negative effects the run up of oil is having on the airlines, the economy, and my career. What I saw was something all together different.

Instead of the scheduled speakers I witnessed a disjointed, subjective, discussion over a “news” story that was generated by an ad placed by the leaders of the new rookie union at US AIRWAYS (USAPA). This ad was nothing more than an ill guided attempt by the fledgling union’s leaders to flex their muscle during contract negotiations.

The core issue here is not about how much fuel a pilot can carry, safety or “Captains Authority” but rather a dispute between the company and a segment of the pilots this new Union represents. (It should be noted that not one of the 1800 former ALPA represented pilots of America West have elected to join this new union.)

As a Captain for America West and post merge the New US Airways, I have never had the company question the amount of extra fuel I choose to carry on any flight segment. Many of those segments routinely carry me and my passengers over the longest over water route in the world and as such I am very cognizant of the need for adequate fuel reserves for any contingency.

I was appalled by this new "Union's” attempt to bring safety into question when it is clear, based on the data collected, that this was a deliberate attempt by the pilots in question to carry and burn more fuel in an effort to influence the company to acquiesce to their contractual wishes.

As a one time Executive Vice President of The Air Line Pilots Association I have seen and participated in my fair share of labor disputes but I have never witnessed nor would I condone using a bogus “safety” issue to apply leverage to a company."

As I said in a recent issue of PlaneBusiness Banter -- as we see a number of airlines link-up, or merge, and as it becomes more and more clear that the union problems involving the pilots at US Airways apparently had a major chilling effect on the airline's potential merger with United Airlines -- these guys at USAPA are only going to have themselves to blame if the airline finds itself without a dance partner going forward.

But this latest stunt, I have to say, takes the prize.

The boys at USAPA are real men of genius.

As a result, they are more than deserving of a PlaneBuzz Buzz Bomb Award.

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

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

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

During the last couple of months, the swans have come up in more than one email to me. Why? Because they really grate on people's nerves.

They also poop a lot, and are mean as hell. Or so I'm told.

But it's more the visual significance. Or as someone on an airline geek list I am on wrote today, "I was telling a friend that if Bob Crandall were here he'd take off his shoes, roll-up his pants, wade out into the pond, and strangle those swans with his bare hands. Then probably have them served for dinner on a plane."

Well, in case you think that the management folks at United have better things to do these days -- you are wrong.

It seems that the company just had a "Name the Swans" contest.

And I quote,

"Subject: Name the Swan Contest

Name the Swan Contest
The winning names... by a landslide ....Leon and Ellen.

Leon is named after the first pilot, Leon Cuddeback, for Walter Varney's airline which later became United.

Ellen is named after the first flight attendant, Ellen Church.
Thank you to Amelia Zemaitaitis -WHQER who submitted the winning entry.

Amelia and three of her co-workers will be treated to a special luncheon in the patio overlooking the pond.

Your Facility Team

'Committed To Service'"

Technorati Tags: airlines, United Airlines

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. 

Subscribers to the PlaneBusiness Banter can review the full earnings calendar, including links to the webcasts for each airline's earnings discussion calls, and earnings summaries for this quarter's results.

Delta will discuss its earnings at 10 AM Eastern today, while Continental's call is tomorrow at 10:30 AM Eastern.

During the next few weeks, expect to hear this phrase frequently: "Results were negatively impacted by the price of jet fuel."

From the sublime to the ridiculous. First we have those who would equate airline to utility companies, and now this not so subtly disguised promotional piece touting a study that purports the solution to the current airline dilemma is better brand management. Airlines as The Electric Company, or yogurt.

The news release provides a link to a "Market Study" on 6 major airlines, which is really simply an analysis of their advertising strategy. In addition to being poorly written, complete with typos and an interesting use of grammar, the content was fairly lame and simplistic. Northwest and Delta were included as separate "studies" with no mention of their merger, nor how the new merged carrier might carry out a new brand management strategy.

Here's an excerpt from an airline industry blog on the site written by the CEO of the company who wrote the study - "The REAL loser here is you and I (Passengers) and the employees. Earth shattering change is needed and cutting out our pretzels, beverages and the other pittance of amentites (sic) currently offered will never make any of the (sic) successful. It is as if thier (sic) problem can be solved by charging me for my carry-on-bag. That is a sure way to encourage me to prefer them!"

It gets worse, both in terms of content and the recommendations. Absolute drivel. Don't get me wrong, in a normal business during normal times, brand management is critical. However, this ain't it.

Trying to rationalize the absolute disparity between article I wrote about a couple of days ago and this one was an interesting exercise. I've resisted the idea that the airline business is a commodity business, but the present set of circumstances are unprecedented. It's survival now, not marketing. It's like a heavy weight prize fight; sometimes winning is just being the only guy standing when the bell rings.

At any airline, everyday there are thousands, perhaps millions, of transactions that take place. The obvious transactions are between the airline and it's customers, but there are also transactions between airline employees. Each of those transactions have a plus or minus effect on the day's results. I think creating an environment where line employees and senior management are on the same team and feel the ups and downs equally with the line worker is part of the answer.

In addition to the self-promoting "news release" about airline brand management I saw today, I also saw a release from Southwest Airlines. I am not sure if there are any airlines out there today who would give a surprise party to a retiring airline president, except Southwest Airlines.

.

So of course the next step was to buy a couple more barrels and hook them up in series. Unfortunately the wifely unit put a stop to that project. Even when I explained all of the money we'd save on water (though the barrels cost $90 each, so, the payoff comes in 126 years), she shut me down. I've attached a picture here for your unbiased opinion. I think it looks kinda neat, no?

Regardless of your opinion on my rain barrel, I need to talk a little about reregulation, and specifically about an article by RSM EquiCo calling for congressional action on airline reregulation. The piece is very well written and goes through the obligatory bullet points listing the reasons that airlines need to be regulated again.

The article correlates the health of the airline industry to the general health of the economy, and although the airlines tanked before the economy did, the weak airline industry is exacerbating the general economic woes. The article quotes liberally from a speech given by Robert Crandall recently, where he drew a parallel between the airline industry and public utilities.

Further the article promotes "a structure in which a commission is established to review airline prices is essential, given the utility-like characteristics of airlines, and that if anything is to come out of possible industry re-regulation, it should be an updated pricing model."

Of course, oil at $150 a barrel will also spawn an updated pricing model, while removing all of the excess capacity that caused the low prices in the first place.

Bad idea, bad, very bad. Airlines are not similar to utilities. Everybody needs lights and heat, not everybody needs to fly for business or pleasure. Setting up commissions and boards, and getting the government process involved in the airline business (in fact, I think getting government involved in any business) will be an absolute disaster for passengers. You can't regulate common sense, and the glut of capacity and resulting pricing madness in the U.S. airline business has been a boon for passengers.

Now, it's time to pay the piper (or the oil man, take your pick). Airlines that have grown because they have good fundamentals and a strong product will weather this current set of unbelievably bad circumstances. Airlines that have skated along with no plan, no strategy, no product, and no business being in this business will fail. We don't need government regulation to limit the airlines that have this business figured out, while simultaneously propping up the ones who don't have a clue.

Technorati Tags: airlines

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.

____________

An Open letter to All Airline Customers:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.

_______________

The letter was then signed by the Chairman and CEOs of all the U.S. major airlines.

Who's behind this effort?

The Air Transport Association.

A couple of weeks ago I took the ATA to task for whining to Congress about this issue in PlaneBusiness Banter.

But apparently somebody still thinks it is a good idea for the airline industry to play the role of "victim" and cry that "speculators" are running up the price of oil. This means that many who receive this message will now assume that if Congress would just DO SOMETHING about this -- the problem will go away.

Hogwash.

I'm sorry folks, but one, even if Congress were to pass tighter restrictions on energy traders, that is not going to stop the free markets from working as they always have. Secondly, rampant speculation is NOT what is causing oil prices to rise.

Finally, as a report on NPR the other day noted, just who are these "speculators?" Evil Wall Street types who like to "prey" on defenseless industries and the American public?

Not hardly. According to their research, pension funds, yes, maybe yours if you even have one left (and considering you may work in this industry that is a big assumption) have bulked up on energy contracts big time, to the tune of a triple digit increase in the last 5 years.

Why? Maybe it is because they thought it would be profitable.

Duh.

Of all the problems affecting this industry that cry out for leadership -- ATC issues, overcrowding in the skies, slot restrictions, tax issues, and of course, the ongoing saga of the FAA -- the ATA has decided that this one is the one that is so dire that it has enlisted the air of their respective members -- and their members have now taken the straw-man "crisis" to the traveling public.

And then the industry wonders why Congress and those in Washington don't take the industry seriously.

Technorati Tags: airline CEOs, airlines, oil prices, Air Transport Association, United Airlines