Monthly Archives: July 2006

Northwest Flight Attendants Vote No


Rut ro.

The Northwest Airlines’ flight attendants have voted down the latest tentative agreement that was negotiated between its new union representative, AFA-CWA, and the company.

The vote was 2637 for and 3266 against.

All you good airline industry watchers know what this means. The bankruptcy court handling the Northwest bankruptcy gave the airline the right to impose new terms on the flight attendants in June. But both sides continued to negotiate on another tentative agreement, and after the flight attendants voted to change union representation.

The company said today it is moving forward with plans to implement contract terms that go back to the March 1 tentative agreement with the PFAA that was not approved.

AFA, for its part, says on its website today that it will attempt to go back to the negotiating table. In the meantime, it also says it is “preparing for CHAOS.”

CHAOS is the acronym for “Create Havoc Around Our System,” the union’s method of using targeted unannounced work actions. AFA also could call for an all-out strike.

Stay tuned.

Update on United/Heathrow Slots; United Announces End of Profit Drought; ANA Correction Noted


As we anticipated, United will cease operating flights utilizing its remaining pair of slots at Heathrow-JFK . The airline is leasing the slots to Air Canada for a period of 3 years, according to Kevin Done of the Financial Times. (Entire article is free on MSNBC.)

More details of interest on the deal – Delta is apparently paying United about $21 million for its Gatwick/JFK routes.

If I’m United, I gotta love that.

Speaking of United, the airline announced second quarter earnings today. The big news here? For the first time in six years the airline reported an honest-to-god quarterly profit.

The not-so-good news? While the numbers were better than the most recent consensus numbers from the analyst community — a fact highly touted by the airline — those numbers were lowered, for the most part, because of guidance from United after first quarter numbers were released.

Mix it up and what do you get? The $119 million profit the airline reported was good news, but certainly not in the same league as the level of profits we’ve seen reported by Southwest, US Airways, American, and Continental this quarter.

Finally — on Friday we originally mentioned here that ANA had recently begun service from Dulles-Narita. This was a brain fart. Obviously ANA has flown out of Dulles to Narita for years. Since 1986 as a matter of fact. However they just recently increased the frequency of service from Dulles, in addition to adding their new Boeing 777 service.

Sorry for the confusion. The new service is what I was thinking about, but obviously what I was thinking and what I ended up writing was two different things.

I have since corrected the original post, but I was still getting direct emails question on it. So, hopefully now all will be back to normal. If not, well, I’ve done all I can do to get us there.

Frontier Reports In; Guidance Down


Friday Frontier Airlines reported earnings. The airline reported net earnings of $4 million, or $0.10 a share, which was a considerable improvement over last year’s loss of $2.7 million or $0.08 a share.

However, looking at the airline’s operating statistics, while the airline’s CASM excluding fuel and special items was down 6.1% — a nice number — the airline’s PRASM, which was up 8.5%, lagged the industry 15.9% increase average for the quarter significantly. This is a direct reflection of the increased competition at Frontier’s home base of DIA.

Think United Airlines out of bankruptcy protection. Think Southwest building up its new service out of DIA.

Biggest negative from the airline’s call last week? The airline said that we should expect to see “similar” profitability in the airline’s second quarter (quarter ending Sept. 30.)

This was not good news, although it was also not unexpected. Considering consensus for the quarter, at the time of the call, was for the airline to report profits in the $0.19 a share range, essentially this means net earnings for the current quarter are now expected to be about half what analysts had forecast.

As a result, look for further reductions in earnings estimates here.

As we have written in PBB, with the airline generating about 90% of its revenue out of the Denver market — and with the airline now facing a full-frontal assault from Southwest (which will increase flights in Denver by 60% in the next two months), it would certainly seem that this revenue deterioration is only going to continue.

Our take this spring, when we very reluctantly put Frontier Airlines on our resurrected Titanic Watch is this — while the airline has enough cash for now ($296 million), the airline can’t continue doing what’s it’s doing. Or it’s going to be a slow and certain unhappy landing. Let’s just say the revenue trend is not the airline’s friend in this case. Something’s got to change.

The guidance for next quarter last week reaffirmed my reasons for putting the airline on our Watch list.

Delta In Deal with United for JFK/Gatwick Routes


Signs of life this morning from both Delta Air Lines and United Airlines.

First United Airlines has agreed to transfer its route authorities between New York’s JFK International and London’s Gatwick Airport to Delta Air Lines. While United has not flown this route since 2000, the move more or less shows that someone at United has finally admitted the obvious: New York is not where United can make the most money with its airplanes.

For that matter, United has been reducing its service between JFK and Heathrow for the last five years. The airline did not say today whether it plans to drop its one remaining flight or not to Heathrow, but you have to believe this is probably going to happen.

When it does, it just won’t be headlined in a press release.

While Gatwick is certainly not Heathrow, this move will give Delta more credibility in its efforts to actually establish a hub of sorts at JFK and boy does this route structure ever start to look more and more like the old Pan Am.

United Poster

But, United had other news as well. The airline is also shifting its New York to Tokyo flights to Dulles, starting in October.

Remember that ANA recently began daily service from Dulles to Narita with their new Boeing 777s, although ANA has served the route since 1986. United has a codeshare agreement with ANA. So those who want to fly Narita from New York and get UAL miles will still be able to fly ANA out of JFK and do so.

United also announced the reinstatement of San Francisco-Taipei nonstop flights, it is adding three weekly San Francisco-Hong Kong flights, and it is expanding service from San Francisco to Seoul to a yearly basis.

We like this news from United. I only wish we had heard more news like it the last four years.

PBB Posting Time

Home-Typewriter Copy-1-1

Hey guys. Look for this week’s issue of PBB to be posted Friday morning. What can I say — it’s a long issue! We’ll post a note here when it’s up and ready for perusal.

Earnings Madness: Thursday Update

Today we had three airlines report earnings — US Airways, AirTran and Midwest Airlines.

Our thoughts after looking at the numbers, but not listening to earnings calls:


US Airways, not surprisingly, posted strong numbers for the quarter. Easily the best performance by a quasi-used-to-be-legacy-now hybrid airline. You get the point. No matter how you want to classify the new animal, the numbers were good.

The airline posted an 11.3% margin — which gives it the second largest operating margin for the quarter — right behind Southwest. And we all know Southwest posted exceptional second quarter results last week. So this is certainly not a bad place for US Airways to be.

Consensus here was for the airline to post profits of about $3.24/share. The airline posted profits of $315 million, or $3.35, excluding special items. Including items, the airline posted net profits of $305 million or $3.25 a share.

On a standalone basis, US Airways reported a profit of $246 million versus a loss of $44 million a year ago. As for America West, on a standalone basis, it reported a profit of $68 million versus a loss of $2 million for the same period last year.

AirTran also reported good numbers for the second quarter. The airline posted net earnings of $32 million or $0.33, slightly ahead of the consensus number of $0.28.

Operating margin here came in at a very strong 10.3% — which puts AirTran in third place for the quarter, behind Southwest and US Airways. Nice performance here.

Finally, Midwest Airlines also reported in Thursday morning. Three airlines, three profits. Midwest reported profits of $8.8 million, or $0.39. While these results were not as strong as the ones reported by US Airways or AirTran, they certainly beat a loss, which is what Midwest reported for the second quarter of 2005. Furthermore, the airline posted an impressive 19.8% PRASM increase while CASM excluding fuel was down 7%. A very nice combination.

Earnings Madness


Hey guys. Just thought I would pop in for a quick note. Yes, it’s earnings madness. This week and next week are the heaviest earnings weeks for the industry and yours truly is up to her eyeballs in earnings statements and earnings call replays.

But just a couple of things concerning earnings, since I realize I had not commented on earnings since Continental reported in last week.

First while I said I was somewhat underwhelmed with Continental’s numbers — we have to look at the airline’s results in context. Yes, the airline reported a profit. Yes, the numbers were quite good comparatively speaking. But Continental being Continental, and because the airline’s stock has always been on and off our target lists over the years — I was referring mainly to the fact I think the airline’s stock is pretty overvalued right now.

With the airline looking to add capacity in the 3-4% range systemwide next year, with JetBlue knocking some of the wind out of their revenue sails in Newark (although it sounded in an interview today that JetBlue CEO David Neeleman was hinting the airline might pull out of Newark because of problems with the constant delays, etc. there), with costs running a bit higher than expected this quarter, and with comps continuing to be tough for the rest of the year — I just don’t think these numbers show me the kind of “notable” numbers the airline would need for me to get excited about the stock right now.

So — no, in answer to a couple of notes, I had no problem with the results per se. I just didn’t see anything in there that surprised me on the positive side enough to get me to dive into the stock shark pool. I’d like to see the stock slip back a bit more before that.

Alaska Airlines reported earnings this week, as did JetBlue.

Alaska had an excellent quarter. The airline continues to work at cutting its cost structure — but it also appears that it just may have its operational issues under control as well. Numbers here were good. Revenues were good, and costs continue to be addressed. Horizon, Alaska’s regional partner, also had a good quarter.

JetBlue, on the other hand, had a fair to middlin’ quarter. Marginally good, I guess is what you could call it. One thing I would recommend is that if you are interested in JetBlue, listen to this quarter’s earnings call. There are a lot of things that are addressed in that call. It’s an interesting listen.

Mesa reported earnings this morning. I have not had a chance to listen to that call as of yet. I will do that in the morning. However, I can say that my first impression at looking at the airline’s numbers was not positive. Looks like the airline had much higher start-up costs than expected as part of their Hawaii 5-0 project, aka “go!”, and they are also up to their old tricks in terms of revenue items and unusual charges.

Essentially the airline included $13.1 million in U.S. Airways’ bankruptcy gains as part of their earnings for the quarter. No. I don’t think so. Neither does JP Morgan analyst Jamie Baker. That should have been treated as a one-time gain.

To put it another way, if you take that $13.1 million one-time gain out of the mix, it would make a big difference to the airline’s earnings for the quarter, as the airline reported net earnings of $10.9 million.

Meanwhile Mike Linenberg, analyst with Merrill Lynch said in his note on the results that it was unclear what the $7.8 million in additional “one-time” additional expenses the airline reported were. As he put it, it was not clear if this was attributable to start-up costs with “go!,” or the transition of aircraft from US Airways to United and Delta.

Maybe this explains why the airline went to the “economy” employee medical insurance plan this spring. Heh.

Hopefully these issues are addressed more fully in the airline’s earnings call.

Talk to you guys later.

Wright Agreement: Rut-Ro…..or Maybe Not

Wright As we said in June when this rather strange thing called the “Wright Agreement” first became public — getting the said agreement signed, sealed, and delivered intact by Congress before the end of the year looked like a tall order to me.

Last week the House bill on the agreement was not even scheduled, and this week it’s still not scheduled. As a result, it increasingly looks like nothing is going to happen here until after Congress returns from its summer vacation.

Opposition has cropped up on the Senate side as well.

This afternoon, the Associated Press reported that the Justice Department had weighed in on the deal.

According to the AP, the Justice Department’s antitrust division told lawmakers in a letter that restrictions in the agreement to repeal the Wright Amendment would be “hard-core, per se violations of the Sherman Act.”

According to the AP,

“The Justice Department said the gates to be torn down could be used by other airlines to enter and compete there. Razing them “is the very kind of collusive output reduction that the antitrust laws are designed to prevent.”

Southwest is also limited to 16 gates in the deal, which the Justice Department said is a hard cap on Southwest service from Dallas for more than eight years and would not allow Southwest to expand its operations once the Wright Amendment is lifted without leaving cities it now serves or facing penalties for starting up service at another Dallas area airport.

The department said the parties to the local agreement are aware of the antitrust violations because they have sought blanket immunity for the agreement, instead of including an “antitrust savings clause,” which the agency said is commonly done to preserve competition under antitrust laws.”

However, stop the anti-trust press.

Just as this news was being digested Tuesday afternoon, officials with the Justice Department apparently told Sen. Kay Bailey Hutchison, R-Texas, that they had not taken a position on the legislation.

Hutchison released a letter late Tuesday in which William Moshella, the assistant attorney general for legislative affairs of the Justice Department told her, “It has come to my attention that some believe the (Justice) department opposes … the Wright Amendment bill. To the contrary, DOJ and the (Bush) Administration have not taken a position on the bill. In fact, we see laudatory elements in the bill including the phaseout of the Wright Amendment restrictions. We share your concern about fixing this several decades old issue and of course want to foster the maximum amount of competition in the airline industry which will be a benefit to consumers.”

According to the Ft. Worth Star-Telegram Tuesday night, the Justice Department did not, however, specifically disavow the earlier “unsigned” Justice Department memo.

I’ve forgotten what round we’re on in this one. I think we may be approaching the triple digits.

BuzzBomb To Mesa Airlines


I first received a note about the situation with employee medical coverage at Mesa about two weeks ago. This was shortly after we BuzzBombed Northwest Airlines for the short two-week time frame employees there were given to respond back to the airline in regard to their choice of medical coverage.

That week I received a note concerning employee medical coverage at Mesa, which, frankly, I just didn’t believe.

But, it appears to be legit.

Here’s the deal.

It appears that Mesa recently gave their employees all of 3 days…. yes …3 days… to sign up for their new medical insurance coverage.

Only after employees screamed about the situation did the airline extend it for a week or so.

Oh, and for those employees that have been hired by the airline after Feb. 1 of this year — I’d suggest they take a really close look at their medical insurance coverage limits.

It was confirmed to us this week that the maximum annual payment allowed under the new Mesa self-insured plan is $25,000.

That’s right.

$25,000 a year max.

According to our sources, management has pointed out to employees that if they want additional coverage, they can buy it themselves.

I’d suggest Mesa employees might indeed want to look at additional policies with $25,000 deductibles, as one relatively normal visit to the hospital could easily exceed that total. My personal experience certainly bears this fact out. I say this, because I have a feeling that new hires may not pay much attention to the fine print and think they have a viable maximum lifetime payment provision — as is the case with the majority of health insurance plans.

Meanwhile, given that Mesa Chairman and CEO Jonathan Ornstein has what appears to be the most lucrative compensation package in the regional airline sector — not to mention the most lucrative severance agreement should the airline ever be sold — I find both the initial three-day sign-up period, not to mention the paltry annual maximum on medical payouts worthy of BuzzBomb recognition.

And of course, the new limits are only in effect for worker bees — not members of the Mesa management team.