Monthly Archives: October 2009

That’s It for Ecto

Anyone else out there using Ecto as a blog editor?
See that headline that says “CIT Bankruptcy Looks Imminent?”
That was, originally, a very long blog piece talking about how it appears CIT Group, the parent of CIT Aerospace, the third-largest aircraft leasing company, appears to have put together a pre-packaged bankruptcy deal.
Only one big problem.
When I pushed the “publish” button, the entire post disappeared. And yes, this was after I had carefully saved the thing at least three times to make sure nothing happened to it.
So I go to the software maker’s support boards.
Ever have that sinking feeling in the pit of your stomach? You know the one. When you start reading post after post after post detailing the same problem you have just encountered (and more than once — it also ate my legendary “Ode to a Hot Dog” post in July) and it’s clear that the developers have not responded in months?
Bye bye Ecto.
Hello MacJournal.
Hopefully we have seen the last of the disappearing posts.

Airline Execs: Pretty Scary Stuff

It’s Halloween. BOO!

For at least two airlines — that means it is time to get scary.

Especially for some of the airlines’ top executives.

Friday over on Denton Drive here in Dallas, it appears that Southwest Airlines‘ former Chairman and CEO Herb Kelleher decided to go with the Willie Nelson/Biker combo look, while current Chairman, President and CEO Gary Kelly pranced down the Yellow Brick Road as Dorothy.

I don’t know what it is with Gary and his cross-dressing tendencies, but ever since he turned out as Edna Turnblad a couple of years ago — we’re almost afraid to look. (Last year Gary and two associates were attired as ZZ Top.) Early betting this year had Gary dressing as Julia Child.


But here’s the one that got me. Anyone know who that is?

That’s US Airways’ COO Robert Isom. I tell you what — that boy has the Barry Gibb thing going, doesn’t he? I hear he hit some pretty high notes Friday as well — as the US Airways’ executive team, aka the Bee Gees, entertained airline employees at the airline’s headquarters in Tempe.

Gotta love that hair.


The Mighty Allegiant Posts A Record Operating Margin


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.

Oil Leaps Above $80/Barrel — Airline Stocks Sink


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.

Reading the Fine Print: Southwest Taking a Page from the AirTran Playbook


Wanna get Southwest to begin service to your city? Wanna write a check?

If some of you are scratching your heads over the news that Southwest Airlines is going to start service from “Northwest Florida’s New International Airport near Panama City, Florida” in May 2010, all one needs to do is take a look at the fine print in an SEC filing from the St. Joe Company — a major land developer in the Florida panhandle.

According to St. Joe’s SEC filing dated today, $14 million in revenue guarantees, profit sharing, and a no-compete agreement are just some of the “enticements” being put on the table for Southwest.

Is this AirTran or Southwest we’re talking about?

“St. Joe has agreed, to the extent that Southwest operates at a loss, to make quarterly cash payments to Southwest to cover shortfalls in the results of Southwest’s operations at the new airport during the first three years of service. For purposes of the break even calculation, the agreement establishes fixed amounts for Southwest’s non-fuel expenses and the minimum revenues that will be attributable to the air service. It also provides that Southwest’s profits from the air service during the term of the agreement will be shared with St. Joe up to the maximum amount of St. Joe’s prior break even payments.

The term of the agreement extends for a period of three years after the commencement of Southwest’s air service at the new airport. The agreement may be terminated by St. Joe if the payments to Southwest exceed $14 million in the first year of air service, or $12 million in the second year of air service. St. Joe may also terminate the agreement if Southwest has not commenced air service to the new airport within 90 days of its opening. Southwest may terminate the agreement if its actual annual revenues attributable to the air service at the new airport are less than certain minimum annual amounts established in the agreement.
Southwest’s obligation to commence air service to the new airport is conditioned upon: (1) the certification of the new airport by the Federal Aviation Administration and the Transportation Security Administration on or before April 15, 2010; (2) receipt by the local Airport Authority of a certificate of occupancy for the new airport on or before April 15, 2010; (3) the execution of satisfactory agreements between Southwest and the Airport Authority authorizing Southwest to use and lease space at the new airport and to receive any cost mitigation measures that may be available from the Airport Authority; (4) the execution of an agreement between Southwest, the Bay County Tourist Development Council, the Panama City Beach Convention and Visitors Bureau and the Beaches of South Walton Tourist Development Council, no later than 30 days from the date of the agreement, regarding the coordination of marketing resources and efforts for the air service; (5) the execution of an agreement between Southwest and Coastal Vision 3000, no later than 60 days from the date of the agreement, regarding the establishment of a program through which Southwest would receive available room nights free of charge at various rental properties in Northwest Florida for use in the marketing efforts for the air service; and (6) the execution of any other agreement that Southwest deems necessary or appropriate prior to the commencement of the air service.

Southwest has agreed that it will not commence air service to any airport within 80 statute miles of the new airport during the term of the agreement. In the event Southwest starts service to any airport that is more than 80 statute miles but within 120 statute miles from the new airport during the term, Southwest and St. Joe will either negotiate a modification to the terms of the agreement to accommodate the impact of such service or the minimum revenues used in the annual break even calculations under the agreement will automatically be increased by 10%. In such event, Southwest has agreed that the air service to the new airport in Bay County would not be diminished.”

The Earnings Just Keep on Coming…


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.

PlaneBusiness Banter Now Posted

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Hello everyone.

This week’s issue of PlaneBusiness Banter is now posted.

Subscribers can access this week’s issue here.

First up this week is an in-depth look at the third quarter results posted by Southwest Airlines last Thursday.

While I considered the airline’s numbers to be in the “mixed” category, the airline saw its debt rating dropped yet another notch last week by S&P, and late last night JP Morgan analysts Jamie Baker and Mark Streeter issued a research note in which they downgraded the stock. And upgraded shares of AirTran.

The two minced no words as they wrote, “Investors aren’t likely to confuse Southwest with AirTran, as only one offers the combination of lower costs, higher profits, better current liquidity, a severely battered share price and cheaper valuation. If you still aren’t sure which, here’s your last hint: it’s the one with assigned seats. Our equity rating on AirTran moves from Neutral to Overweight, while Southwest equity drops from Neutral to Underweight.”


That one hurts.

Great news for AirTran though. Can’t say I disagree with the reasons behind the dynamic duo’s downgrade or their upgrade.

In other news, the United Airlines‘ ALPA MEC made history this week. The pilot group elected a woman to be its new chairman. Captain Wendy Morse was elected Chairman and Captain Garry Kravit was elected vice chairman of the MEC. Yes Steve Wallach was sent packing. The vote was close, according to reports.

On the international front, it looks like the Japanese government is going to bail out JAL. No other choice. The airline’s creditor banks refused to go along with a restructuring plan presented to them.

American Airlines’ pilots were picketing in Washington last week. Why?

Good question.

And our final question for the week — who is buying up shares of ExpressJet?

All of this and much much more in this week’s issue.

Southwest Airlines Kicks Off Third Quarter Earnings Parade


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.

FAA Proposes $5.4 Million Civil Penalty Against US Airways; $3.8 Million Against United Airlines


Hark! Today there is news of two proposed FAA penalties — and the news does not involve an airline based in the Dallas area.

Today the FAA announced that it has assessed a proposed civil penalty of $5.4 million against US Airways, and a proposed civil penalty of $3.8 million against United Airlines.

in the case of US Airways, the FAA said in a statement that the airline allegedly operated eight aircraft while out of compliance with safety directives or its own maintenance program.

In a letter to employees issued just a few minutes ago, US Airways COO Robert Isom wrote,

“It is important to remember that today’s announcement references situations that are in the past, and in several cases, date back to two years ago. This isn’t to make light of the findings or our corrections to those findings, rather it’s to say these occurrences are behind us, and today, we have improved upon an already solid maintenance program.

The FAA proposed civil penalty dates back to challenges we faced related to our America West/US Airways maintenance integration in 2007. The integration presented some challenges in the areas of inspection and records during 2007, 2008 and early 2009. Our team has worked cooperatively with the FAA to investigate and correct any discrepancies to the FAA’s satisfaction.

More specifically, over the past nine months, we and the FAA have completed a formal review of our aircraft maintenance tracking systems as well as a comprehensive review of our maintenance program. This collaborative process included efforts to identify the issues, drill down to find the root cause and develop comprehensive fixes.”

However, In the case of United Airlines, the FAA alleges that the airline flew one Boeing 737 aircraft on more than 200 flights after “violating its own maintenance procedures.” That’s the “official” language. In plain language, the airline apparently continued to fly a plane that had shop towels stuffed in the aircraft’s engine.

On April 28. 2008, a United 737 returned to Denver after shutting down an engine due to low oil pressure indications. During teardown of the engine a week later, United mechanics found that two shop towels, instead of protective caps, had been used to cover openings in the oil sump area when maintenance was done in December 2007. As a result of United’s failure to follow its maintenance procedures, between February 10 and April 28, 2008, the airline continued to fly the airplane on more than 200 revenue flights when it was not in an airworthy condition.

Wonderful. Shop towels?

As is the case with all proposed FAA fines, each airline will have 30 days in which to appeal the proposed fines. In the past, this would then be followed by a little horsetrading between the airlines and the FAA — in an attempt to lower the fine amounts.

Will be interesting to see how much these fines are reduced. Especially the United one. While the US Airways’ transgressions seems to be based on issues involving proper record keeping of the newly merged airline — the shop towel incident with United strikes me as a much more serious “safety” issue.