Tag Archives: continental airlines

Airline Traffic Reports Roll Out for December

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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%.

Continental Airlines Comments Confirm What Thin Thanksgiving Crowds Indicated

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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.

Airline Stocks Hit Turbulence: Sluggish Traffic and Higher Oil to Blame

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As ardent followers of the airline stock sector are aware, every month Continental Airlines leads the other airlines in reporting their traffic numbers for the previous month. But the other information the airline issues, along with its traffic numbers, is usually of more interest to us hard core airline fans.

That information, of course, is the RASM estimate the airline issues along with the traffic numbers.

For those of you who are new to this piece of the world, RASM stands for revenue per available seat mile and it is the most widely used “rule of thumb” measure of an airline’s revenue performance.

Last night Continental Airlines reported that it now expects mainline domestic revenue per available seat mile for November 2008 to grow only 4 percent to 6 percent, down significantly from previous expectations for growth in the “low-to-mid teens.”

Not surprisingly, the airline said that this was a result of lower yields. Translation: Lower ticket prices.

This news comes after most airlines over the last month insisted during their earnings call presentations that they were not seeing significant drops in demand.

We have a bit of what we might call an “inconjunct” here.

Jamie Baker, analyst with JP Morgan wrote this morning that while the news was not a complete surprise — it was still enough to push him to sharply reduce his fourth quarter forecast for the airline.

Baker now expects the company to report a loss of $0.56 per share, compared with prior expectations for profit of $0.40.

As Baker said in his note, it wasn’t a question of if — just a question of when the economic meltdown would catch up with airline demand. He expected the industry might have at least a month or so before the full effect hit.

The other problem today? Oil prices.

And here it gets a bit more complicated.

Is the price of oil rising because of a supply and demand issue?

No.

The reason the price of oil is up today is because the dollar is falling.

Remember that oil is priced in dollars. As a result, investors see commodities such as oil as a hedge against inflation and a weak dollar and pour money into the crude futures market when the greenback falls.

A weak dollar also makes oil less expensive to buyers dealing in other currencies.

There you go. There’s your commodity pricing/falling dollar lesson for the day. Unfortunately the end result — higher oil prices — then affects this sector negatively.

As of this posting oil has soared more than $7 today, and is now trading around $71.50.

Continental Airlines, Southwest Airlines Report Earnings

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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.

Food For Thought: Airlines and Pensions

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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?

Wall Street Sends Politicians a Message: We Run This Hood

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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.

Three Things I am Glad I Am Not Today

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1. A flight dispatcher for any airline. (Look at the weather maps for the country — not just Texas and Louisiana. It’s enough to want to crawl back into bed and pull up the covers.)

2. Anyone working in operations for Southwest Airlines. Especially those poor souls given the task of reworking flights around a network without Houston in it. Or those employees who live in the Houston area. And if that wasn’t bad enough, flights to DAL will probably become more problematic as the day goes forward.

3. Ditto Continental Airlines. Except for the DAL part.