Tag Archives: NYSE:LUV

PlaneBusiness Banter Now Posted!

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Hello everyone.

This week’s issue of PlaneBusiness Banter is now posted. Subscribers can access it here.

This week we have a pretty good issue. Always takes us a week to get back in the groove after the holidays, and this week I think we have a little bit of something for everybody.

No question that the thrill of new metal hung over the industry last week as Delta Air Lines told its employees it is looking at new aircraft options. While Continental/United did not tell its employees that it too has been checking its bank balances and kicking some tires, industry sources confirm that yes, this is also the case.

Then there was that obscene order placed by IndiGo Airlines — based in India. It was, according to Airbus, the largest commercial aircraft order ever place. A whole slew of A320s, including a nice stable of the new “neo” flavor A320. You know, the ones with the more efficient engine.

But Airbus didn’t stop there. Oh no, they are clearly in their “Let’s Hammer The Boys at Boeing” mode as they also announced a new A320 order from Virgin America. One that also, conveniently, was signed at the stroke of midnight on Dec. 29. (I’m making up the part about the stroke of midnight, but I’m probably not that far off.)

The result of all this? Airbus looks to now have a nice solid start to its “neo” program, and oh yes, the Virgin order pushed Airbus past Boeing in the all-important testosterone-fueled exercise called, “Who sold more airplanes in “________.” Fill in the year.

For 2010, it looks like Airbus nosed out Boeing, 644 to 625.

Not surprisingly, given all this hoopla about new metal, Steve Hazy’s Air Lease Corp. filed its S-1 with the SEC last week. Translation: They are going to do an IPO.

Of course the American Airlines/GDS cat fight continued last week, with one very interesting new tidbit. In last week’s PlaneBusiness Banter I talked with subscribers about how I wondered if there was not more going on between American and ITA than met the eye.

Well, looks like I was right, as American announced a new deal with ITA (American is already a client) for a nice chunk of work with American’s new IT overhaul — which is being spearheaded by HP.

We update subscribers on all the latest GDS related news, and we also share a guest column this week from Montie Brewer, ex-Air Canada CEO. He gives us his take on the GDS/airline situation. (Yeah, I know. Bet you can’t guess which side of the fence he’s on.)

We also have a longish Market Review this week. We bring subscribers up to speed with the latest research reports from three analysts — Jamie Baker and Mark Streeter with JP Morgan; Glenn Engel with Bank of America and Dan McKenzie with Hudson Securities.

All three have different takes — and different things to say — and in the case of Glenn, he gives us part three of his ongoing research series in which he compares airlines on the basis of revenue and cost per plane. None of the usual RASM, CASM stuff. His first two reports last year covered revenues of the major and regional carriers. This latest report covers the costs of the major carriers.

Interesting way to look at the same numbers.

All this and more in this week’s issue of PlaneBusiness Banter.

PlaneBusiness Banter Posted!

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Greetings earthlings. Gotten a text message from Brett Favre lately?

Okay, I’ll behave.

Which is more than I can say for Mr. Favre.

The latest edition of PlaneBusiness Banter is now posted.

This week we take a look at, what else? The Southwest/AirTran deal. Lots of chatter going on about just why it was that AirTran decided to sell. We talk about that, and I answer a lot of email questions about my comments from last week concerning the deal as well.

American Airlines was all over the newswires this past week. We talk about all the airline’s news, the latest missive from the Allied Pilots Association, and we wonder just where the airline is going to get all the metal to fly all this new flying it is talking about.

Oh, and yes, the airline also recalled 800 employees. Wonder how many of those former TWA flight attendants will come back and fly? I’d be interested to know.

Meanwhile, over at United Airlines (under new management), the pilots on both sides there said this last week that they have decided to keep direct negotiations going for at least another two months — rather than ask the National Mediation Board to step in. Good. If they asked the NMB to step in it would be months before anything got done.

Five years from now — how will the industry look? What will be different? I do my best Karnac imitation this week. Complete with turban.

Then there is the strange tale of British Airways’ Captain Peter Burkill. Burkill was Captain of British Airways flight 38, the Boeing 777 aircraft that lost power in both Rolls-Royce engines during final approach to Heathrow. He and his co-pilot were hailed as heroes after they managed to land the plane safely just short of the runway.

But things turned awry for Burkill pretty quickly. When all was said and done, he quit the airline, was unable to find another job as a pilot, and found himself on welfare.

We talk about his journey this week, and the strange twist to it that just occurred.

We have all kinds of other goodies, including a rather nifty way to look at regional airline profitability that was published in a research note last week by Bank of America/Merrill Lynch analyst Glenn Engel, and the usual hot YouTube videos that made their appearance this week. We’ve got foul-mouthed furry puppets, more cartoon union negotiation stories and dancing flight attendants.

It’s just a never ending party.

All this and more in this week’s issue of PlaneBusiness Banter. Subscribers can access this week’s issue here.

Latest SWAPA Update on Pilot Negotiations Regarding Southwest Airlines Bid for Frontier Airlines

Here’s the latest missive from the Southwest Airlines’ pilot group, SWAPA, to its members. FAPA is the Frontier Airlines Pilot Association, the union that represents the Frontier Airlines’ pilots.

“It has been a whirlwind week for your M&A Committee. We have been in meetings with our M&A counsel in Washington Monday and Tuesday and quickly returned to Dallas on Wednesday for a pressing meeting with FAPA. We would like to bring you up to date on the Frontier transaction.

Weeks ago, the Company approached SWAPA for ideas on how to complete the Frontier transaction with our pilots’ support. We expressed our concerns about new federal legislation on the books (McCaskill/Bond) and its potential effect on pilot seniority at Southwest. The Company, at SWAPA’s request, included a “labor contingency clause” requiring labor agreements in place prior to the closing of the Frontier acquisition. This action took the possibility of binding arbitration out of play and protected our pilots from a harmful arbitrated seniority integration.

As the Company was developing their formal binding proposal to acquire Frontier out of bankruptcy, Southwest bankruptcy counsel expressed concern that the Southwest bid could be excluded from the auction process because Frontier legal counsel deemed the proposal “not qualified” for the auction process due to the labor contingency clause. However, the labor contingency clause would be deemed acceptable and the bid deemed qualified if SWAPA and FAPA reached an Agreement in Principle for seniority integration. That triggered negotiations Thursday between SWAPA and FAPA.

SWAPA’s concerns throughout this process have been to protect our seniority list and our Collective Bargaining Agreement (CBA). The only way to adequately protect our entire pilot group was to place the FAPA pilots below the SWAPA pilots on our new Master Seniority List.

FAPA’s concerns are:

  • Job Protection
  • Seat Protection
  • Pay Protection
  • Domicile Protection

FAPA’s position was for relative seniority with a “variable” for the ratio for integration. Clearly, meeting all of FAPA’s concerns would be an enormous windfall for Frontier pilots at the expense of Southwest pilots.”

Oh boy. Here we go. All of these concepts sound very familiar don’t they? Relative seniority. “Stapling” the Frontier pilots to the bottom of the list.

And this is supposed to be finalized with both groups signing off on it today??


Well, there you have it. Either there is an agreement in principle with both pilot groups as to the question of seniority, or it appears that the bid by Southwest will not be considered to be a “qualified” bid.

Do you suppose that Southwest knew this all along, and this is merely an anticipated ‘squeeze play’ made by the company, assuming that the “urgency” of the situation would prod both groups to an agreement before the clock strikes twelve? Or was this a surprise at the last minute to all parties concerned?

Stay tuned.

Southwest Airlines’ Bid for Frontier: Did They Really Think It Was Going to Be Easy?


Today is the big day. Or it’s supposed to be the big day.

After all the preliminary table setting over the last several days, today was or is supposed to be the day that Frontier Airlines is actually auctioned off.

But, as I wrote about this week in PBB — I think the assumption that this thing was a done deal for Southwest was a bit premature. In addition, yes, I think that if Republic were to be awarded Frontier — that Frontier could continue to operate and it could be profitable. This is not a case where the bankrupt company is on death’s door. Quite the contrary, Frontier has been posting good operational numbers of late, and they have actually used the bankruptcy process to do what a company is supposed to do while in bankruptcy — they’ve restructured themselves quite nicely.

Therefore, I am not surprised at all that reports last night and this morning say that all is not well on the labor front. Specifically in the negotiations between the Frontier pilots and the Southwest Airlines’ pilots.

Remember that Southwest said going into this that their pilots would have to sign off on a deal with the Frontier pilots or the airline would not go through with the deal.

Not sure if Southwest realized that this, coupled with the fact that the Frontier pilots are taking the position that Frontier does not HAVE to go with Southwest for it to remain a viable business — and you’ve got a pretty strong negotiating position for the pilots at Frontier.

We’ll keep you posted.

Southwest Airlines, United Airlines and Continental Airlines Report Earnings


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.

Southwest Pilot Contract, Part Two

Heard back from some more of our longtime Southwest Airlines’ pilot subscribers this morning, who wrote today about the pilots voting down their tentative agreement.

“I think you nailed it. My way to explain it is this. It was like when people vote for Ralph Nader. They don’t think he stands a chance in hell of winning, but they use their vote as a vote of protest against the system. I don’t think any of the pilots I know thought this thing would be defeated. Rather, they did see an opportunity to send a message to management and/or union leadership by voting no. Unfortunately, that message was stronger than many people thought. Rut-ro. Now things are going to get reallllly interesting.”

Another reader commented, “Holly, you have been on this from the beginning when Carl (Kuwitzky, President of SWAPA) announced that there was a tentative agreement with the company last fall. But, as you said at the time, there really wasn’t an agreement. I think Carl has a lot of ‘splainin’ to do. You think there might be some Texas Two-Steps going on here?”

Another pilot wrote me, saying that no, he voted against the deal because it was a bad deal. Period. How could I take the word of one pilot who said it was “too lucrative?” As he put it,

“I’m sure you’ll talk to more of them than me, but there is not one SWA guy I talked to that said he voted against the contract because it was too lucrative.

In no particular order:

1) Not enough pay.

2) Lance Captain program curtailed

3) Scope

4) Complexity of the new scheduling system.”

Another pilot wrote to tell me that yes, he voted against it because of the scope provisions and because he is unhappy with the direction the company is going.

So, reading through the feedbag this morning it would appear that some guys voted against it because it was not lucrative enough, while others voted against it because they thought it was too expensive for the company. Then there is the scope problem.

Go figure. I think the only thing anyone knows for sure at this point is that the next round of negotiations are going to be tougher. I’d bet the farm on that one. (And the cows too.)

We Warned PBB Readers About This: Southwest Airlines’ Pilots Vote Down Tentative Agreement


Three weeks ago I published a letter from a concerned Southwest Airlines’ pilot in PlaneBusiness Banter. This particular subscriber is one of the Southwest pilots we go to on a regular basis to get a “read” on just what the group is thinking at any given time. The substance of his letter?

He gave readers a head’s up about the fact that if the pilots’ tentative agreement passed — it was not going to be by much. That more and more pilots he was talking to were going to vote “no” as a protest vote against what the pilots now perceive as a “lack of leadership” or a “lack of direction” both at the airline — and within the union’s leadership.

Or maybe a bit of “misdirection” would be a better term.

To put it more bluntly — why should the pilots at the airline vote for a contract that was going to put even more financial pressure on the airline that has seen its operating margins erode, its costs continue to rise, and its revenues continues to slump?

You got that? In other words, the pilots at the airline were going to vote against the contract because it was too good.

Today, the final vote tally on what would have easily been the most lucrative pilot contract in the U.S. was announced.

The TA did *not* pass. But it was close. Very close.

A little less than 51% of the pilots voted against the contract.

Our last call on the contract? I still thought it would pass — but not by much.

This is a major piece of news for those of us who are airline labor/management watchers, because I’m not sure where this one goes now — but one thing is for sure. This vote was clearly a “protest” vote.

The question now is — how do both sides go back to the table and renegotiate a contract that is NOT as lucrative or financially draining on the airline?

Yes, you read that correctly. NOT as lucrative.

And how much more aggressive will the pilots’ union leadership be (or new leadership) in pressing management for better financial performance at the airline?


I said at the beginning of 2009 that Southwest Airlines was going to be the biggest newsmaker of the year — on the domestic airline front. Nothing has changed with that prediction.

And …it’s only June.

Southwest Airlines Picks the Wrong Day to Trumpet Their LinkUp With Volaris

Talk about bad timing.

The Associated Press headline reads, “Southwest Airlines to add link to Mexico’s Volaris.”

This morning Southwest Airlines issued a press release in which it announced that it was putting a link on its website which will allow customers to buy tickets on Mexican airline Volaris. The two had already announced plans for a marketing/codeshare agreement last year.

Just what I want to do today. Fly to Mexico.

Just what an airline wants today — have their name in the headlines along with the word, “Mexico.”

Southwest Airlines: Not Overly Impressed With First Quarter Stats; Neither is S&P


Thursday Southwest Airlines announced its first quarter earnings. Clearly the big headline grabber here was the fact the airline posted its first loss (no ifs, ands, or buts, much less special charge excuses) in 17 years.

The airline lost $91 million in the first quarter, or $0.12 a share. That amount included a loss of $71 million due to the falling value of its fuel hedges.

Without the fuel hedge losses, the airline posted a loss of $20 million or 3 cents a share.

Analyst consensus had the airline posting a loss of a penny, so the loss was more than analysts had expected.

Worse, CEO Gary Kelly said in the airline’s earnings call that RASM, which declined 2.9 points in the first quarter, could take an even bigger hit in the second quarter.

The airline also announced that it was offering a buyout to virtually all employees, had instituted a hiring freeze and was freezing pay for its top execs.

A couple of observations. One, I know more than one Southwest Airlines Captain who, for the most part, sat around eating bon-bons for much of the first quarter. And yet, the pilots at the airline were just given a tentative agreement that, if anything, sweetened the pot. It doesn’t take a mathematician to figure out that the costs involved in having more pilots than the airline needs right now is costing the airline a pretty penny.

Two, while the airline can offer buyouts to employees — the timing is not exactly the best for this kind of move, as the airline’s employees have seen the value of their Southwest Airlines‘ shares in their 401(k) accounts fall precipitously over the last year.

So while I applaud the airline for attempting to right the downsizing ship by natural attrition and voluntary departures, I’m afraid I have to wonder if these measures are going to be enough.

Three, I still think the airline’s growth plan is too aggressive, it’s capital spending plans too ambitious for 2009.

Third, I’m not the only one.

This morning Standard and Poor’s put the airline’s debt ratings on Credit Watch with negative implications. As we all know, this move is usually a precursors to a ratings cut.

S&P put Southwest’s “BBB+” rated long-term corporate credit rating on negative Credit Watch because of 1) the airline’s first quarter performance, 2) it’s forecast for its second quarter revenue and 3) the fact that the airline has added more than $700 million in debt since just late last year, increasing its interest expense.

This increase in debt is a direct result of the airline having engaged in aircraft sale-leasebacks in an attempt to increase its liquidity.

I would add that this amount is only going to increase in the second quarter. As I reported in a recent PBB, there is yet another traunche of sale-leaseback financing in the works with BOC Aviation that is set to close in the second quarter. BOC has handled the bulk of the airline’s recent sale-leaseback transactions.

Note that anything below “BBB” is no longer considered “investment” grade. It then falls into the “junk category.”

My gut feeling is that we will see Southwest lose its lofty “investment grade” debt rating status before this downturn is finished.

Rumor of The Day: Southwest Airlines to Boston?

I’m sitting at the vet’s office with an ailing Momma kitty. But in a space of about 25 minutes I’ve received a flurry… Well maybe a flurry-ette of emails saying that Southwest Airlines is going to announce new service to… Boston??

This makes no sense to me, given the airline currently flies into both Manchester and Providence.

I guess we can just wait and see what happens. Kind of the same here. Waiting for the results from Momma kitty’s blood test.

Anyone else have any intel?

(On the Southwest rumor.. Not Momma kitty’s bloodtest.)