Monthly Archives: April 2008

Crude Oil Prices Staking Out a New Frontier

At the recent Phoenix International Airline Symposium, Lehman Brothers analyst Gary Chase said something I thought was worth repeating.

Actually he said more than one thing that was worth repeating.

But given the events in the energy markets the last two days, I’m going to pick his comments about how everyone in the industry was talking about “$100 a barrel oil.” Paraphrasing, he said something like, “Who says this is going to stay at $100? It seems like some people in the industry are looking at this as some arbitrary cut-off point. That they are revamping spreadsheets to take that number in account. What about $130/ barrel oil? $150 a barrel? Who says that oil is going to continue to hover around $100/barrel?”

As I talked about in a recent issue of PlaneBusiness Banter, he then went on to explain just what massive changes we could begin to see — when, not if, oil began to move even higher.

Well folks, today the price of oil is inching closer to that $130 mark.

Yesterday oil closed at a new all-time high price of $111.76.

Today, it’s up again.

As I post this, light crude oil futures are trading at $113.60, up 1.84 for the day.

For Enquiring Minds

All you ever wanted to know about the new venture between Delta Air Lines and Northwest Airlines. Yes, that address is newglobalairline.com

A good friend offered this evening that he had heard American Airlines was looking around for its checkbook so it could grab http://sizedoesntmatter.com

Here We Go..Northwest/Delta Deal is Official

Why am I not excited about this?

I can think of many reasons.

But whether I am excited about it or not — Delta Air Lines and Northwest Airlines made their not-so-secret engagement official this afternoon — as the two airlines announced their intention to merge.

According to the various PR releases that were issued, Delta and Northwest will combine in an all-stock transaction with a combined enterprise value of $17.7 billion, creating the nation’s largest passenger carrier.

Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own, representing a premium to Northwest shareholders of 16.8% based on Monday’s closing prices.

Yes, Delta is considered the acquiring carrier in this one.

Maybe one of the reasons I’m not so excited about this deal (besides the fact that Delta Air Lines’ management had to basically bribe their pilot union to go along with the deal, a bribe that included pay raises and a new contract) is that the Northwest Airlines’ pilot group was essentially shut out of the party last week — while Delta Air Lines cut a nice new deal with its pilots.

I talked about this here. I talked about it last week in PlaneBusiness Banter.

I don’t understand the rationale in this move with the Delta pilots — one that essentially puts a gun to the side of the Northwest pilots’ head. Go along with everybody else — you have no choice.

Not surprisingly, not long after all the party balloons were released this afternoon, the Northwest Airlines’ pilot MEC issued a release that reaffirmed my earlier misgivings about this bizarre situation.

Some snippets from the release issued not too long ago:

Dave Stevens, the NWA MEC Chairman, stated, ‘This agreement clearly disadvantages NWA pilots both with respect to economic issues and seniority list integration. A merger built on this unstable foundation is likely to put the combined airline in a position similar to that of USAirways. A USAirways-style labor relations scenario at the merged carrier, combined with the current and projected price of fuel and the looming economic downturn, is likely to place the Northwest pilots and all other Northwest employees at greater risk than as a stand-alone carrier.’

This merger announcement comes after months of negotiations which had resolved all joint pilot contract issues, but which stalled due to differing views on the integration of pilot seniority. The NWA MEC, on numerous occasions, stated their willingness to resolve the seniority integration by expedited arbitration. The Delta MEC rejected arbitration as a means of resolving the seniority list issue at that time.

‘The NWA MEC will use all resources available to aggressively oppose the merger. The risk to Northwest Airlines and to the Northwest pilot group from letting this merger proceed, as it is now structured, is simply too great.”‘

Ticker: (NYSE:DAL), (NYSE:NWA)

PlaneBusiness Banter Now Posted

PlaneBusiness Banter subscribers can access this week’s issue here.

AirTran Issues Statement on Today’s Stock Drop

Hoping to quell potential motivations behind a panic sale in its shares late Friday afternoon, AirTran issued updated financial information concerning the airline’s financial status.

The airline said it is in full compliance with the terms of its credit card agreements, and has no holdbacks with any of its major credit card processors.

AirTran also said its liquidity position has strengthened this year, with the total cash and investments balance increasing to $358 million at March 31, up from $326 million at Dec. 31.

The airline said it expects its liquidity to further strengthen during the second quarter.

Ticker: (NYSE:AAI)

AirTran, Frontier Airlines, Mesa Air Group Shares Get Hammered

Another day, another day of carnage for airline stocks. Three in particular, including one notable newcomer.

With Frontier Airlines going into Chapter 11 bankruptcy protection, it’s no surprise that shares here were down dramatically on the day. Shares ended the day down a whopping 69%, on more than five times the normal volume, as the stock ended trading at 48 cents. (It started the day at 1.57.)

Shares of Mesa Air Group also had another bad day. Shares here were down 17%, ending the day at 67 cents. The stock started the day at 81 cents. Market Cap here is now down to $18 million and change.

And finally, we had a notable newcomer to the share sell-off club today — another member of the PlaneBusiness Titanic Watch. AirTran shares were simply hammered today, as they lost 35% of their value, closing at 4.13. The stock opened this morning at 6.31.

Again, volume here was more than five times the norm.

What’s going on here? My guess is that It’s a little thing about credit card holdbacks. The same reason Frontier sought Chapter 11 protection today. Investors apparently don’t like the airline’s cash position, relative to what could happen if the airline’s credit card processor decides to up its reserve amounts for the airline.

Oil? Oil today closed at 110.14/barrel, up 3 pennies on the day.

Tickers: (Nasdaq:MESA), (Nasdaq:FRNT); (NYSE:AAI)

Technorati Tags: airline stocks, airlines, AirTran , Frontier Airlines, Mesa Air Group

Kudos to American Airlines’ Gerard Arpey

(Photo:Ft.Worth Star-Telegram)

Finally.

Yesterday American Airlines’ CEO Gerard Arpey took the podium, and took control of a situation that the airline had failed to take control of since news of the airline’s MD-80 groundings first hit the news wires on Tuesday.

Gerard said all the right things — and in the right ways. He was just a bit late in saying them.

Next time, I suggest that American Airlines engage in some online technology to get Gerard and his take on the situation out there sooner. Yes, I know he was out of town when this story hit, but the airline could have used a video teleconference set-up, much like Southwest Airlines used recently to unroll their Business Select product. Reporters all over the country could listen and watch Gary Kelly make the presentation and could then type in questions, or call in with a question. It was all real time. Worked very well.

I would highly suggest the crisis communication team at American consider such an alternative next time — as the Admiral’s Club in Los Angeles does have broadband connectivity.

And yes, it needs to be Gerard. Not Dan Garton.

Speaking of, I am glad to see that Dan apologized to the airline’s mechanics, who were, I think, justifiably pissed off at some comments Dan made in his attempt at a press conference that we noted here in PlaneBuzz yesterday.

What a mess.

Ticker: (NYSE:AMR)

Technorati Tags: airline CEOs, airlines, American Airlines

Frontier Airlines Files for Chapter 11

It’s getting so that it’s scary to crank open the computer and open up the email bag.

Another Friday, another airline bankruptcy.

Frontier Airlines Holdings, Inc. today announced that, following an unexpected attempt by its principal credit card processor to substantially increase a “holdback” of customer receipts, which threatened to severely impact Frontier’s liquidity, Frontier and its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

We had talked about the shares of Frontier being in freefall here earlier this week. We formally placed the airline on our PlaneBusiness Titanic Watch last week. Yesterday shares of the airline took another dive, closing at $1.57.

Unlike the last several airline bankruptcy filings however, Frontier remains in business.

Frontier said it expects to continue operating its full schedule of flights, adding it will honor tickets and reservations as well as providing refunds and exchanges as usual.

“We felt that Frontier would be able to withstand the challenges confronting the U.S. airline industry, which include unprecedented and significant increases in the cost of jet fuel and the impact of the credit crisis in the financial markets, without seeking bankruptcy protection,” said CEO Sean Menke in a statement.

Just a note here on the increase in credit card holdbacks. We’ve seen this happen in the past — and it is something we can certainly expect to see again with other airlines that book their own reservations and find their cash reserves under scrutiny. (Clearly this does not apply to the bulk of regional airline flying.)

Ticker: (Nasdaq:FRNT)

Technorati Tags: airlines, bankruptcy, Frontier Airlines

Former NTSB Director Jim Hall Gets The FAA Problem Right

Former NTSB Director Jim Hall on this morning’s Today Show:

“What we have is a situation where these rules were not being properly followed and the oversight was not in place by the FAA.”

Correctomundo.

I hate to say this, but one of the airlines who is being put through hell by the FAA should not be afraid to say the same thing, instead of waffling around — which just makes the airline look worse.

Anyone know an airline that might want to do that?

Hey, don’t laugh. A major grounding could be coming to an airport near you. Jonathan Bare, who is our website guru, just wrote to tell me that his parents are stuck in Las Vegas with no way home to Milwaukee. They were booked on Midwest Airlines. Midwest now finds itself with a pack of grounded MD-80s as well.

Ticker: (NYSE:AMR)

Technorati Tags: airline delays, airline earnings, airline unions, American Airlines, Midwest Airlines

Delta Pilots Get Okay to Picket ….Northwest Pilots?

This one actually flew over our radar earlier in the week, but with so much happening in the industry I forgot. Until a reader reminded me.

Would someone please explain to me why it is that Delta Air Lines pilots have been granted permits to picket at Northwest Airlines hub airports from today through April 24? Are they going to be picketing the pilots at Northwest? The airline? What in the world is this all about?

“They won’t play with us. We’re mad.” I can see the signs now. “Make them merge!”

Then again, I thought it was the Delta pilots who were the fly in the ointment to begin with when both pilot groups couldn’t come to terms on a new seniority agreement.

This has to be one of the goofiest damn things I’ve ever heard.

I wondered yesterday was Delta Air Lines’ MEC Chairman Lee Moak had been up to lately. I guess I know.

Or, as one of our pilot friends wrote us when he reminded us of the news, “Ya gotta admit — your 50” Plasma TV with surround sound doesn’t get any more

entertaining then the airline business on your 19 inch monitor.”

He’s right. Especially this week.

Technorati Tags: airline mergers, airline unions, Delta Air Lines, Northwest Airlines