Last week in the United Airlines’ earnings call, CEO Glenn Tilton more or less dismissed a question from reporter Dan Reed from USAToday concerning increasing pilot staffing issues and cancelled flights at the airline.

The question was relevant, as we talked about in PlaneBusiness Banter two weeks ago. Why? Because based on conversations we were having with folks close to the situation, and comments from subscribers, it was pretty obvious that a situation was developing at United that resembled, in many aspects, the showdown between pilots and management at Northwest Airlines last summer.

There didn’t seem to be any question that pilots at the airline were engaging in a little “work to rule” as the end of the month rolled around. Just as we saw with Northwest last year, if you have pilots who refuse to pick up extra flying, along with higher than normal sick time calls, and you’ve got flying schedules maxed out because of summer schedules — all the ingredients are there for an opportunity to force the airline into flight cancellations.

This week, apparently United Airlines does consider the issue relevant, as today the airline filed a lawsuit seeking a preliminary injunction against the pilot union, ALPA,  and a group of individual United pilots, for allegedly abusing sick time.

The injunction request accuses the ALPA of  encouraging a sick-out, which is not allowed under the Railway Labor Act. It also said that pilots were refusing to pick up extra flying, and that others were being intimidated into not taking on additional flying.

“ALPA’s communications are essentially a guide describing how to use sick leave inappropriately,” United’s injunction request said.

United said in its request that the first officers on its Boeing 737s and Airbus A320s had called in sick the most frequently. First officers on Boeing 737s had called in sick more than twice as much over the past seven weeks versus the prior three years, and sick calls by Airbus 320 first officers had risen 61%, the airline said.

United said it canceled 329 flights between July 19 and July 27, costing it about $8 million in lost revenue and $3.9 million in operating profit.

Talks between the union and the airline apparently broke off last week, according to United COO John Tague, who issued a message to employees this afternoon in which he said,

“Despite these significant steps, unlawful job actions escalated, intimidation of pilots continued and the impact on our customers and other employees grew to truly unacceptable levels,” he said.

Specifically, according to the Associated Press (we have not seen a copy of the actual request to the Federal Judge as of yet, we’re off to find one) the airline accused pilot Anthony Freeman of starting a Web site to organize the sick-out by junior pilots. It said the group was called “the 2172” because they were among the 2,172 pilots furloughed by United in 2001.

The other three pilots named by United — Steven M. Tamkin, Robert J. Domaleski, Jr., and Xavier F. Fernandez — are members of the Industrial Relations Committee of the Master Executive Council at United’s ALPA unit.

All of this comes three days after we received a missive in our in-box from the United ALPA MEC. The missive was entitled, “The beatings will continue until morale improves.”

According to the “Unity Update #6”,

“The Beatings Will Continue Until Morale Improves

How’s your summer going?  Just in time for the long, hot, busy summer season, United Airlines is implementing and refining some new methods to erode your job and quality of life even further.  This company’s contempt for its employees is further proof  that United is flying itself into the ground and doesn’t care who it takes down with it — not you, not me, not its customers.  In the meantime, the executives continue to enrich themselves from the company’s coffers.

Here are some examples of management’s patented morale-boosting initiatives that make United Airlines such a desired place to work.

● For starters, we’ve all heard of United’s plans to use our pilots and their families as expendable commodities in an attempt to correct its inability to contain costs or adequately plan for the future.  Some of the soon-to-be-furloughed pilots, who relied on United’s good faith to come back, are being let go a second time.  Who will ever again have faith in United Airlines?  But first, United will work your heinies off for the summer with maximum hours and minimum days off (flex months), and then fire you.  How’s your summer going?

● To assist United in its unwillingness to maintain any workable and flexible trip trading system, management will refocus and lower the trigger points for Absence Monitoring System (AMS) events, questioning a pilot’s compliance with FARs regarding “fit to fly.”  And if they don’t believe you, you will be required to visit a doctor and pay for it out of your own pocket since our company will not reimburse you.  Oh, and we understand from reliable sources that the company plans on taking away pass travel while you’re on sick list and, this time around, your family too.  How’s your summer going?

● In a blatant attempt to erode, if not eliminate, Captain’s Authority, First Officers are soon to replace Captain’s as FODMs.  As you are aware, FODMs have the ability to order Captains to fly.  Even though many First Officers have the experience and capability, United will be breeding an environment where there will be First Officers ordering Captains to fly, questioning Captains’ decisions and placing Captains in defensive positions.  How’s your summer going?

● With the expected shift in flying, many domiciles will temporarily pick up other domiciles’ flying.  This will result in many W-patterns, flying 6 day trips with 4 oceanic crossings.  When the flying becomes aligned with the domiciles, your reward for having worked your keisters off will be more surpluses.  Reread the first bullet point.  How’s your summer going?

To summarize, United’s managers will force pilots to work extra days with longer hours, they will bully pilots to prove their non-fitness to fly at their own expense, they will attempt to take away pass travel for you and your family, they will attempt to diminish Captain’s authority, they will take away United mainline flying and give it away to Express, and then they will either furlough you or surplus you at the end of the season.  No one will be unaffected by the continually bad decisions United makes every day.  Fatigue, stress, illness, exhaustion, anger, fear, depression, resentment, uncertainty, frustration and disrespect are all being crammed down our throats by a company that gives not a damn about goodwill, morale, its employees or its customers.

So, how’s your summer going?

Leverage does not just show up, unannounced, on one’s doorstep.  Unified pilots create leverage.

UNITY OF PURPOSE BRINGS POWER

THERE IS POWER IN UNITY”

How’s my summer going? I’ll have my cheeseburger in Paradise now, thank you very much.

Just never know who is going to come out of the woodwork these days.

This morning former Continental CEO Frank Lorenzo and S&P’s Jim Corrodore talked airlines on CNBC.

In this week’s 64 page PlaneBusiness Banter, we take a closer look at the earnings results and the earnings calls for six major airlines — United Airlines, JetBlue, US Airways, Alaska Air Group, Southwest Airlines, and Allegiant.



There is one issue that I think needs to be discussed as widely as possible, and that is the issue of how airlines account for out-of-period hedge gains or losses.

Without getting into too much accounting mumbo jumbo, if an airline engages in hedging activities, in an attempt to mitigate the high cost of fuel — that is going to, hopefully, create a situation where those hedging instruments essentially make money, thereby lowering the effective price the airline pays for fuel.

The issue is — how does an airline then account for these gains?

In the case of Southwest, Alaska Air Group, and US Airways, for instance,  the airlines have, I believe, chosen to break out these gains in the proper fashion.

But other airlines, such as United Airlines, do not do this.

So why should you care? Because it can make a huge difference in what an airline’s true net income is. Or perceived to be.

In the US Airways‘ earnings call this quarter, analyst Mike Linenberg with Merrill Lynch asked management at US Airways, why they chose to report the unrealized gains or gains that relate to future periods the way in which they do – as a special item.

Mike, inaccurately, I would add, claimed that ‘the rest of the industry’ is running the numbers through their P&Ls.’ (Note, not everyone is doing this, as I note above.)

As Mike then correctly observed, “It seems like perception is what trumps reality with respect to stock price and call it overall financial strength. Is– is that something that you would reconsider just so you’re on the same page as everybody else?”

US Airways’ CEO Doug Parker responded that the airline thinks it is the proper accounting method to use.

We agree.

In the Southwest Airlines’ call, CFO Laura Wright also clearly explained why they do what they do in accounting for the gains — and again, it makes sense.

To give you an idea of how much difference this accounting difference makes — let’s just take the example of US Airways and United Airlines for the second quarter.

Using what we believe to be the correct method of accounting, US Airways reported a loss of $101 million. Had they run the hedging related gains through their P&L, the airline would have reported a profit of $89 million.



On the other side of the coin, United Airlines reported a loss of $151 million  for the quarter. However, if they had reported their hedging activity in what we think is the proper way, the airline would have reported a loss of $380 million or $2.99 a a share, a fact that analyst Dan McKenzie with Credit Suisse emphasized in his research report on the airline’s earnings.

It’s a big difference.

And one that all airline investors, employees, and interested bystanders need to remember when they look at the numbers being reported this quarter by a particular airline.

Hello everyone. Yes, I know. This week has not been one of my more active ones here in PlaneBuzz. Things will be more normal next week.

Yours truly has been scouring the countryside the last week or so — looking for potential new Worldwide Headquarters’ locations.

Unfortunately it is also the heaviest week of the quarter for airline earnings reports, so today I am so buried in numbers I can’t add two plus two, as I try to catch up and start working on this week’s issue of PlaneBusiness Banter. I definitely think we are looking at another one of those 55-plus page issues this week.

But you know, when numbers overwhelm you, there are always photographs to cut through the clutter.

And here’s the photograph of the day that will cut through any end-of-week earnings clutter that may be hanging around in your mind.

This is a good shot of the Qantas 747-400 that decompressed at 29,000 feet. Or rather, a good shot of the section of fuselage that flew off the aircraft at 29,000 feet, leaving a gaping hole that extended into the cargo hold of the aircraft.

According to the ATSB:

“At approximately 29,000ft (8,839m), the crew were forced to conduct an emergency descent after a section of the fuselage separated and resulted in a rapid decompression of the cabin. The crew descended the aircraft to 10,000 ft in accordance with established procedures and diverted the aircraft to Manila where a safe landing was carried out. The aircraft taxied to the terminal unassisted, where the passengers and crew disembarked. There were no reported injuries.”

It adds: “Initial information indicates that a section of the fuselage has separated in the area of the forward cargo compartment.”

A spokeswoman for the Manila International Airport Authority says the aircraft is registered as VH-OJK. According to Flight’s ACAS database it has a serial number of 25067 and was delivered new to Qantas by Boeing in 1991. It is powered by Rolls-Royce RB211-524G engines.”

Technorati Tags: decompression, Qantas

Hi guys. Just a quick note to let you know that we are out of pocket today. Will be returning to the Worldwide Headquarters late tomorrow.

In case you didn’t look at your favorite airline stock today — you are in for a pleasant surprise.

It seems that because the majority of airlines are not reporting second quarter earnings results that are as dire as analysts had expected, and because oil prices continue to move downward, investor sentiment in the sector has gone off the charts. Again.

I thought we had a week last week that could not be improved upon, in terms of airline stock gains, but when all the shouting is done, I may very well be proven wrong when Friday rolls around.

But forget the end of the week. Today gains were off the charts all by themselves, as shares of US Airways soared 59% to 4.27. Shares of United Airlines, which also reported earnings today, were up 69% to 8.41, and shares of, which also reported today, were up 16%, closing at 4.50.

Whew.

So what has changed? As analyst Kevin Crissey from UBS wrote in a research note late this afternoon — sentiment.

“Today was another good day for the airline stocks. Good day of course being a big understatement. Combined with the upward moves last week, the legacy airline stocks are up 90% in the last five trading days and the low fare stocks are up 30%.

* Sentiment has improved

But what really changed today? United sold miles forward (expected), United’s credit card holdback was lowered (positive surprise although we hadn’t expected it to be increased), United, US Airways and jetBlue cut more capacity (not really a surprise although timing/magnitude is arguably better), and fuel prices fell. Ultimately though we think what changed is sentiment. Sentiment regarding the chances that fuel prices will continue to fall, and sentiment regarding the probability and timing of a liquidity crisis.

* Our view on the stocks

We believe the airlines can offset weak demand or high fuel prices but not both. So upside to the shares comes from either fuel prices falling or demand being better than expected. We are skeptical that analysts are underestimating revenue growth and therefore view fuel as the primary driver. Fuel prices may or may not continue to fall but based on the forward curve our analysis indicates that the stocks are roughly fairly valued.

* Updating EPS estimates

We are reducing our EPS loss estimates for UAUA, LCC and JBLU.