Tag Archives: airline stocks

Airline Pre-Earnings Whispers Continue to Sound Positive

Ho, ho, ho. Merry Christmas.

Or something like that.

Thanks to a wickedly strange website entitled Sketchy Santas for today’s visual. If you have a warped sense of humor like I do, go on over and take a peek. I’ll use a couple more of them here before we say goodbye to the Christmas season. I mean, after all, a little warped sense of humor is good for us all this time of year — yes?

Speaking of this time of year — it’s the time of the year when those folks who run the airlines start talking. To analysts. About their respective fourth quarter results that will be finalized in a little more than two weeks.

Today Bill Greene with Morgan Stanley wrote,

“We expect near-term data points and commentary to excite investors about the on-going airline recovery, pushing potential concerns of an anemic 2010 to the background, for the time being.”

Oh my. Let’s pop some champagne corks. What do you think?

Bill went on to talk more specifically as he added that AMR now expects fourth quarter mainline PRASM to be down more or less 5% year-over-year. This is better than Bill’s previous 7% estimate. The airline also said this week that close-in bookings continue to be strong.

US Airways said this week that it continues to see revenue improving “rapidly.” The airline said this week that corporate revenues could be up by as much as 10% year-over-year in 2010. Delta expects strong demand trends in 2010 and fourth quarter guidance updates imply better than expected top-line growth and United Airlines aid this week that it also continues to see improvement in corporate and premium cabin bookings.

Yesterday analysts Jamie Baker and Mark Streeter with JP Morgan issued a note in which they talked about both stock and debt updates.

They also talked about the positive comments from Delta and US Airways as did Bill. JP Morgan lifted its fourth quarter estimates for both Delta Air Lines and US Airways based on the latest updates from both carriers.

On the debt side, Mark Streeter gave all of us some good background on the fact that Delta Air Lines did also offer year-end liquidity estimates that were lower than those previously distributed this week.

Is this a bad thing? Not according to Mark.

According to Mark,

“Delta offered year-end liquidity guidance of $5.1 billion (versus our prior estimate for YE09 of $5.4 billion), or about $700 million lower than the $5.8 billion total liquidity as of 30-Sept-09. Given a seasonal air traffic liability shift of $800 million-$1 billion (per management), the net burn is deceiving. As we have discussed, Delta has reduced 2010 debt maturities by 55% from $3.4 billion prior to recent capital markets transactions (mainly secured first and second lien notes and a secured aircraft EETC deal) to $1.5 billion.

In our Airline Credit Outlook 2010 webcast, we reiterate our bullish view on airline credit (Overweight) and our specific opinion that Delta is our favorite legacy airline credit from a relative value perspective. We recommend Delta A (offered at 400bp+) and B tranche (9%+ yield) EETCs basically across the board (As for HG and HY investors, Bs for HY investors only) as well as the Delta first (9.5% bonds yielding 8.5%) and second lien (12.25% bonds yielding 13%) backed by Delta’s Pacific operations. On the situation in Japan, AMR has the most to lose and Delta the most to gain if JAL defects from OneWorld to SkyTeam.

On the other hand, US-Japan Open Skies remains a long-term wild card from the perspective of how appraisers and the market will value Delta’s Pacific collateral. Regardless, we expect Delta to maintain a large, significant presence in Asia and Narita specifically (and perhaps Haneda over time). Therefore, the short relative duration of the 9.5%s (due Sep-14) and the 12.25%s (due Mar-15) coupled with high current yields relative to credit ratings (credit ratings that should INCREASE over time given our forecasted improvement in Delta’s credit metrics against our bullish industry recovery thesis) forms the basis of our favorable opinion on these unique bonds.”

Yes, that man is still bullish on Delta Debt.

Oil Leaps Above $80/Barrel — Airline Stocks Sink

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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.

Good Morning Earthlings: US Airways Looking to Remove E-190s, Southwest Airlines Continues to Do the Revenue Two-Step; Liquidity Is THE Story For the Quarter

Holly here. Reporting from the airline earnings bunker where I have been toiling since last week.

This week’s PlaneBusiness Banter will be posted later today. It’s one of those monster issues. Next week’s issue will be just as packed, as we finish up from the group that reported last week. Just way too many earnings reports compressed in too short a period of time last week. Whew.

Having said that, it was an interesting group of calls last week. Just a couple of tidbits from what we heard.

One, US Airways, which has flirted with the idea of grounding its Embraer 190 fleet in the past — in an effort to cut capacity further at the airline — sounds like it is now looking at the possibility in a much more serious way. Because of the airline’s contract with its pilots — the airline is constrained in terms of how much flying it can remove. But it could remove the 25 Embraer 190 fleet in one fell swoop — thus cutting their capacity by 2.5%. It’s really the only option the airline has left if it wants to cut capacity further and in listening to the airline’s call last week, it sounds like the airline is very close to pulling the trigger on the move.

Two, I’m getting pretty tired of hearing the folks at Southwest Airlines keep talking about all these revenue initiatives they are going to do in the …future. Third quarter, fourth quarter. First quarter 2010. Who knows.

I am assuming the reason the airline keeps talking about all these things we are going to see — someday — is because the airline does not have the technological backbone in place to do them ..NOW.

Meanwhile the airline still does not charge for passenger bags. And revenues generated from their Business Select program continue to be under original forecast.

I think there is way too much money being left on the table here.

Three, the whole question of liquidity and who has it and who doesn’t permeated the calls last week.

Jamie Baker and Mark Streeter, analysts at JP Morgan Chase found themselves right in the middle of the fray after they published a note on where they saw United, American Airlines, and US Airways in the “Dance of the Cash Constrained.”

Hoping to clear up any confusion they had caused with their note, they issued another note later in the week in which they wrote:

Did We Not Make Ourselves Clear? – We are surprised by the volume of incoming calls from people who believe that our view is that LCC [US Airways] somehow disappears.

As noted earlier this week, “assuming LCC or UAUA die off, as we believe some do, is a mistake, in our opinion.” What we do take issue with is US Airways’ ability to raise incremental capital should industry fundamentals deteriorate further or even remain stuck here in neutral. There has been very little dialogue, as near as we can tell, as to the potential that 2010 demand may prove as bad as 2009’s. Alternatively, bump up your RASM and fuel by similar amounts and one’s industry models probably won’t show any meaningful improvement. It is against this backdrop that we continue to believe that borrowing power (as well as the need for incremental borrowing) at AMR & UAUA significantly exceeds that of LCC. Put another way, AMR needs to borrow a lot of money, and we think it has plenty of ways to do so. United needs to borrow less, and we think it also has a few bullets left to fire in the capital-raising gun. However, our view on LCC is that while its near-term needs are arguably low, its capital-raising options appear largely nonexistent if demand trends simply bump along from here or in fact worsen. We therefore believe that some form of Washington-mandated combination might potentially occur. Nothing this earnings season changed our view in this regard, nor our opinion that risk/reward in LCC shares remains weak assuming most scenarios short of quick recovery (though LCC’s peer-leading 54% decline since May 6th obviously tempers our negativity).

I’d suggest you tread very softly when discussing liquidity with US Airways‘ CEO Doug Parker however. Doug went on another one of his “liquidity rants” in the airline’s call last week. Deja vu all over again. It was just last year at about the same time that analysts were saying US Airways didn’t have enough cash to get through the winter. Then they pulled off that slick $1 billion financing deal out of nowhere.

As someone observed about this industry — don’t underestimate the ability of an airline to find cash.

No matter how bad the business environment.

PlaneBusiness Banter Now Posted

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

It was a busy week for the Things With Wings last week.

First, American Airlines reported its second quarter earnings results. The airline lost a lot of money. $390 million to be exact. $319 million excluding special items. However, you’d never have known it if you listened to the airline’s earnings call — which seemed focused on one thing — liquidity. Oh, and capacity reductions. That’s fine, but there are other aspects of an airline’s operations I’d like to hear about.

Then we had the blockbuster news concerning Continental’s Chairman and CEO, Larry Kellner. As I write in this week’s PBB, even though the management backbench strength at Continental Airlines is strong, and the airline should be able to carry on just fine as Larry goes to seek his fortune in the equity investment game — it’s quite discouraging to see one of the industry’s best and brightest leave.

Following up on our piece in last week’s issue about United’s bone-headed (or would that be heavy-handed) attempts to get travel agencies to take on more financial risk — or rather some travel agencies — the airline said late last week that it is going to give agencies 60 days to implement the business operation changes it seeks.

This whole thing still reeks. Nothing the airline says rings true.

Southwest Airlines had its own place in the spotlight last week, or would that be the sunlight, as the airline had a 737-300 aircraft develop a hole in the roof while enroute from Nashville to BWI. Not what the airline wants or needs — especially considering the issues the airline has had with the FAA concerning fuselage checks in the past. Preliminary NTSB report says there was no evidence of previous corrosion at the site.

That was not the only bad news Southwest had last week. The airline was also notified that its debt rating with Moody’s is under review, signaling a potential downgrade.

The Senate produced its version of an FAA Reauthorization bill last week. How did it differ from the House version? It differed on quite a few items. We talk more about that in this week’s issue.

Those misguided folks at the US Airways Pilot Association, the pilot union that was created in an attempt to circumvent the original ALPA seniority award that was handed down after US Airways and America West combined forces — had their head handed to them on a plate by U.S. District Judge Neil Wake last week. Wake issued his final injunctive order on the case brought against USAPA by the former America West pilots. Yes, we talk about this too.

Oh, and speaking of USAPA, we also give them, and our readers, a handy step-by-step instruction of how you correctly determine just how much an airline executive makes, using SEC documentation. Apparently the folks at USAPA have a problem figuring these things out.

British Airways raids its guaranteed employee pension benefit larder, Air Canada gets all of its employees “on board” with its 21-month contract extension program, and 215 Delta pilots sign up for the airline’s sweetened “early-out” package. Somehow I think the guys in suits over in Atlanta had hoped that number had been higher.

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

If you are a subscriber, you can access this week’s issue here. If not, you can learn how you can become a subscriber by clicking here.

Airlines’ April RASM Numbers Continue to Look Good

It’s that time of the month once again. That time when the airlines report their traffic (and in some cases estimated revenue per available seat mile (RASM) performance) for the previous month.

Remember, while higher load factors are nice, what’s even better is knowing those butts in seats paid more, not less, for the privilege.

The reporting kicked off with Continental Airlines, as always, which issued their numbers late last Friday. The result there?

The airline estimated that its April consolidated RASM was down 12.5-13.5%. While these numbers might look ominous, the results are actually on the high side of the range last given by the airline.

The airline had originally said that it expected RASM to be down between 13-15%.

While only a small improvement over what had been expected — the key word here is “improvement.” Not unexpected “decline.”

US Airways also gives monthly RASM guidance, as does JetBlue. So Tuesday it was time to parse through the US Airways numbers.

US Airways said Tuesday that its total April mainline traffic fell 3% from a year ago to 5 billion revenue passenger miles. Capacity fell 4.8% to 5.9 billion available seat miles, while its load factor rose 1.6 points to 84.8%.

More importantly, the airline said that consolidated passenger revenue per available seat mile (PRASM) was down approximately 8% to 10% versus the same period last year while total revenue per available seat mile decreased between 4% and 6%on a year-over-year basis.

Again, these numbers were just a tad better than previously forecast, as the airline had said it expected April RASM to come in down around 10%.

Yes, it does look like the declines in revenue have begun to level out.

Okay, so who’s going to pick up the tab for the cold beers this afternoon? Yee haw.

Which Airlines Are Potentially Exposed the Most to Mexico Risk?

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Gary Chase, airline analyst with Barclays, issued a note this morning in which he listed the exposure of different airlines to the potential short-term risk of passengers curtailing travel to Mexico.

Gary also took a look at the effect that the SARS scare had on the Asian carriers in 2003, and then extrapolated a kind of “worst case” scenario for our carriers — in terms of their Mexican exposure.

Of course, all of this is just conjecture at this point. This analysis is only looking at one part of the puzzle — the US carriers current exposure to Mexican flying. This assumes, which Gary pointed out, that the flu is able to be contained in Mexico.

And right now, that looks like a big assumption.

But let’s say that is the case. If that is the case, Alaska Airlines, Continental Airlines, US Airways and American Airlines are the four airlines that have the biggest percentage of their passenger revenue tied up on Mexican routes. Note that even though Alaska’s total O&D revenue tied to Mexico puts it fifth on the list, those flights make up 8% of the airline’s passenger revenues. A huge amount.

Airline Sector Hit Hard By Flu Concerns

Just in case you were so wrapped up with the NBA playoffs or the NFL draft that you didn’t watch much news over the weekend, or you didn’t read Jonathan’s note here that was posted last night — the reason your favorite airline stock is posting a loss this morning is directly attributable to one thing. Swine flu.

Or rather, fears that the flu, which has, up to now, been concentrated in areas of Mexico, but has already crossed the border to the U.S., has gone beyond the stage where cases that have been confirmed can be ‘contained.’

As a result, memories of the SARS epidemic of a few years ago, and what it did to the industry, (the Asian carriers were particularly hard hit) has investors selling off shares of airline stocks faster than you can buy a box of Kleenex.

The major airlines are taking the brunt of the selloff this morning, with shares of Continental, Delta, US Airways, United, Southwest, and American all down by double digits. Or very close to double digits.

What Did This Quarter’s Earnings Tell Us?

It’s Friday. Do you know how well YOUR favorite airline did for the first quarter of 2009?

As of today, all the major airlines have reported earnings.

So what have we learned? A couple of things.

One, Allegiant Air continues to blow away everybody else on the block. The travel company, which happens to include an airline that happens to fly only MD-80s that also happens to make money hand over fist had a spectacular first quarter. As I mentioned earlier this week, a 31.3% operating margin was posted by the airline.

You just don’t see margins like that in this industry.

I told you guys not to believe that anti-Allegiant rant that CNBC’s Jim Cramer spewed out not too long ago. Cramer, by lumping ALGT with Las Vegas “casino stocks,” proved that his research is lacking.

We also learned this week that AirTran had a great first quarter. No, the results were not as stratospheric as those of Allegiant, but they were pretty damn good. Nice fat profit, and nice big declines in costs. Excellent job.

We also learned that while we may have hit a point where declines in demand have more or less leveled out — nobody, and I mean, NOBODY, (well, except for Allegiant) is ready to call what is going to happen in May and June.

Preliminary bookings are down — but will they recover, as more and more passengers continue to book tickets closer in? Then again, at the heart of the demand decline here in the U.S. is the declining number of premium passengers. That is only going to improve when the economy improves.

What I might have concerns about if I were an airline other than Allegiant is just how much of that previous business travel my airline had before does return. Even if the economy picks up.

You don’t have to look very far to see what is happening in companies both big and small these days. Companies are cutting back on travel and are using video conferencing more and more. Heck, today anyone with a laptop can connect via video to a small one-on-one meeting or to a meeting with many more participants. There is no question that the quality and ease, not to mention the low to no-cost of such efforts — has changed dramatically just in the last couple of years.

So yes, I am concerned that going forward — if a company gets used to using video conferencing as a result of the current belt-tightening — is that same company going to be anxious to start spending money on sending their employees to far-flung regions of the country? Much less the rest of the world? Just because they now have a little extra money to spend?

I’m not so sure.

And, if this is the case — which airlines stand the best chance of inheriting the earth? Or at least the bulk of the shorter-term profit kitty? Those airlines that cater to the leisure traveler and have the low fares and low cost structure to make money doing so.

Which is one of the reasons why Morgan Stanley analyst Bill Greene recently advised airline stock investors to move out of U.S. legacy carriers and into low cost, low fare airlines such as Allegiant, AirTran and JetBlue. US Airways kind of sneaks in there as well, as it has the lower fares and the lower cost structure and a bigger domestic market than that of American, United, Delta, or Continental.

AMR, Parent of American Airlines, Posts $375 Million Loss

Today AMR, parent of American Airlines reported their first quarter results.

What is it they say — it’s all about managing expectations.

And in the case of American’s first quarter numbers that were released today, that is exactly what management did — as the airline had just recently warned Wall Street that its first quarter numbers might not be as strong as first expected.

As a result of that guidance, analyst forecasts were then lowered.

Previous to the airline’s announcement today, the analysts’ consensus forecast a loss of $1.62 a share.

So today, when the airline reported a loss of $375 million or $1.35 a share — the shares of the airline took a nice bounce, gaining 19% on the day, closing at $5.01.

The reason for the better-than-expected numbers? Operating costs were down a bit more than forecast and RASM declines were not as sharp as previously indicated.

American’s stock was not the only airline stock that picked up some ground today — comments the airline made in its earnings call helped push up other airline stocks as well, as CEO Gerard Arpey indicated that the airline is not seeing any “further deterioration” as those in the revenue world like to put it. But, just as Alaska Airlines indicated in an SEC filing last week, Arpey said that American is also looking at May and June bookings that are off noticeably from this same time last year. He said that May and June bookings are off by about 2 percentage points.

This percentage drop is more or less in line with what Alaska reported last week.

AMR ended the quarter with $3.3 billion in cash and short- term investments, including $462 million that is restricted.

February Traffic Numbers Send Airline Investors Fleeing

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That huge sucking sound you hear coming from the airline industry today is the sound of airline stock prices falling off the ledge.

We only thought airline stocks had been hammered prior to this week.

When last we looked here are just a handful of the declines we were looking at: US Airways, down 16%, trading at 1.99; Alaska Air Group down 17%, trading at 15.04; Continental down 13%, trading at 7.31; Delta down 10%, trading at 4.01; Hawaiian down 13%, trading at 2.25; JetBlue down 11%, trading at 2.86; Southwest down 4.41, trading at 4.99; and United Airlines, down 11%, trading at 3.75.

Yeoww.

This week the winged ones began to report their traffic numbers for the month of February, and folks, even taking into consideration that there was one more day in the month of February last year — it was a leap year — the numbers coming out this week have scared the bejesus out of airline stock traders and investors.

How bad have the traffic numbers been? Here is the latest rundown.

(RPMs are revenue passenger miles, ASMs are available seat miles. RPMs represent traffic, while ASMs represent an airline’s capacity.)

American Airlines RPMs down 13.5% ASMs down 10.1% Load factor down 2.9 points to 73.9%

American Eagle RPMs down 14.1% ASMs down 9.1% Load factor down 3.8% to 65.2%.

US Airways RPMs down 9.3% ASMs down 9.3% Load factor steady at 77.2%

Delta Air Lines RPMs down 11% ASMs down 7.8% Load factor down 2.7 points to 74.3%

United Airlines RPMs down 15.2% ASMs down 14% Load factor down 1 point to 73.2%

Southwest Airlines RPMs down 6% ASMs down 6.5% Load factor was up 0.5% to 69.1%

Continental Airlines RPMs down 13.2% ASMs down 8.9% Load factor fell 3.5 points to 72.9%

AirTran RPMs down 13.6% ASMs down 9.1% Load Factor down 3.9 points to 74.2%

JetBlue RPMs down 8.3% ASMs down 5.5% Load Factor down 2.3 points to 74.5%

Then of course there is PlaneBusiness favorite Allegiant Air. The airline continues to buck the trend, as it reported that its RPMs increased 9.8% in February, while the airline increased capacity by only 5.2%. This resulted in a nice 3.8 point increase in load factor to 90.2%.

Other than renegade Allegiant — the two airlines that clearly did the best job in February at managing capacity reductions with declines in traffic were Southwest and US Airways.

But as we see today, that has clearly not helped the stock price of either airline.