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Financial news
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Ahead of the bell: Calyon
upgrades airlines
Tuesday October 28, 8:26 am ET
Calyon's Neidl upgrades rating on airline stocks, cites
steep drop in oil prices
ATLANTA (AP) -- Stocks of major network carriers got an
upgrade Tuesday from a Calyon Securities airline analyst,
who cited dramatically falling oil prices and the deep
capacity cuts implemented to support ticket prices and
revenue.
Analyst Ray Neidl said in a research note that his firm
raised its ratings for major network carriers to "Add" from
"Neutral."
Neidl said the firm also was raising its earnings per share
estimates based on new, lower oil price assumptions.
The firm remains cautious on airlines' outlook in the
short-term due to the uncertain economy and volatile markets
and oil prices.
The research note said the airlines have shown discipline in
cutting capacity, and the firm believes that carriers have
the ability and would be willing to take further actions if
demand falls more sharply than currently forecast.
"We expect these actions will provide further pricing
traction for the carriers," the note said. "Since new market
development will be largely curtailed, this large cost item
should be eliminated for the duration of the economic
slowdown."
The note said as the economic downturn continues and
airlines move into the slower winter season, the firm
believes that if airline stocks soften further, that would
make them even more attractive to purchase.
"It is difficult to predict short-term stock price movements
in such a volatile market for both equities and oil prices,
but we recommend investors establish and add to positions on
price weakness," the note said.
In premarket trading AMR Corp., parent of American Airlines,
rose 50 cents, or 5.8 percent, to $9.10. Continental
Airlines gained $1.05, or 7.3 percent, at $15.49. Delta Air
Lines added 33 cents, or 4.3 percent, at $7.99. Northwest
Airlines rose 8 cents to $9.10. UAL Corp., parent of United
Airlines, gained 70 cents, to 6.1 percent, at $12.10. US
Airways added 39 cents, or 5.5 percent, at $7.54. JetBlue
rose 36 cents, or 8.1 percent, at $4.82. Southwest Airlines
lost 6 cents at $10.60.
Major airlines upgraded on
oil prices, capacity cuts
By Christopher Hinton
Last update: 8:54 a.m. EDT Oct. 28, 2008
NEW YORK (MarketWatch) --
Calyon Securities on Tuesday raised its rating for the major
airline carriers to add from neutral, citing the dramatic
drop in oil prices and deep capacity cuts. The major
carriers are AMR Corp., Continental, Northwest, Delta, UAL
Corp., US Airways, and Alaska Air. The research firm raised
its rating despite the weakening economy since carriers have
aggressively increased their cash positions, helping them
weather the economic downturn without bankruptcies. It also
puts them in a good position to take advantage of a "likely"
spring recovery, Calyon said. However, economic pressure
could further soften stock prices over the winter, the firm
said.
UAL, Delta Fuel-Hedge Losses May
Herald Profits for Airlines
By Mary Jane Credeur
Oct. 27 (Bloomberg) -- UAL Corp.'s United Airlines, Delta
Air Lines Inc. and Southwest Airlines Co. all posted
quarterly losses in part because of charges tied to jet-fuel
contracts they bought in advance. Investors say that's good
news.
The Bloomberg U.S. Airlines Index is up 8.2 percent since
carriers began reporting earnings Oct. 15, while the
Standard & Poor's 500 Index has fallen 3.4 percent. After
tumbling fuel prices caused deficits because of airlines'
hedges, Wall Street is betting that lower energy costs
herald profits next year.
``Long-term value investors who have basically avoided
airlines for decades are looking at taking stakes,'' said
Michael Derchin, an analyst at FTN Midwest Research
Securities in New York. ``The common wisdom going into a
recession is that the last group to do well would be
airlines. But I'm modeling profits for all of them'' in
2009.
The 10 biggest U.S. carriers lost a combined $2.52 billion
in the third quarter, partly because of writedowns in the
value of hedges. Jet fuel surged to a record $4.36 a gallon
in July, then plunged 52 percent to $2.18 on Oct. 24.
``It's remarkable how much has changed in such a short
period,'' Doug Parker, chief executive officer of US Airways
Group Inc., said on a conference call on Oct. 23, when the
airline posted an $865 million net loss that included
writedowns for fuel hedges.
US Airways jumped 32 percent in New York trading this
quarter through Oct. 24, the second-biggest advance among 14
airlines in the Bloomberg index behind UAL's 36 percent. The
S&P 500 plummeted 25 percent in the same period.
`Nobody Knows'
The largest U.S. carriers announced 26,000 job cuts and the
grounding of 460 jets as fuel was rising, trimming costs to
help them weather any travel slowdown from the credit
crunch. The drop in fuel prices further strengthens their
ability to halt losses.
``Most airlines can make a profit at jet-fuel prices at
these levels,'' said John Armbrust, an aviation fuel
consultant in Palm Beach Gardens, Florida. ``The question
is, do prices stay where they are? Nobody knows.''
Without last quarter's fuel-hedge charges, Southwest,
Northwest Airlines Corp. and Alaska Air Group Inc. all said
they would have made money. Marking down the value of fuel
hedges snapped Southwest's 17-year quarterly profit streak.
The 10 carriers had an operating loss of about $870 million,
narrower than analyst Derchin's estimated $1 billion. He
projects about $5 billion in profits for the group next
year.
They'll probably be ``break-even, maybe better'' this
quarter, he said. Through nine months, the collective
operating loss was $2.86 billion, based on airlines'
reports.
Carriers including Southwest, US Airways and AirTran
Holdings Inc. said they may defer additional fuel-hedging
contracts until oil prices stabilize.
`Free Fall'
``In the last three weeks alone, oil's down $40'' per
barrel, AirTran CEO Bob Fornaro said in an Oct. 23
interview. ``The market really is in a free fall.''
Fidelity Management & Research is among the investors adding
to airline holdings last quarter, boosting its stake in
Continental Airlines Inc. to 15 million shares, or almost 14
percent. The world's largest mutual-fund company previously
held 4.8 percent.
The risks for airline stocks include the possibility that
the weakening global economy will decimate demand, as well
as the prospect of another jump in fuel prices, said Kevin
Crissey, an analyst at UBS Securities in New York.
Still, Crissey also projects profits for the U.S. industry
next year. He cited the carriers' cuts in domestic capacity
of 10 percent to 15 percent and said oil is unlikely to
return to its $147-a-barrel peak.
Offering fewer flights gives airlines more pricing power.
Passenger unit revenue, a measure of fares and fees, jumped
by 8 percent or more for most carriers last quarter, and
Delta is among the airlines saying they expect similar gains
in the current period.
``The perception is that the airlines are in more trouble
than they actually are,'' Crissey said in an interview.
``Investors love the capacity argument. If it was just a
fuel price drop, that'd be more shaky. But together, it's a
much more compelling argument.''
With fuel costs lower,
airlines say they can stand less demand
10:16 PM CDT on Sunday, October 26, 2008
By TERRY MAXON
After all they've been through, airlines are saying they can
withstand a little drop in demand – or a big drop, if it
comes to that.
Delta president Ed Bastian says, 'A significant decrease in
demand is in some ways easier to work with than $150 oil.'
The reason? The big fall in energy prices means that they'll
have billions of dollars more left in their pockets in the
fourth quarter and next year than they had – until very
recently – been expecting.
"Given the magnitude of the oil decline, it would take a
truly unprecedented decline in demand to overcome the impact
of oil," US Airways Group Inc. president Scott Kirby said
last week.
As major U.S. carriers have taken turns talking about their
dismal third-quarter losses – $2.5 billion for the 10
largest carriers – they've also expressed optimism they'll
weather any economic downturn.
Speaking to analysts last Thursday, Mr. Kirby pointed out
that each $1 decrease in the price of a barrel of oil
translates into $35 million of savings a year for US
Airways. And oil has declined by more than $80 a barrel
since hitting a high over $147 in July.
Using some complicated math, Mr. Kirby said industry revenue
would have to decline 22 percent to offset the savings from
cheaper jet fuel and capacity cuts taken by airlines in 2008
or planned for 2009.
"And with the exception of 9/11, nothing like that has
happened in the history of the airline industry," Mr. Kirby
said.
Industry executives have told Wall Street that they're
seeing only slight drops in passenger demand so far,
although they're planning for the worst.
"Looking into 2009, we expect to experience a decline in
demand given the current economic crisis and are developing
plans with a number of different scenarios," Delta Air Lines
Inc. president and chief financial officer Ed Bastian told
analysts on an Oct. 16 conference call.
"But a significant decrease in demand is in some ways easier
to work with than $150 oil was this past summer," he added.
In many ways, the airline industry has been like an area hit
by a hurricane – the winds have died down, but the damage is
still being cleaned up.
Through the first nine months of 2008, the 10 largest U.S.
carriers reported net losses of $20 billion, compared to
$6.5 billion in profits in 2007. The 2008 losses were
inflated, however, as several airlines wrote down "goodwill"
they had been carrying on their balance sheets.
On an operating basis excluding the goodwill write-offs,
those 10 carriers lost $2.6 billion through Sept. 30,
compared with an operating profit of $5.5 billion in the
first nine months of 2007 – an $8.1 billion reversal.
Blame it all, and then some, on fuel. The 10 carriers have
paid $12.9 billion more for fuel in 2008 than in 2007.
Through Sept. 30, fuel made up nearly 35 percent of all
expenses, compared to less than 27 percent a year earlier.
In the third quarter alone, those airlines spent $14 billion
on fuel, up $5.8 billion from the 2007 period. Six of the 10
carriers spent more than 40 percent of their operating
budgets on fuel, led by AirTran Airways Inc.'s 50.6 percent.
However, assuming that oil prices don't make another U-turn
and head upward, airlines expect to get a big relative break
on energy spending in coming quarters. Industry analysts are
quickly rewriting their earnings estimates to reflect the
improving picture.
Only a few months ago, a number of analysts were muttering
aloud about the potential for bankruptcies and debating
about who would crater first. The talk now is more about how
much capacity the industry needs to support a down economy,
not whether the airlines will run out of money this year or
next.
Typical is airline analyst Jamie Baker of J.P. Morgan Chase,
who said in a research note last week that cheaper fuel is a
bigger deal than lower demand.
"We are exponentially more comfortable with airline credit
quality across the board ... in the current rapidly
weakening demand but much lower oil and significantly lower
capacity environment vs. our view six months ago when oil
was on its way to $150, demand trends remained uncertain,
and the industry was much bigger," Mr. Baker wrote.
"In other words, we are happy to trade demand trend downside
for a 50 percent cut in fuel prices, a scenario that is
inherently much more easily navigated by airline management
teams," he said.
Capacity cuts, fuel price
fall to help US airlines: UBS
Fri Oct 24, 2008 2:38pm EDT
Oct 24 (Reuters) - The
combination of capacity cuts and a decline in fuel prices
will help U.S. airlines weather a slack in demand, said a
UBS analyst, who raised his price targets on three airlines,
including US Airways Group.
However, airlines should boost liquidity through capital
raises as debt levels remain too high, analyst Kevin Crissey
said.
"The balance sheets of most US airlines look as if they've
just come out of a recession, rather than going into one,"
the analyst said. "There is nothing to say fuel can't
reverse course quickly and leave the airlines short on cash
again."
Oil dropped more than $4 a barrel on Friday as gloom about a
global economic downturn sapping fuel demand took the steam
out of an OPEC agreement to cut output.
On Thursday, US Airways, AirTran Holdings, JetBlue Airways
and Alaska Air Group reported quarterly losses, linking
their results to a historic spike in fuel prices in the
third quarter.
Crissey, who expects travel demand to likely be very weak
soon, raised his price targets on US Airways, AirTran and
Alaska.
Separately, Credit Suisse raised its price target on US
Airways to $13 from $10.
"Fourth-quarter 2008 revenue should be ok for the industry,
but our thesis is that 2009 likely proves more challenging,"
analyst D.McKenzie wrote in a note to clients.
Shares of US Airways jumped more than 12 percent to $8.03 in
afternoon trade on the New York Stock Exchange.
US
Airways Group, Inc. Secures $950 Million in Financing and
Liquidity Commitments
TEMPE, Ariz.--(BUSINESS WIRE)--
October 23, 2008
US Airways Group,
Inc. (NYSE: LCC) announced today that as part of a
comprehensive liquidity program launched in mid August, the
Company has raised approximately $950 million of financing
and near-term liquidity commitments. On October 20, 2008 the
Company closed on $800 million of these transactions with
$400 million of proceeds used to prepay the Company's $1.6
billion bank debt facility. In exchange for this prepayment,
the unrestricted cash covenant contained in the loan
agreement for the bank debt facility has been reduced from
$1.25 billion to $850 million. The loan agreement's term
remains the same at seven years with substantially all of
the principal amount payable at maturity in March 2014. The
remaining proceeds from these financing transactions,
approximately $370 million after payment of certain bank and
other service fees, increase the Company's total cash
position and will be used for general corporate purposes.
The remaining $150 million of liquidity commitments are
expected to close during the fourth quarter, with cash
benefits realized through 2009.
"Today's
announcement confirms that US Airways' financial footing is
solid," said Chairman and CEO Doug Parker. "As a result of
these financings our total cash position relative to annual
revenues ranks solidly among the highest of the largest US
carriers. Most notably, we were able to complete this
financing in the midst of unprecedented global financial
unrest, which is a testament to the confidence our investors
and business partners have in the people of US Airways. We
are extremely appreciative of their support, and we intend
to reward their commitment to us by continuing to run a
great operation and returning our airline to profitability
in the years ahead."
The Company
estimates that 2009 expenses will increase by approximately
$90 million due to costs related to these transactions, of
which approximately $65 million is non-cash.
Chief Financial
Officer Derek Kerr added, "Combined with our August equity
offering which generated $179 million, and other financings
completed during the quarter, US Airways has raised or
secured approximately $1.2 billion in cash and payment
deferrals since we released our second quarter financial
results."
US Airways beat earning estimates by $0.19, reports
Revs in-line
BRIEFING.COM
October 23, 2008
LCC Reports Q3 (Sep) loss of $2.35 per share,
excluding charges, $0.19 better than the First Call
consensus of ($2.54); revenues rose 7.4% year/year to $3.26
bln vs. the $3.26 bln consensus. Mainline passenger revenue
per available seat mile in Q3 was 11.32 cents, up 4.4% over
the same period last year. The company announced separately
today, it has significantly improved its liquidity position
and raised approximately $950 mln of financing and near-term
liquidity commitments. "Today's announcement confirms that
US Airways' financial footing is solid," said Chairman and
CEO Doug Parker. "As a result of these financings our total
cash position relative to annual revenues ranks solidly
among the highest of the largest US carriers. Most notably,
we were able to complete this financing in the midst of
unprecedented global financial unrest, which is a testament
to the confidence our investors and business partners have
in the people of US Airways... The industry is also moving
to a more profitable a la carte pricing model of its product
and services with US Airways at the forefront of that
change. We expect these new a la carte pricing initiatives
to contribute between $400-500 mln in revenue during 2009."
AIRLINE STOCKS
Airlines fire up after oil hits 14-month
low
By Christopher Hinton, MarketWatch
Last update: 4:39 p.m. EDT Oct. 16, 2008
(MarketWatch) -- Oil dipped
to its lowest point in more than a year on Thursday,
bringing about sharp gains in shares of the so-called legacy
carriers that had appeared to be sinking this summer beneath
the weight of record-high fuel costs.
The Amex Airline Index surged
21% to finish at 21.64 points with all of its 14 components
trading higher. The benchmark index has climbed about 71%
since hitting bottom in July when the price of oil reached
$147 a barrel. More recently, crude oil for November
delivery fell $4.69 to finish at $69.85 a barrel in
electronic trading on Globex, ending below its 2007 average
price of $72 a barrel, a year when most airlines were
posting profits. Early last year the airline index peaked at
66.92, but prospects for a return to such lofty highs look
bleak these days as the economy weakens toward an economic
recession. The crisis in the credit markets has taken its
toll on airline sales, and in August, the number of
passengers flying declined for the first time since 2003.
Now carriers that were
cutting back on seat capacity to trim costs in the wake of
record-high jet fuel prices are focused on reducing capacity
to deal with an anticipated decline in passenger numbers.
Again, analysts are saying those airlines with the most
flexibility in their fleet management will fare best.
Leading the pack Thursday
were shares of United parent company UAL Corp., up 40% to
close at $10.30; US Airways added 28.2% to $6.78; Delta Air
Lines rose 18.8% to end at $8.84; and American Airlines
parent AMR Corp. jumped 23% to $10.80.
Also climbing was Southwest.
The Dallas carrier swung to a third-quarter loss after
falling oil prices penalized its fuel hedging program, but
on an adjusted basis Southwest posted a profit ahead of the
Wall Street consensus. Shares of Southwest rose 8% to close
at $12.49.
Meanwhile, the world's No. 5
airline, Continental, swung to a third-quarter loss from a
year-earlier profit. Despite 8.8% higher revenue, 62% higher
fuel prices and the impact of Hurricane Ike hammered
results. Continental shares rose 22.7% to finish at $15.75.
AP
Sector Snap: Airlines mostly up as oil
drops
Wednesday October 15, 2:38 pm ET
Airline stocks trade mostly higher amid broader market
sell-off as oil dips below $75 a barrel
NEW YORK (AP) -- Shares of major U.S. airlines rose in
trading Wednesday amid a sharply lower broader market, as
the price of oil reached its lowest point in 13 months.
Also Wednesday, American Airlines
parent AMR Corp. and Delta Air Lines Inc. reported
third-quarter earnings. AMR reported an operating loss that
was roughly inline with Wall Street expectations, while
Delta Air Lines missed analysts' forecasts.
But investors were squarely focused on
oil prices. Light, sweet crude for November delivery fell
$2.95 to $75.68 a barrel on the New York Mercantile Exchange
after earlier sliding to $74.57, the lowest trading level
since Sept. 5 of last year.
Oil prices have now plummeted 48 percent since a July 11
record.
In afternoon trading, Delta rose 34 cents, or 5 percent, to
$7.69. AMR gained 14 cents, or 2 percent, to $8.93.
Northwest Airlines Corp. added 24 cents, or 3 percent, to
$9.11. United parent UAL Corp. rose 25 cents, or 4 percent,
to $7.38.
Among airline stocks losing steam was Southwest Airlines
Co., which declined 24 cents, or 2 percent, to $12.08. The
carrier is set to report earnings Thursday.
TheStreet.com
US Airways' CEO: Merger Saved Jobs
10/14/08 - 04:27 PM EDT
Ted Reed
CHARLOTTE, N.C. -- Three years after the merger between US
Airways and America West, it seems clear the deal was an
overall success.
Still, the inability to reach an agreement on pilot
seniority stands out as a glaring shortcoming.
Without a merger, "neither the
standalone US Airways nor the standalone America West could
have managed through," said CEO Doug Parker, in a recent
interview. "Both these airlines would be nonexistent had
they not merged. But merged, we saved 35,000 jobs."
At the same time, "pilot seniority is not something we
contemplated we'd still be dealing with three years later",
Parker admitted.
The bitter seniority conflict follows an arbitrator's ruling
that was deemed unacceptable by most pilots from the former
US Airways. It has been accompanied by an April election
that ousted the Air Line Pilots Association after 57 years,
and a series of lawsuits.
On the positive side, "our pilots are keeping this between
themselves," Parker said. "We've had no customers see this
affect them in the last three years. People read about it,
but it hasn't affected our operations one bit."
Meanwhile, Charlotte and Philadelphia, the two hubs operated
by the former US Airways, have been the strongest links in
the new carrier. They have suffered minimal capacity
reduction despite cuts of about 25% in Las Vegas and 10% in
Phoenix, which has come as the industry moves to reduce
total capacity by an unprecedented 10% in response to higher
fuel prices.
"Charlotte has proven to be more resilient than other parts
of the country," Parker said, even taking into account the
merger of Wachovia, Charlotte's second-largest employer,
into Wells Fargo.
"US Airways' position in Charlotte is not dependent on
Wachovia being as big as it is here," Parker said.
"Charlotte is much bigger and stronger than that."
Philadelphia, long a trouble spot for
the airline, has improved. In terms of departures within 14
minutes of the scheduled time, US Airways' Philadelphia
operation showed a 25-point improvement, to 76.5%, from the
first half of 2007 to the first half of 2008. "The
turnaround in US Airways has been stunning within itself,"
Parker said. "The turnaround in Philadelphia is even more
dramatic."
US Airways emerged from bankruptcy in September 2005 after a
merger with America West. The new company quickly began to
make money due to capacity declines throughout the industry
and strong demand.
The merger's success led Parker to pursue both Delta and
UAL. Those efforts failed, although some speculate that UAL,
the parent of United, might become interested were US
Airways to resolve its pilot seniority issues. Meanwhile,
Delta plans to combine with Northwest.
For its part, the US Airline Pilots Association, which
replaced ALPA at US Airways, recently marked the third
anniversary of the tie-up, saying in prepared statement that
"the airline is entangled in labor disputes, lawsuits and
customer service issues, and management so far seems
incapable of getting the merger completed."
As for merging pilot groups, said USAPA president Stephen
Bradford, "What the Delta and Northwest managements did in
just a couple of months, US Airways management hasn't been
able to do in over three years."
Aviation consultant George Hamlin says the carrier could
gain efficiencies if pilot lists and contracts are merged.
But, if unresolved, the pilot conflict could encumber US
Airways to the extent that it comes to resemble Eastern
Airlines in its final days, Hamlin says.
"If you put parochial interests first, last and only, you
could destroy your employer," he says. "But so far, you have
to count this as a success, because the airline is still
here."
TheStreet.com
For Airlines, Demand Matters More Than
Earnings
Monday October 13, 2:30 pm ET
By Ted Reed, TheStreet.com Staff Reporter
If the world economy is going to be smaller going forward,
the U.S. airline industry was ahead of the curve.
Carriers have downsized dramatically since the summer travel
season ended, preparing for a world of $140-a-barrel oil.
They have eliminated older aircraft and marginal routes that
account for about 10% of nationwide capacity, and they have
implemented fees that are expected to add hundreds of
millions in annual revenue for the major carriers.
Since then, oil prices have fallen steeply, setting the
stage for what many people see as a profitable 2009. The
wild card is whether the financial market turmoil will
impact demand, but so far industry cuts appears to have
offset any impact from a potential decline in travel.
With airline earnings reports set to begin this week,
observers will be closely watching for news on future
booking trends.
AMR and Delta will report on Wednesday, while Continental
and Southwest will report on Thursday.
At US Airways, "bookings remain solid and we're not having
any trouble filling up airlines," CEO Doug Parker said in a
recent interview. "But you can't help but be concerned."
UAL, the parent of United Airlines, moved to cut fall and
winter capacity, a decision that was "very timely, largely
driven by high oil prices but just before the financial
crisis had arrived," CEO Glenn Tilton told ATW Online last
week. United cut capacity by 16%.
Tilton said United has not seen any significant drop in
passengers during the current quarter, although there is
"some softening" in forward bookings for next year.
Without question, some airlines will pay a price for
fuel-hedging bets they made when oil traded at higher
prices. Last month, United said its third-quarter earnings
will include $544 million in losses from fuel-hedging
contracts. Alaska Air said last week that it expects a
"significant" third-quarter loss due to special items
including a $220 million mark-to-market loss on fuel hedges.
Still, as American CEO Gerard Arpey said in July during a
third-quarter earnings call, falling oil prices "would be a
high-class problem to have."
Parker, meanwhile, notes that passengers are less likely to
check luggage or consume drinks when a charge is involved.
For instance, in September, the number of checked bags on US
Airways fell by 25%. "We've stumbled onto a better product,"
he says.
Many airline analysts are optimistic about 2009. In a recent
report, Avondale Partners analyst Bob McAdoo writes that
investors worry that demand is slowing, but he says the
double-digit capacity cuts should more than cover any
shortfall.
"Based on recent conversations with various airline
management teams, we believe the sharp stock market selloff
and current overall economic weakness are not materially
slowing demand for air travel," McAdoo wrote last week. "New
bookings in the past seven days are neither meaningfully
different than in recent weeks nor different from booking
patterns last year."
Standard and Poor's analyst Jim Corridore has doubts. He
recently reiterated a hold on American, raising his 12-month
target price to $8 from $6. "For '09, we think the recent
sharp drop in oil prices will lead to significantly lower
losses than we were earlier expecting, although we remain
wary of the impact of the global financial crisis on air
travel demand next year," Corridore wrote.
However, JP Morgan analyst Jamie Baker wrote in a recent
report that even were demand to fall considerably, "we are
having a tough time modeling losses." Baker said airline
shares are trading far below their value, saying: "Nothing
we've experienced comes close to explaining a recent $5
share price for United, considering we expect it to earn
something similar (untaxed) in 2009." JP Morgan has a
financial relationship with United that includes acting as a
market maker.
AP
Barclays says airlines
earnings set to improve
Thursday October 2,
1:17 pm ET
Barclays analyst sees
smaller losses or profits for airlines as capacity and fuel
costs fall
MINNEAPOLIS (AP) -- The outlook
for airlines is improving, with lower fuel prices and fewer
seats setting carriers up for a better 2009, Barclays
Capital analyst Gary Chase wrote on Thursday.
Chase forecast much smaller
losses for 2008 and 2009 across the sector versus his
previous expectation, and he predicted profits for
Continental Airlines Inc. and Alaska Air Group this fiscal
year, instead of losses.
Spooked by fuel prices which spiked over the summer,
airlines have been cutting the number of flights, hoping to
raise prices. They are still doing that, even though fuel
prices have retreated.
"The new lease on life afforded the industry by a dramatic
reduction in jet fuel prices should give investors the time
to benefit from this phenomenon," Chase wrote. He said his
top picks are United Airlines parent UAL Corp., as well as
Delta Air Lines Inc. and Northwest Airlines Corp. (which are
hoping to combine by the end of this year), "but we believe
the whole sector looks very compelling right now."
He left his ratings on the stocks unchanged. But for
Continental, he now predicts 2008 profit of 25 cents per
share, versus a previous call for a loss of $2.04 per share,
and 2009 profit of $1.50 per share instead of a loss of
$3.70.
The analyst still expects AirTran Holdings Inc. to lose
money this year, but he now expects a 2009 profit of 25
cents per share instead of a loss of 85 cents.
Chase wrote that the results are being driven by the
reductions in flying capacity by the airlines. He wrote that
he expects domestic capacity to fall almost 12 percent in
the fourth quarter of 2008.
"We continue to believe the industry will remain disciplined
on capacity and will execute on announced capacity
reductions," he wrote.
In Thursday afternoon trading, shares of most airlines fell
with the broader market. AMR Corp. lost 20 cents at $10.96.
Continental fell 10 cents to $17.50. Southwest gave up 27
cents at $13.93. JetBlue dropped 23 cents, or 4.6 percent,
to $4.82. Delta lost 56 cents, or 6.6 percent, at $7.99, and
Northwest fell 84 cents, or 8 percent, to $9.66.
A couple of carriers posted slim gains. UAL added 11 cents
at $9.63, and US Airways rose 10 cents to $7.10.
Union: Lingering talks in airlines' merger causing
confusion, morale problems
Oct 02, 2008
Beaver County Times -
McClatchy-Tribune Information Services
Three years after the merger of US Airways and the former
America West Airlines in September 2005, the combined
carrier's two largest labor groups still remain without
joint contracts. One of the labor groups believes that has
taken its toll on the carrier's performance.
"Our situation causes confusion, inefficiencies and severe
morale problems that carry over into the airline's
operation," said Stephen Bradford, president of the US
Airline Pilots Association, which represents US Airways'
5,300 pilots.
"We see these inefficiencies day after day, and at times,
they create passenger delays and prevent the company from
achieving its potential," Bradford said.
USAPA spokesman James Ray pointed to federal statistics that
show US Airways ranked second-to-last (worst) in customer
complaints during the first half of the year among the
nation's 19 largest carriers.
That has been at least in part because of the fact that
pilots from the former US Airways, or East unit, make $17 an
hour less than those from the former America West, or West
unit, Ray said.
"We do the same job as they do, but we don't get the same
pay. I don't care what line of work you're in, whether
you're flipping burgers or flying an airplane, it's human
nature. It affects your performance. It's demoralizing," Ray
said.
US Airways spokesman Morgan Durrant said contract
negotiations with the carrier's pilots and flight attendants
continue. Pilot talks were stalled for months while the
group wrangled over a combined seniority list and then
ultimately voted to scrap its former union, the Air Line
Pilots Association, in favor of USAPA this spring. Lingering
resentment and lawsuits between the East and West pilots
remain unresolved.
Still, Durrant disagreed that the lack of joint contracts
has adversely affected the carrier's performance, citing
improvements in on-time performance and baggage handling.
Federal statistics show US Airways has ranked in the top 10
in on-time performance for the last nine months reported and
in the top 10 in baggage handling for the last five months.
"We have made dramatic improvements. I think the (high rate
of) customer complaints are driven by a perception that is
lagging reality," Durrant said.
US Airways Pilots Mark
Three Years Of Failure To Complete Merger
Wed, 01 Oct '08
The Aero-News Network
Joining With America West Announced September 27, 2005.
September 27 marked three full years in which US Airways
management has failed to complete their merger between the
old US Air, and America West. Today, the airline is
entangled in labor disputes... lawsuits... customer service
issues... and public perception as a nickel-and-dime outfit,
willing to sell its soul for a $15 service fee.
Adding its chorus to the chaos is the US Airline Pilots
Association... formed earlier this year when US Airways
pilots (that is, pilots from the old US Air operation) voted
to remove the Air Line Pilots Association as their
collective bargaining agent, saying ALPA had done little to
represent their interests in early joint contract talks.
As ANN reported, a federal arbitrator presented a seniority
formula in June 2007 that based pilot ratings on aircraft
type, with pilots ranked by seniority within each group
based on their time at their respective airline, and how
many aircraft of that type are within the combined US
Airways fleet. Under the proposal, the top 517 pilots came
from US Airways... but the trouble began when talking about
first officer rankings, which US Air pilots said favored
their younger counterparts coming from America West.
As a result, today US Airways pilots still work under
different Collective Bargaining Agreements left over from
their former airlines... each having a different set of work
rules and pay rates. They are not permitted to fly each
other’s aircraft, or intermix crews.
While neither side is willing to budge from its stance (and,
indeed, USAPA faces discord within itself, from former
America West pilots) USAPA President Stephen Bradford says
management is to blame for the current crisis.
"What the Delta and Northwest managements did in just a
couple of months, US Airways Management hasn’t been able to
do in over three years," Bradford states. "Management’s
inability to complete the merger of US Airways and America
West, coupled with their apparent focus on short term,
quick-return management philosophies, is costing our Company
in a big way."
According to USAPA figures, for the first six months of 2008
US Airways ranks a dismal 18th out of 19 on the Department
of Transportation's consumer complaint list... a "sobering
change" from the airline’s top rankings in years prior to
the merger.
"Our situation causes confusion, inefficiencies and severe
morale problems that carry over into the airline’s
operation. No wonder we have to charge our passengers for
water," said Bradford. "We see these inefficiencies day
after day and at times they create passenger delays and
prevent the Company from achieving its potential."
USAPA states merging US Airways and America West into a
single airline, with a single Pilot Collective Bargaining
Agreement, would allow management to capture synergies that
would benefit US Airways’ passengers, investors and
employees alike and go a long way towards positioning the
airline for a secure future.
Airlines rattle former GOP allies
By CHRIS FRATES | 10/1/08 5:06 AM EDT
Politico.com
The airline industry hit some unexpected turbulence last
summer when its push of a Democratic-backed proposal to rein
in oil speculators so infuriated some Republicans that they
threatened to slap their longtime allies with unwanted
regulations.
One of those saber-rattling Republicans was Rep. John B.
Shadegg, a longtime airline advocate whose Phoenix-based
district includes the US Airways headquarters.
“I said, ‘Wait a minute. I’m not just your errand boy here,
where you come in and say you want something, [and] I do it
because it’s you,’” Shadegg said. “‘You guys have a history
of coming in and saying small [government], low tax, less
regulation, and therefore we have an agreed agenda.’”
Shadegg was outraged by what he saw as the industry’s
hypocrisy, saying he made the flippant threat to illustrate
how inconsistent it was that airlines, which for years had
asked him to fight regulation, were now asking him to
support more controls on another industry.
Airlines are just the latest industry to get snagged in
Capitol Hill’s bitterly partisan election-year battles. Some
of Washington’s most influential business groups are
struggling with how to navigate a Democratic-controlled
Congress without alienating their longtime Republican
boosters — and the drive for a $700 billion financial rescue
package is just the latest example.
Winning over Democrats has not come easily for business
lobbyists, particularly after years of being viewed as the
Republicans’ best buddies. In this Congress, business has
carried the flag on Republican issues that don’t affect its
industries, said a chief of staff for a House Democrat.
His advice: “Don’t be carrying the Republicans’ water on
crap. The CEO of Pfizer or Abbott or whatever should not
give a sh-- about the marginal tax rate, and the estate tax
ought not matter to them. When you’re doing that, you’re
representing a party — and the minority party to boot — and
you’re not representing your interest.”
Business Roundtable President John Castellani explained it
this way: “Overall, it’s a very challenging climate because
the politics of the election season have really overwhelmed
the ability to get the kinds of things done that we need to
be competitive.”
The airlines, working to control escalating fuel prices,
tried to minimize partisan fallout by crafting a plan to
regulate oil speculators and increase domestic supply. With
Democrats behind reining in oil speculators and Republicans
favoring more oil drilling, airlines thought they had
straddled the aisle.
They were wrong.
Some Republicans and business insiders saw the airlines
making a deal of convenience. The move, they said, helped
airlines on two levels: It gave them a boogeyman to explain
away rising ticket prices and, they hoped, earn a
political chit that they could cash in with Democrats the
next time they had union problems.
Shadegg and some of his fellow Republicans were
flabbergasted that their longtime allies had the temerity to
expect their support for a position they had no hand in
crafting.
Not to mention that some Republicans felt that the lobbying
campaign the airlines unleashed — complete with e-mails to
frequent fliers, on-hold messages on reservation lines and
even in-flight magazine columns penned by chief executives —
dealt almost exclusively with oil speculation and said
little about increased drilling.
“What really caught a lot of Republicans off guard was not
necessarily that the airlines would take the position that
they took on speculation, but the aggressiveness and grass
roots that they put behind it,” said a House Republican
leadership aide.
“We never saw near the effort put into an initiative that
they put into speculation.”
How the campaign was handled, the aide said, is “fairly
well-burnt into people’s memories. They’re not likely to be
forgotten.”
The airlines decided in June at an Air Transport Association
board meeting to push Congress to rein in oil speculators
and increase domestic supply, a solution the group thought
took a bipartisan tack, said ATA President Jim May. The
proposal was not drawn up to curry favor with the Democrats
on labor issues but as an answer to a looming business
problem.
“Since no one else was pushing the impact of speculation,
that became the focus of our activity on the Hill,” May
said. “We got into it for a simple reason: We were going to
go bankrupt from $147-a-barrel oil.”
As the summer wore on and gas prices continued to climb, “it
became abundantly clear that ‘Drill, baby, drill’ was going
to become the mantra of House Republicans,” May said. “It
became clear that we had a far more partisan atmosphere.”
Speculating is when investors buy or sell oil for a fixed
price over a certain time period, betting that the price
they negotiate will be a better deal than what they can get
in the future.
Airlines believe that massive cash infusions from
speculation accelerate the oil market’s volatility. The
financial services industry, whose firms make many of the
trades, argues that the airlines have made oil speculators
straw men.
“Gas prices are set by the law of supply and demand,” said
Scott Talbott, senior vice president of government affairs
at the Financial Services Roundtable. “Congress should focus
on a comprehensive, fact-based energy plan that focuses on
increasing supply and decreasing demand.”
“Speculators have no more effect on the price of oil any
more than the weather man has control over the weather,” he
added.
Still, the airlines’ position hasn’t won them much love from
some of their usual business allies. A financial services
lobbyist called the industry’s campaign “reckless.”
“The airlines needlessly picked fights within the business
community and with a political party,” the lobbyist said.
The business community, the House Democratic chief of staff
said, would be well-served to take a page out of the
pharmaceutical industry’s revamped playbook. The
Pharmaceutical Research and Manufacturers of America
championed the Democratic charge last year for increased
health care coverage for children.
“If PhRMA can make that kind of move, then a lot of other
sectors and industries that had a less bad reputation, they
have less distance to cover,” he said.
And Democrats aren’t alone in believing that the business
community’s veneer of nonpartisanship is nothing but a fancy
paint job.
The business community, said one of its lobbyists, is
“bitching because they’ve been partisan themselves for
years, and now that things look like they are changing,
they’re trying to figure out what to do next.”
Airlines' New Fees May Mean 2009 Profits
09/25/08 - 10:48 AM EDT
Ted Reed
CHARLOTTE, N.C. -- People may complain about airlines
charging fees for bags and other extras, but they are paying
them anyway, to the tune of hundreds of millions of dollars
annually.
Combined with unprecedented capacity cuts, the new charges
could help to turn the industry profitable in 2009. UAL for
instance, says new fees will likely boost next year's
revenue by $750 million. US Airways expects a revenue gain
of $400 million to $500 million.
"These fees do seem to work," Brad Tilden, CFO of Alaska
said at a Calyon-sponsored investor conference last week.
"A lot of times you see a $50 fare increase, then you look
back at the end of the quarter and the average ticket price
didn't go up at all," Tilden said. By contrast, he said,
projected revenue from the fees actually materialize.
US Airways President Scott Kirby said fees result not only
in new revenue, but also in operational benefits. "We've
seen huge improvement in baggage numbers from having 10%
fewer bags go through the system," he said.
Baggage handling has historically been a challenge for
airlines, which are expected to transfer thousands of bags
between aircraft in narrow time windows at hub airports. Not
only is it time consuming, but "it's where we fail the
most," Kirby said. Those failures are costly, leading to
re-accommodations, deliveries beyond the airport and lost
bag claims.
So far, US Airways is the only carrier to charge for drinks
-- $2 for soda, juice and bottled water and $1 for coffee.
As a result of the charges, which began Aug. 1, "the cabin
environment is much calmer and more efficient," Kirby said.
In the past, because drinks were free, nearly every
passenger had one. Now, carts no longer clog the aisles.
Restroom lines have diminished. Less trash is left onboard.
And it's no longer necessary to cater the aircraft every
time it's on the ground.
Furthermore, "we've seen no market share impact," Kirby
said. "We've looked at this closely."
AMR's American Airlines unit, which introduced the concept
of a first-bag charge in May, has now been vindicated by
widespread adoption of bag fees.
Three weeks later, UAL's United followed American, but the
delay had allowed time for speculation that the charge might
have to be rescinded if no one else implemented fees. "Four
of our major competitors have now matched that fee, which I
believe validates that decision," said AMR Treasurer Beverly
Goulet.
Still, neither Southwest nor Delta has matched the move.
Southwest, which carries the most passengers of any airline,
touts its lack of fees in its advertising.
Delta, meanwhile, is poised to become the world's biggest
carrier by revenue passenger miles pending approval of its
planned merger with Northwest. (A report Thursday said
shareholders of Delta and Northwest are likely to vote in
favor of the deal.)
"While we're always keeping an eye on what's happening in
the market, Delta customers can still check a first bag for
free," said Delta spokeswoman Betsy Talton.
Ahead
of the Bell: UBS upgrades airline sector
Monday September 15, 8:59
am ET
UBS analyst upgrades rebounding airline sector, saying
stocks have more room to rise
MINNEAPOLIS (AP) -- UBS airline analyst Kevin Crissey sees
smoother air ahead for airlines, and he upgraded several
carriers Monday morning.
Crissey acknowledged that air travel demand will continue to
be weak, but said airline shares could gain value anyway.
They've already rebounded as oil prices have fallen, but
Crissey thinks they could rise further as companies top
conservative Wall Street earnings estimates.
"The impact of the lower fuel prices is significant and
results in much better (earnings per share) than our prior
estimates," he wrote in a note to clients.
He also said October has proved to be the best month for
airline shares in the past.
The upgrades to "Buy" from "Neutral" included AirTran
Holdings Inc., American Airlines parent AMR Corp.,
Continental Airlines Inc., Delta Air Lines Inc., Northwest
Airlines Corp., United Airlines parent UAL Corp., and US
Airways Group Inc. He also bumped JetBlue Airways Corp. to
"Neutral" from "Sell."
Southwest Airlines Co. and Alaska Air Group Inc. retained
"Neutral" ratings.
Oil prices continued to fall on Monday, dipping below $97 a
barrel after U.S. oil operations sustained minimal damage
from Hurricane Ike. Fuel has become the biggest expense at
most airlines so their share prices had fallen as oil prices
rose.
Shares of US Airways rise on upgrade
Friday September 12, 7:04
pm ET
US Airways rises on upgrade to 'Outperform'; analyst sees
boost from competitors' cutbacks
NEW YORK (AP) -- A Credit Suisse analyst upgraded shares of
U.S. Airways Group Inc. to "Outperform" from "Neutral" on
Friday, suggesting a rival's flight cutbacks on competitive
routes should help the carrier.
Shares rose 36 cents, or 4.8 percent, to end at $7.88. Oil
prices, which rose 31 cents to settle at $101.18 a barrel,
after briefly below $100 for the first time in five months,
also helped shares of major airlines. The Amex Airline Index
rose 1.7 percent to 25.21.
Analyst Daniel McKenzie predicts capacity reductions by
Southwest Airlines Co. should help US Airways boost revenue
by expanding in some key markets. He raised his earnings
forecast for the company and said that analysts' consensus
expectations are "too pessimistic."
Also, the analyst noted that previous concerns on the Tempe,
Ariz., company's long-term liquidity have lessened. He said
that while demand might fall a bit in the coming months, it
likely won't be as severe a drop as analysts expect.
Credit Suisse raises US airlines sector
Fri Sep 12, 2008 11:23am
EDT
Sept 12 (Reuters) - Credit Suisse upgraded the U.S. airlines
sector to "market weight" from "underweight," saying there
is good opportunity in the sector as the stocks have already
priced in a weak revenue outlook and higher crude prices.
"If investors do the math on the weak economic backdrop,
demand looking ahead, and the collapse in crude prices, the
equation yields profit," said the brokerage, which raised
its rating on U.S. Airways Group Inc.
Though there is a "modest" fall in demand, there is no sign
of a collapse as in the previous downturns, it added.
"Demand overall is poised to remain intact for the next
several months which means revenue should prove better than
most expect," Credit Suisse said.
Credit Suisse upgraded U.S. Airways Group to "outperform"
from "neutral," and said "previous concerns over LCC's
longer-term liquidity outlook dissipate."
Airlines get a small boost on
falling oil prices
4:50 p.m. EDT Sept.
5, 2008
Weaker U.S. economic data temper investor enthusiasm
By Christopher Hinton, MarketWatch
Despite a weaker economy, airline industry revenue per
available seat mile, or RASM, is expected to surge starting
in late September, said J.P. Morgan analyst Jamie Baker in a
Friday note to investors.
"With fuel prices at manageable levels, demand trends are
expected to retake center stage. Starting in September, we
expect system mainline RASM to exceed 10%, remaining there
until well into 2009," Baker said.
"While airline shares tend to seasonally find traction
starting in November or December, we suggest positions
instead be established before the release of September
demand data," Baker said.
Airlines have been raising prices on airfare and adding new
fees. On Friday, Continental (CAL:Continental Airlines Inc
said it would start charging $15 for the first checked bag
for certain customers who buy economy-class tickets.
The fee will go into effect Oct. 7 but won't apply to
EliteAccess customers, OnePass Elite and SkyTeam Elite
members, customers traveling on full-fare economy class
tickets, or military personnel and their families traveling
on official orders, the airline said.
Late Thursday, Northwest Airlines said its total August
traffic rose 1.9% to 7.27 billion revenue passenger miles
from a year ago. A revenue passenger mile equals one
passenger flown one mile.
However, Delta reported its August traffic fell 0.5% to
11.84 billion revenue passenger miles from 11.91 billion
last year.
Sector Snap: Airline shares higher
Friday September 5, 1:57
pm ET
ATLANTA (AP) -- Airline shares were mostly higher Friday
afternoon as oil prices continued to fall.
Light, sweet crude for October delivery fell $1.66 to
$106.24 a barrel in afternoon trading on the New York
Mercantile Exchange. It dropped as low as $105.13 during the
session, its lowest trading level since early April.
The Amex Airline Index rose nearly 2 percent, with 13 of 14
component stocks higher.
JP Morgan analyst Jamie Baker said in a research note
Thursday that with fuel prices at manageable levels, demand
trends are expected to be a key issue as airlines try to
return to profitability.
Baker pointed out the jet fuel prices are now around $3.20 a
barrel, down from $4.20 a barrel when oil hit $147 a barrel
earlier this summer. While that amounts to annualized cost
savings of $13 billion for the industry, Baker said
collective fuel costs are still about $13 billion above 2007
levels.
Shares of AMR Corp., parent of American Airlines, rose 31
cents, or 2.8 percent, to $11.09, while shares of UAL Corp.,
parent of United Airlines, gained 52 cents, or 4.4 percent,
to $12.44. Shares of Delta Air Lines Inc. added 25 cents, or
2.8 percent, at $9.21, while shares of Northwest Airlines
Corp. rose 15 cents to $11.11.
Continental Airlines Inc. shares gained 7 cents at $18.02.
The carrier said it will join other airlines in charging $15
for the first piece of checked luggage.
Shares of US Airways Group Inc. rose 25 cents, or 3.3
percent, to $7.90.
Among low-cost carriers, shares of Southwest Airlines Co.
rose 3 cents to $15.64, while shares of AirTran Holdings
Inc., parent of AirTran Airways, rose 8 cents, or 2.9
percent, to $2.86. Shares of JetBlue Airways Corp. fell 5
cents to $6.13.
Airport traffic soars again
Thursday, August 28, 2008
(Dayton Business Journal) -The Dayton International Airport
saw a 4.8 percent increase in passengers for the month of
July, from the same time last year.
Year-to-date passenger traffic at the airport is up 3.5
percent.
July’s increase continues consecutive passenger growth,
dating back to February 2006.
AirTran Airways was the busiest carrier with 31,845
enplanements, a 18.5 percent increase fro July 2007. US
Airways followed with 22,697 enplanements, a 12 percent
increase from last July. Delta Airlines dropped 0.5 percent
to finish at 22,385.
Of the top 100 airports in country, Dayton International
Airport ranks almost in the middle of the pack in ticket
prices.
That Dayton airport slid in at No. 43 this year, with an
average fare of $337 per passenger in the first quarter,
according to U.S. Bureau of Transportation Statistics.
That’s a 2.9 percent drop from 2001, when the average was
$347. But it is a 3 percent hike from the first quarter in
2007, when the average was $327.
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