24/7 Wall St. » ALK

24/7 Wall St. Closing Bell (BAC, CHK, SAM, ERJ, PAA, GE, MCD, KMB, ALK, ALTR, COF, HBI, SNDK, KEY, AEP, CP, CTIC, RCL, PCX, RVBD, RMBS)

Paul Ausick — Fri, 20 Apr 2012 20:05:19 +0000

Markets opened higher this morning although a decline in tech stocks weighed on the Nasdaq, leaving the index with only a small gain going into the last hour of trading. Energy stocks boosted the Dow and the S&P. Asian and European markets were higher today, except in Japan, where tech stocks held the market down. The IMF’s attempts to build its Eurozone firewall fund to around $400 million are meeting with mixed success, with the failure of the BRIC countries to jump on board (our coverage here). The US dollar index fell today, now down -0.46% at 79.193. The GSCI commodity index is up fractionally at 672.63, with most commodities gaining on the falling dollar. WTI crude oil closed up 0.8% at $103.05/barrel, and Brent crude trades up 0.54% at $118.64/barrel. Gold settled up 0.01% today, at $1,642.80/ounce.

The unofficial closing bells put the DJIA up about 65 points to 13,029.19 (0.5%), the NASDAQ fell more than 7 points (-0.24%) to 3.000.45, and the S&P 500 rose 0.12% or nearly 2 points to 1,378.53.

There were several analyst upgrades and downgrades today, including Bank of America Corp. (NYSE: BAC) cut to ‘sell’ at Credit Agricole; Chesapeake Energy Corp. (NYSE: CHK) cut to ‘market perform’ at Wells Fargo; Boston Beer Co. Inc. (NYSE: SAM) started as ‘neutral’ at UBS; Embraer SA (NYSE: ERJ) cut to ‘neutral’ at Goldman Sachs; and Plains All American Pipeline L.P. (NYSE: PAA) started as ‘overweight’ at Barclays.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: General Electric Co. (NYSE: GE) is up 1.4% at $19.41 (more coverage here); McDonald’s Corp. (NYSE: MCD) is up 0.7% at $95.90 (more coverage here); Kimberly-Clark Corp. (NYSE: KMB) is up 1.6% at $76.50 after posting a new 52-week intraday high of $77.09 (more coverage here); Alaska Air Group Inc. (NYSE: ALK) is down -0.4% at $34.55; Altera Corp. (NASDAQ: ALTR) is down -8.1% at $35.38; Capital One Financial Corp. (NYSE: COF) is up 0.05% at $53.96; Hanesbrands Inc. (NYSE: HBI) is up 11.7% at $30.09 (more coverage here); Sandisk Corp. (NASDAQ: SNDK) is down -12.2% at $35.55 (more coverage here); KeyCorp (NYSE: KEY) is down -0.06% at $7.87; American Electric Power Co. Inc. (NYSE: AEP) is up 1.1% at $38.29; Canadian Pacific Railway Ltd. (NYSE: CP) is up 0.8% at $77.08 (more coverage here); Cell Therapeutics Inc. (NASDAQ: CTIC) is flat at $1.16; and Royal Caribbean Cruises Ltd. (NYSE: RCL) is down -7.8% at $26.61.

We have a preview of next week’s big earnings reports here.

Other standouts from today include the following stocks:

Patriot Coal Corp. (NYSE: PCX) is down -8% at $6.19. The coal miner announced another mine closure today, along with a lowered production estimate. Patriot is scheduled to report earnings after markets close today.

Riverbed Technology Inc. (NASDAQ: RVBD) is down -28.6% at $19.89. The network equipment maker missed earnings expectations. More coverage here.

Rambus Inc. (NASDAQ: RMBS) is down -12% at $4.92. The dhip maker missed EPS estimates today and offered a lower-than-expected forecast.

Stay tuned for Monday. We have noted the following events on the schedule (all times Eastern):

11:30 a.m. – 3- and 6- month bill auction

Have a great weekend.

Paul Ausick

Filed under: Earnings, HI/LOW, Market Close Tagged: AEP, ALK, ALTR, BAC, CHK, COF, CP, CTIC, ERJ, GE, HBI, KEY, KMB, MCD, PAA, PCX, RCL, RMBS, RVBD, SAM, SNDK

Is There an Airline Stock with Upside Potential? (AMR, DAL, UAL, LUV, LCC, JBLU, ALK, HA, SAVE)

Paul Ausick — Thu, 08 Dec 2011 19:04:53 +0000

The recent bankruptcy filing by AMR Corp. (NYSE: AMR), parent of American Airlines, has put a damper on any enthusiasm there might have been among investors for US airlines stocks. A report yesterday from the International Air Transport Association (IATA) added to the negativity, noting that total profits could be halved in 2012.

With American Airlines on the sidelines, we’ve looked at the stocks of several other US carriers in a search for some hidden value: Delta Air Lines Inc. (NYSE: DAL), United Continental Holdings Inc. (NYSE: UAL), Southwest Airlines Co. (NYSE: LUV), US Airways Group Inc. (NYSE: LCC), JetBlue Airways Corp. (NYSE: LCC), Alaska Air Group Inc. (NYSE: ALK), Hawaiian Holdings Inc. (NASDAQ: HA), and Spirit Airlines Inc. (NASDAQ: SAVE).

Delta Air Lines has a median target price of $18.00 and is trading at $8.39 around noon today. The implied gain here is about 115%. Delta’s share price is about -1.5% lower than it was on October 21st, so the implied gain is growing because the share price is falling. The target price is unchanged since October.

US Airways has a median target price of $10.00 and is trading today at $5.36, about -7.6% lower than the share price in late October. The implied gain is about 86.6%, and the target price is unchanged since October.

United Airlines has a median target price of $32.50 and is trading today at $19.94, yielding a potential upside of nearly 63%. The stock’s target price rose by $0.50 in the past six weeks, but the share price has fallen by about -1.4% in the same period.

Every one of the nine stocks we looked at has an implied gain of greater than 20%, proving once again that numbers often don’t tell the whole story. The only stock with a chance of offering investors some value is Alaska Air. But the chance is a very slim one.

Alaska Air’s median target price was raised from $80.00 to $83.00, and the share price has increased by about 5% since late October. It’s the only one of these nine to perform that combined feat. The stock’s potential upside is 22% and its forward P/E is 7.39. The company does not pay a dividend.

Alaska has ordered 15 new 737s from Boeing Co. (NYSE: BA) and deliveries are scheduled to begin in 2012. Thirteen of the new planes will be 737-900ERs, which carry a list price of $89.6 million each. That’s a total of about $1.2 billion, which is roughly equal to both the company’s long-term debt and to its available cash.

The company does not indicate how it will finance the purchase of these planes, but a recent report in the Financial Times indicates that European banks, the main lenders to global airlines, have cut back lending for commercial aircraft purchases. That means the airlines will have to issue debt or perhaps resort to leasing new planes.

The impact on aircraft makers like Boeing is likely to be greater than the impact on airlines, but what’s reasonably certain is that the cost of capital for aircraft is going to rise. For that reason, if for no other, investing in any airline stock now is a speculative play rather than a value play.

Paul Ausick

Filed under: Airlines, Analyst Calls, Bankruptcy, Transports Tagged: ALK, AMR, DAL, HA, JBLU, LCC, LUV, SAVE, UAL

Third Quarter 2011 Selected Financial/Operational Metrics For Major US Airlines

247wallst — Mon, 31 Oct 2011 08:09:25 +0000

Comments as noted:

Net profit/loss

UAL = $773M

DAL = $765M

ALK = $131M

LUV = $122M

LCC = $ 95M

JBLU = $ 38M

AMR = -($162M)

While most of the carriers have recently been reporting consistent quarterly profits, AMR continues their losing streak.

Operating income (more important to look at than net)

UAL = $1,055M

DAL = $1,030M

LUV = $ 247M

LCC = $ 193M

ALK = $ 145M

JBLU = $ 108M

AMR = $ 39M

Both United and Delta have begun taking advantage of their merger related synergies and now have significant -air fare- pricing power that is inherent with the industry consolidation.

Operating “margin”

ALK = 12.1%

DAL = 10.5%

UAL = 10.4%

JBLU = 9.0%

LUV = 5.7%

LCC = 5.6%

AMR = .6%

After accounting for the size of each carrier, Alaska continues to outperform the industry in margins.

Total (absolute) revenue (in millions)

UAL = $10,171

DAL = $ 9,816

AMR = $ 6,376

LUV = $ 4,311

LCC = $ 3,436

ALK = $ 1,198

JBLU = $ 1,195

United and Delta, due to their mergers with Continental and Northwest, have become the big gorillas of the industry. Combined revenues from just United and Continental now total more than the rest of the entire US airline industry (passenger airlines). United’s revenue alone is more than the total of Southwest, US Airways, Alaska, and JetBlue.

Regional/affiliate ratio of total passenger revenue

LCC = 26.0%

DAL = 20.0%

UAL = 19.7%

ALK = 19.4%

AMR = 13.2%

Excluding American, the large network carriers have grown their regional/affiliate networks thereby providing significant O&D revenue and passenger feed to mainline operations.

EBITDAR margin

ALK = 24.1%

JBLU = 16.7%

UAL = 16.0%

DAL = 15.3%

LCC = 12.2%

LUV = 8.4%

AMR = 7.4%

After excluding interest, taxes, depreciation/amortization, and aircraft rents, Alaska is by far, the financially strongest carrier with American being the weakest.

Wage benefit ratio of operating revenue / operating expense (mainline operations)

JBLU = 19.7% / 21.7%

DAL = 21.2% / 24.9%

LCC = 21.9% / 23.6%

UAL = 24.1% / 26.1%

LUV = 26.6% / 28.2%

ALK = 26.8% / 33.2%

AMR = 31.5% / 32.1%

Since 2007 and the upsurge in fuel costs going from approximately 10% of each airline’s operating costs to 30+%, labor has paid the price as most airline labor groups took huge concessions after 911.

Overall labor cost ratio differentials for the airline industry are largely affected by labor contract productivity work rules more so than (current) hourly pay rates.

Pilots from United, Delta, American, and US Airways are currently in contract negotiations and now earn approximately what they were back in the mid 1990′s and -unadjusted– for inflation.

Unit labor costs (wage & benefits cents per mile)(mainline operations)

JBLU = 2.39

LCC = 3.03

DAL = 3.12

LUV = 3.44

UAL = 3.49

ALK = 3.81

AMR = 4.03

While each airline has a unique operation from their competitors, the unit labor cost differential can but not always, play a large part of the overall profit/loss for each carrier. i.e., JetBlue and Alaska are similar size airlines which have the lowest and second highest unit labor costs but are still both profitable.

American’s labor costs consistently rank as the industry’s most expensive in large part because competing carriers were able to shed labor contract work rules via bankruptcy. While American’s hourly wage rates are more-or-less industry competitive, their work rules drive the industry’s lowest productivity.

Mainline system yield (cents/mile) / load factor

ALK = 14.70 / 87.0%

LUV = 14.69 / 82.0%

UAL = 14.56 / 86.1%

DAL = 14.32 / 86.9%

AMR = 14.21 / 84.9%

LCC = 13.76 / 86.5%

JBLU = 13.04 / 84.5%

Yield driven by high(er) load factors provides a significant indicator for an airline’s revenue performance and competitiveness.

Accepting the above, yield is affected by each airline’s “unique” operation. Fundamentals such as domestic/international, long/short haul, premium seating and global alliances all play a role in “yield” performance.

Data excludes ex/special items- Some data may be estimated

DAL = Delta

UAL = United

AMR = American

LCC = US Airways

LUV = Southwest

ALK = Alaska

JBLU = JetBlue

# # # #

Disclosure- The above opinions and comments should not be used to determine the worth of any stock or investment. At the time of writing, the author and his family did not hold stock and/or derivative positions in any of the airlines covered in this article.

_____________________________________________________________

Robert Herbst is an independent airline industry consultant. He is the founder of AirlineFinancials.com which provides airline industry analysis and commentary for major US carriers. In addition to his consulting work, Mr. Herbst was a commercial airline pilot for over 35 years. His aviation experience and financial background provide a unique analytical perspective into the airline industry.

Filed under: Airlines Tagged: ALK, AMR, DAL, JBLU, LCC, LUV, UAL

Boeing Takes Off, Raises Guidance (BA, EADSY, LUV, ALK, DAL, UAL, LCC, JBLU, FAA)

Paul Ausick — Wed, 26 Oct 2011 14:00:58 +0000

For all its struggles with new airplanes, Boeing Co. (NYSE: BA) put up some pretty big numbers for the third quarter. The company’s EPS of $1.46, sharply above the consensus estimate of $1.12. Revenue came in at $17.73 billion, lower than the consensus estimate of $17.83 billion. Boeing delivered 127 commercial aircraft in the third quarter, up sequentially from 118 and year-over-year from 124.

The company’s first new 787 Dreamliner was delivered and the company’s first new 747-8 cargo plane was delivered to Luxembourg’s Cargolux after an initial spat over pricing. Airbus maker European Aeronautic Defense and Space Co. (OTC: EADSY) releases earnings next month. US airlines Southwest Airlines (NYSE: LUV), and Alaska Air (NYSE: ALK), and Delta Air Lines Inc. (NYSE: DAL) released earnings earlier this week and United Continental Holdings Inc. (NYSE: UAL), US Airways Inc. (NYSE: LCC), will release earnings tomorrow. JetBlue Corp. (NASDAQ: JBLU) missed the consensus EPS estimate this morning, though revenues were in-line with expectations.

Boeing raised its full-year EPS guidance from $3.90-4.10 to $4.30-$4.40 and narrowed its revenue estimate to $68-$70 billion. The company lowered delivery estimates on the Dreamliner to 15-20 and to 25-30 for the 747-8 freighter, while raising margin estimates from 8%-8.5% to 9%-9.5%.

The company’s defense group posted an operating profit jump of 20% year-over-year, with its military aircraft group boosting profit by 27%.

The upbeat results and the improved guidance could be hard to meet given the overall outlook for air carriers for the rest of this year. The weak global economy, especially in the developed countries, is already having an impact on capacity. Several of the large foreign carriers have retrieved mothballed aircraft and put them back into service, threatening to reduce traffic even more.

Boeing could be staring into the teeth of a swift and significant downturn in orders if passenger traffic declines further. The company’s backlog reached $332 billion at quarter end, up from $323 billion sequentially. The company said that it has taken a net $61 billion in new orders in the first nine months of the year.

For all the good news in this report, one unusual item that stands out is cash flow. Boeing’s free cash flow for the quarter was just $69 million on operating cash flow of $449 million. A year ago the company’s operational cash flow totaled $1.86 billion and free cash flow totaled $1.6 billion. For the year-to-date, free cash flow is negative, at -$50 million compared with a positive free cash flow of $1.1 billion for the first nine months of 2010. Boeing attributes the decline to continued investment in its development programs and a $500 million payment to its discretionary pension fund.

Boeing’s shares are trading up more than 5% shortly after opening this morning, at $67.11, in a 52-week range of $56.01-$80.65. The lightly traded Guggenheim Airline ETF (NYSE: FAA) closed at $27.89 yesterday and has seen no trades yet this morning.

Paul Ausick

Filed under: Airlines, Earnings, Transports Tagged: ALK, BA, DAL, EADSY, FAA, JBLU, LCC, LUV, UAL

Significant Price Gains Expected For Airlines Stocks (AMR, DAL, UAL, LUV, LCC, JBLU, ALK, HA, SAVE)

Paul Ausick — Fri, 21 Oct 2011 17:38:53 +0000

The airlines industry is in a very bad way, unless you are a Wall Street analyst making upside predictions for a sector that Warren Buffett hates. High fuel costs and fewer passengers are simply putting too much weight on revenue and profit. If it weren’t for fees for everything from checked bags to earphones, the airlines would be in even worse shape. The carriers have also boosted fares, which has helped staunch the red ink.Overall profits are expected to remain weak through the fourth quarter, even though another fare hike is on the horizon for the travel-heavy holiday season. The weakness will also carry over to those airlines with freight businesses. Cargo traffic is expected to remain soft due to the weak global economic outlook.

There appear to be some value plays in the industry right now, but whether that is true or whether we’re looking at value traps depends to forces beyond the industry’s control. Fuel costs and the overall US and global economies being the most critical.

All data from Yahoo! Finance and MarketWatch and current stock prices were gather just before noon today.

AMR Corp. (NYSE: AMR), parent of American Airlines, has a median target price of $4.75 from 10 brokers. Shortly before noon today, shares are trading today at $2.77, for an implied gain of $1.98, or 71%. AMR’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $2.73-$8.98, and at today’s price that’s about 1.5% above its 52-week low, posted earlier this morning, and 69% below the 52-week high. AMR reported a loss of $162 million for the third quarter, mainly due to a 40% rise in fuel costs that more than wiped out fare and fee increases. Rumors of a Chapter 11 bankruptcy filing have also hit AMR’s share price hard.

Delta Air Lines Inc. (NYSE: DAL) has a median target price of $14 from 13 brokers. Shortly before noon today, shares are trading today at $8.52, for an implied gain of $5.48, or 64%. Delta’s forward P/E is 4.15 and the company does not pay a dividend. The stock’s 52-week trading range is $6.41-$14.54, and at today’s price that’s about 33% above its 52-week low, posted earlier this morning, and 41% below the 52-week high. Delta reports earnings next week, and the consensus estimate is EPS of $0.93 on revenue of $9.73 billion. The company has already announced a fare increase for the coming months of up to $10 per ticket, its 17th fare hike this year.

United Continental Holdings, Inc. (NYSE: UAL), parent of both United and Continental airlines, has a median target price of $32 from 13 brokers. Shortly before noon today, shares are trading today at $20.23, for an implied gain of $11.77, or 58%. UAL’s forward P/E is 3.95 and the company does not pay a dividend. The stock’s 52-week trading range is $15.92-$29.75, and at today’s price that’s about 27% above its 52-week low, posted earlier this morning, and 32% below the 52-week high. UAL has followed Delta’s recent fare hike and will also report earnings next week. UAL is expected to post EPS of $2.08 on revenue of $10.14 billion.

Southwest Airlines Co. (NYSE: LUV) has a median target price of $12 from 14 brokers. Shortly before noon today, shares are trading today at $8.70, for an implied gain of $3.30, or 38%. Southwest’s forward P/E is 11.35 and the company does not pay a dividend. The stock’s 52-week trading range is $7.15-$14.32, and at today’s price that’s about 22% above its 52-week low, posted earlier this morning, and 39% below the 52-week high. Southwest reported earnings this week that were hammered by non-performing hedges. The company took a non-cash writedown of $262 million, mostly attributable to hedging.

US Airways Group Inc. (NYSE: LCC) has a median target price of $10 from 12 brokers. Shortly before noon today, shares are trading today at $5.80, for an implied gain of $4.20, or 72%. US Air’s forward P/E is 3.96 and the company does not pay a dividend. The stock’s 52-week trading range is $4.53-$12.26, and at today’s price that’s about 28% above its 52-week low, posted earlier this morning, and 53% below the 52-week high. US Air is expected to report EPS next week of $0.49 on revenue of $3.43 billion. The company expects to offset the rise in fuel prices cutting its capacity and stronger demand.

JetBlue Airways Corp. (NASDAQ: JBLU) has a median target price of $7 from 13 brokers. Shortly before noon today, shares are trading today at $4.26, for an implied gain of $2.74, or 64%. JetBlue’s forward P/E is 8.52 and the company does not pay a dividend. The stock’s 52-week trading range is $3.49-$7.60, and at today’s price that’s about 22% above its 52-week low, posted earlier this morning, and 44% below the 52-week high. JetBlue’s CFO left the company this week, prompting speculation about his reasons for doing so. CFO departures always cause headaches — and falling stock prices — particularly when there is no solid information. JetBlue is expected to report EPS next week of $0.13 on revenue of $1.2 billion.

Alaska Air Group Inc. (NYSE: ALK) has a median target price of $80.50 from 12 brokers. Shortly before noon today, shares are trading today at $64.68, for an implied gain of $15.82, or 24%. Alaska Air’s forward P/E is 7.25 and the company does not pay a dividend. The stock’s 52-week trading range is $48.14-$70.61, and at today’s price that’s about 34% above its 52-week low, posted earlier this morning, and 8% below the 52-week high. Alaska Air fell victim to the same non-performing hedge fiasco that hit Southwest and cost the company more than $77 million. The company’s revenue increase more than made up for the rise in fuel costs, but hedging sunk the ship.

Hawaiian Holdings Inc. (NASDAQ: HA), parent of Hawaiian Air, has a median target price of $8 from 5 brokers. Shortly before noon today, shares are trading today at $5.25, for an implied gain of $2.75, or 52%.Hawaiian Air’s forward P/E is 6.27 and the company does not pay a dividend. The stock’s 52-week trading range is $3.67-$8.69, and at today’s price that’s about 43% above its 52-week low, posted earlier this morning, and 40% below the 52-week high. Hawaiian Air beat EPS expectations by more than 30% in its most recent quarter and is expected to post EPS of $0.20 on revenue of $421 million for the current quarter ending in December. The company handles more than 85% of Hawaii’s intra-state traffic.

Spirit Airlines Inc. (NASDAQ: SAVE) has a median target price of $18.58 from 8 brokers. Shortly before noon today, shares are trading today at $13.86, for an implied gain of $4.72, or 34%.Spirit’s forward P/E is 8.14 and the company does not pay a dividend. The stock’s 52-week trading range is $10.18-$16.27, and at today’s price that’s about 36% above its 52-week low, posted earlier this morning, and 15% below the 52-week high. Spirit makes up for ultra-low fares with a plethora of fees. The company reports earnings next week and is expected to post EPS of $0.29 on revenue of $275 million.

So, what happens when you see “Value stocks” where analysts have seen the prices of their companies sink and where the overall price targets imply upside of 40%, 50%, or even over 60% being the “norm” in the consensus? It is a classic signal that the value stocks might actually be “value traps” where investors think they are buying something cheap but where there are problems lurking. It happens all the time. Still, these numbers are fairly hard to ignore.

Paul Ausick

Filed under: Airlines, Analyst Calls, Transports Tagged: ALK, AMR, DAL, HA, JBLU, LCC, LUV, SAVE, UAL

Downgrading Airlines on Traffic Concerns (LCC, UAL, LUV, ALK, SAVE)

Administrator — Mon, 03 Oct 2011 14:21:04 +0000

The International Air Transport Association (IATA) paints a bleak outlook for passenger and freight carriers as economic worries intensify. And the impact of that weak forecast is beginning to take its toll on airlines stocks.

The IATA reported that passenger traffic rose 4.5% in August compared with August 2010, but that growth was considerably slower than the 6% year-over-year growth shown in July. Freight traffic dropped -3.8% in August compared with August 2010. When August 2011 traffic is compared with July 2011 traffic, the passenger market fell by -1.6% and the cargo market fell by -1.3%.

At virtually the same time, an airlines industry analyst at Citi lowered his rating on US Airways Group Inc. (NYSE: LCC) from ‘hold’ to ‘sell’ and downgraded United Continental Holdings Inc. (NYSE: UAL) from ‘buy’ to ‘hold’. The downgrades were the result of lowered estimates of global GDP growth, continuing high levels of unemployment, and eroding consumer confidence.

There is something of a disconnect between the IATA report and the ratings changes by Citi. The Citi analyst recommended buying discount carriers such as Southwest Airlines Co. (NYSE: LUV), Alaska Air Group, Inc. (NYSE: ALK), and Spirit Airlines, Inc. (NASDAQ: SAVE). All these offer cheaper flights, of course, but they are also primarily US domestic carriers, a group that the IATA says is a “source of weakness.”

US domestic passenger travel fell by -0.3% year-over-year in August. If the discount carriers are a better investment, it is only because they are being compared to higher-priced carriers who are likely to feel the pinch of fewer passengers sooner. But the low-priced airlines are also likely to have trouble attracting passengers as more people decide to stay close to home.

In the freight market, weakness in air freight shipments “represented a loss of market share to other transport modes,” according to the IATA. Maybe, but the container shipping business has not been exactly booming either recently.

Railroads, however, have been moving more freight, including intermodal (containers and trailers) freight. Intermodal volume was up 3% in the week ending September 24th, compared with the same week a year ago. That was the highest weekly gain in four years. Traffic in the western states rose 3.8% year-over-year in the week and container volume rose 3.3%, indicating perhaps that shipments from domestic sources are more than making up for weak volume at the west coast ports that get much of their traffic from China and the rest of Asia.

Passenger carriers are probably bracing for a slow quarter and hoping for the best. But until consumers become more confident in the economy, passenger traffic is very likely to remain depressed.

Paul Ausick

Filed under: Airlines, Analyst Calls, Transports Tagged: ALK, IATA, LCC, LUV, SAVE, UAL

American Airlines to Buy Airbus Planes (AMR, BA, EADSY, LUV, UAL, ALK, DAL, LCC)

247wallst — Wed, 20 Jul 2011 16:54:59 +0000

AMR Corp. (NYSE: AMR), parent of US carrier American Airlines, has reversed a 15-year single-source purchasing program with Boeing Co. (NYSE: BA) and decided to split an order for 460 planes between US-based Boeing and European based EADS (OTC: EADSY), maker of the Airbus family of aircraft. American will purchase 260 of the new Airbus A320neo planes and 200 of Boeing’s venerable 737s beginning in 2013 and continuing through 2022.

Boeing may finally get the message that it needs to stop dithering around on a decision to upgrade its 737 aircraft. The company has been leaning toward developing a brand new plane as opposed to putting a new engine on the existing 737. The A320neo adopts a new, more fuel-efficient engine, which is the primary consideration among airlines faced with skyrocketing fuel costs.

Boeing has indicated in the past that its customers, particularly including Southwest Airlines Co. (NYSE: LUV), are clamoring for a new wide-body, two-aisle regional plane to replace the 737. Boeing’s order book in January included no new orders for the 737, seemingly vindicating its inclination for an entirely new design.

As of today, the company has 70 net new orders for the 737. That doesn’t seem too bad until you notice that 72 orders have been cancelled so far this year. Last year the company filled 486 net new orders for the 737, and in 2007 net orders for 737s totaled 846.

Of this year’s batch of orders, the only US commercial carriers to order more 737s are Continental Airlines, now part of United Continental Holdings, Inc. (NYSE: UAL) and Alaska Air Group Inc. (NYSE: ALK) with 11 and 15 new 737s ordered, respectively.

Southwest operates 550 Boeing 737s, the company’s entire fleet. The planes are, on average, 11.4 years old. Delta Air Lines Inc. (NYSE: DAL) operates 83 of the 737s and United/Continental operates 240 of the planes. US Airways Group Inc. (NYSE:LCC) operates 57 of the 737s.

By comparison, Delta operates 126 Airbus A319/A320 planes, United/Continental operates 152, and US Air operates 216 A319/A320/A321s.

And as an aside, Boeing’s order book for its new 787 Dreamliner stands at exactly zero today.

American’s order with Boeing includes 100 of the current version of the 737 and 100 of a new version using a new engine. The list price for current 737 is $80.8 million.

Airbus will supply 130 of its current A320 and 130 of the A320neo. The A320 carries a list price of $85 million and the A320neo list price is $91.2 million.

One analyst has told Barron’s that Boeing has “effectively confirmed” that it will scrap its plan to build an entirely new aircraft to replace the 737, and proceed with its original plan to re-engine the existing 737. It’s about time.

If, in fact, Boeing has decided simply to re-engine the 737, it would not be unreasonable to expect US carriers to begin placing orders again for the revamped plane. Boeing will remain behind Airbus in delivery schedules, and that may cost Boeing some orders. Still, having a re-engined plane could happen far more quickly than the 10 years or so it would take to get an entirely new design out the door.

That message is resonating with investors, even though Boeing lost an order for more than half the planes American will buy. Boeing’s shares are up about 3% near mid-day, at $72.69, in a 52-week range of $59.48-$80.65.

Paul Ausick

Filed under: General Tagged: ALK, AMR, BA, DAL, EADSY, LCC, LUV, UAL

Weather, Fuel Costs Continue to Batter Airlines (AMR, UAL, JBLU, LCC, ALK, DAL, LUV, AAI, RJET)

247wallst — Wed, 02 Feb 2011 14:40:37 +0000

The month of December was not so hot for international air carriers. According to the International Air Transport Association (IATA), air traffic demand growth fell by -2.3% month-over-month, from 8.2% growth in November to 4.9% growth in December, with about -1% of the drop attributable to severe weather in Europe and North America. Going forward, though, the major concern is fuel prices, which are rising fast.

But first, the weather, which is continuing to play havoc with air travel into February, as a majestic winter storm is pounding the US from Nebraska to Maine, forcing the cancellation of more than 3,900 flights so far today. More than 20% of US flights were canceled yesterday.

Add to canceled flights the rising cost of jet fuel, and the airlines could be struggling for a while yet. Airline fare-comparison website farecompare.com reports that American Airlines, owned by AMR Corp. (NYSE: AMR), raised its roundtrip fuel surcharge by $4-$10 on most of its domestic routes, and United Continental Holdings (NYSE: UAL) added a $6 roundtrip fuel charge to a “significant number” of its domestic routes.

JetBlue Airways Corp. (NASDAQ: JBLU) added a fuel surcharge to flights from the US to Puerto Rico and other Caribbean destinations of $70-$90 roundtrip, while American boosted prices on flights to Hawaii and Canada. US Airways Group, Inc. (NYSE: LCC) and Alaska Air Group, Inc. (NYSE: ALK) have matched American’s hikes on some routes, and Delta Air Lines Inc. (NYSE: DAL) has matched fares on “a smattering” of routes. Southwest Airlines Co. (NYSE: LUV), AirTran Holdings Inc. (NYSE:AAI), and Frontier Airlines, a subsidiary of Republic Airways Holdings Inc. (NASDAQ: RJET) have not raised fares yet.

The IATA report notes a sharp rise in oil prices in December, and is waffling on its earlier prediction that 2011 would be a second consecutive year of profitability for the airlines, even though profits would fall from about $12.7 billion to $9.1 billion. The estimate was based on an oil price of $84/barrel. That price may turn out to have been wishful thinking.

Every $1/barrel rise in the price of oil translates to an additional $1.6 billion in costs for the airlines, according to the IATA. At about $91/barrel for WTI, airline costs will rise by $11.2 billion, essentially wiping out the predicted $9.1 billion in 2011 profits. Unless the airlines raise ticket prices or add more fuel surcharges. Of course either of those price actions could lower passenger numbers, making the profit outlook for airlines even dimmer in 2011.

For now, it seems that many of the major US carriers are cautiously adding modest surcharges or raising fares slightly to stay ahead of rising oil prices. If prices decline, the air carriers may leave the hikes in place for a while to try to make up some lost profits. If oil prices continue to rise, the fares and fuel surcharges will have to rise too, but not too much.

The weather will change, and so will the price of oil. One will get better and the other is likely to get worse. The short-term weather effects won’t help US air carriers, but the long-term effects of rising oil prices are significantly worse.

Paul Ausick

Filed under: General Tagged: AAI, ALK, AMR, DAL, JBLU, LCC, LUV, RJET, UAL

Another Year Of Big Profit For Airlines

247wallst — Mon, 17 Jan 2011 10:11:20 +0000

AirlineFinancials.com estimates the eight largest US airlines, starting this week, will collectively report $3.95 billion in profits from $122.2 billion in revenues for 2010. The average net profit margin is projected at 3.3%.

Assuming these projections are somewhat accurate, this would be the highest annual profit in over ten years and the 2^nd highest annual revenue ever reported.

For this report, the eight largest airlines are: Delta (DAL), American (AMR), United (UAL), US Airways (LCC), Southwest (LUV), JetBlue (JBLU), Alaska (ALK), and Air Tran (AAI). Note: United and Continental merged at the end of the 3^rd quarter.

Year 2010 highlights (based on AirlineFinancials.com estimates):

First time in over ten years the airline industry will have a profit in the 4^th quarter.

First time in over ten years the airline industry will have three consecutive profitable quarters.

All of the airlines noted above except for American, will report profits for year 2010 and the 4^th quarter.

Look-back reality:

Including 2010, only three of the last ten years were profitable for the airline industry.

Since 2001, the eight airlines noted in this report accumulated over $35 billion in net losses.

For year 2010, the most profitable year in the last decade for the airline industry, on average, only three of every 100 passengers made up the profits.

The following charts provide year 2010 and 4^th quarter revenue, profit, and margin estimates for each airline.

As airlines report their profits over the next two weeks, there will be a lot of media and political attention given to the industry profits. What will get lost in the rhetoric is that US airlines are not a public mass transit system.

Having a stable, safe, and efficient airline industry requires a balance between the cost to fly and acceptance that airlines are in business to make profits for their investors.

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Filed under: Airlines Tagged: AAI, ALK, AMR, DAL, JBLU, LCC, LUV, UAL

Best Airline Stock for 2011 (DAL, UAL, AMR, LUV, AAI, LCC, JBLU, ALK)

Administrator — Mon, 03 Jan 2011 16:32:55 +0000

The year just passed has been a good one for US air carriers. For the first time in several years, virtually every carrier earned a profit and airline stocks posted gains ranging from a few percent to more than 100%.

The generally good year could be partially attributed to an improving US economy that encouraged more people to travel by air. Another part of the increase was due to the increased revenue from each passenger, due mostly to new fees and charges for services that the airlines once offered at no charge. And while some passengers may complain about the nickel-and-dime approach, the fees for checked bags and snacks kept the headline price of tickets low, attracting more passengers who are now being trained to expect less and like it.

Major US airlines like Delta Air Lines Inc. (NYSE: DAL) and United Continental Holdings (NYSE: UAL) both posted solid gains in 2010. AMR Corp. (NYSE: AMR), parent of American Airlines, continued to struggle, finally turning a profit in its September quarter. Regional carrier Southwest Airlines Co. (NYSE: LUV), which expects to complete its $1.4 billion acquisition of AirTran Holdings, Inc. (NYSE: AAI) in the second quarter of 2011, posted a share price gain of almost 20% for the year. Other regional airlines, US Airways Group, Inc. (NYSE: LCC), JetBlue Airways Corp. (NASDAQ: JBLU), and Alaska Air Group, Inc. (NYSE: ALK), saw even better share price gains.

Here’s a short table showing the tickers, the current price, the mean target price from Thomson Reuters, the implied upside to that target, and the 52-week trading range. We’ll have some comments on these companies following the chart.

Stock	Current	Target	Implied Gain	52-week Range
DAL	12.60	17.27	37.06%	9.60 – 14.94
UAL	23.82	36.45	53.02%	12.13 – 29.75
AMR	7.79	10.59	35.94%	5.86 – 10.50
LUV	12.98	15.98	23.11%	10.42 – 14.32
LCC	10.01	14.00	39.86%	4.47 – 12.26
JBLU	6.61	8.13	23.00%	4.64 – 7.60
ALK	56.69	65.73	15.95%	31.24 – 59.59

Filed under: Airlines, Annual Report, Transports Tagged: AAI, ALK, AMR, DAL, JBLU, LCC, LUV, UAL