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When Will Low Oil Help Airlines Out? (UAL, DAL, LCC, LUV, JBLU)

Administrator — Wed, 23 May 2012 18:53:14 +0000

Oil is tanking behind Europe, commodity inventories are up, and refineries are running at very high historic levels. And guess what, airplanes are full, fares are up, carriers are passing on endless costs to customers, and capacity remains high. As long as the U.S. does not follow Europe into a meltdown it should be a perfect storm for the U.S. airline sector. So why are airline stocks getting hit with the broad market so much?

Oh, and someone some day will probably buy AMR or parts of it out of bankruptcy for a song. Perhaps it is simply just another 100-point-plus drop in the DJIA or another double-digit drop in the S&P 500 Index. The major airline carriers are trading today:

United Continental Holdings, Inc. (NYSE: UAL) is down 1% at $21.61 against a 52-week range of $15.51 to $26.50; UAL was above $24.00 just one week ago.

Delta Air Lines Inc. (NYSE: DAL) is down 0.8% at $10.45 with a 52-week range of $6.41 to $11.58; Delta is down almost 10% in less than two weeks.

US Airways Group, Inc. (NYSE: LCC) is down only 0.4% at $10.58 against a 52-week range of $3.96 to $11.73; US Air is down about 10% in less than two weeks.

Southwest Airlines Co. (NYSE: LUV) is performing the worst of the lot because most investors believe that are actively hedging and that means they won’t benefit as much from lower oil prices. Southwest’s share price is down 1.2% at $8.18 against a 52-week range of $7.15 to $12.04.

JetBlue Airways Corporation (NASDAQ: JBLU) is an exception to the rule today. Its shares are up 3% at $4.40 against a 52-week range of $3.40 to $6.32 in part on follow-on buying after a director of the company bought more than $200,000 worth of stock.

The question that has to be asked is how the end of summer demand is going to be and how the end of 2013 will hold up. Right now investors are using anything as a source of funds but the movement here might be acting differently than it should be.

JON C. OGG

Filed under: Airlines, Oil & Gas, Transports Tagged: DAL, featured, JBLU, LCC, LUV, UAL

Airlines Have Best First Quarter Arrival Numbers, Ever

247wallst — Mon, 14 May 2012 19:12:29 +0000

Airlines as a group had their best on time arrival performance in the first quarter since the Transportation Department began to collect data in 1995. The news was particularly good for customers of the highest rating airlines–Hawaiian Airlines, AirTran, and US Airways (NYSE: LCC). The data was less positive for customers of the three lowest rated airlines–United (NYSE UA), ExpressJet Airlines, and Virgin America. United can claim some of its problems stem from its merger with Continental, but the excuse will only be good for another quarter or two.

The most eye-popping numbers from the U.S. Department of Transportation’s Air Travel Consumer Report was the wait time for the flights which stayed on the ground the longest after their planned departure times. The American Air flight from Dallas-Fort Worth to St. Louis had a wait time of 219 minutes on March 17. The Shuttle America flight from New York LaGuardia to St. Louis had a wait time of 187 minutes on March 17.

The survey found

The 15 carriers reporting on-time performance posted an on-time arrival rate of 84.0 percent during the first quarter of 2012. The previous first-quarter record was the 81.3 percent on-time arrival mark set during January-March 2002

In terms of airline performance

Highest On-Time Arrival Rates

1. Hawaiian Airlines – 92.5 percent

2. AirTran Airways – 90.9 percent

3. US Airways – 87.3 percent

Lowest On-Time Arrival Rates

1. ExpressJet Airlines – 74.1 percent

2. Virgin America – 74.9 percent

3. United Airlines – 77.4 percent

Filed under: Airlines Tagged: featured, LCC

Falling Oil Puts Airline Sector Up In First Class (UAL, DAL, LCC, LUV)

Administrator — Fri, 04 May 2012 17:19:27 +0000

Is the economy so weak that the summer and rest of 2012 will be punishing on the airline industry? Apparently not. Have you been to an airport and flown lately? Chances are high that if you then you probably noticed that planes are full and often overbooked. The drop in oil may be hurting the oil players today, but the airline sector is one of the few bright spots for investors despite a 20 point drop in the S&P 500 and a 160 point drop in the DJIA.

Here is how some of the major airline carriers are trading today: United Continental Holdings, Inc. (NYSE: UAL) is up 3% at $22.22; Delta Air Lines Inc. (NYSE: DAL) is up 1.1% at $11.08; US Airways Group, Inc. (NYSE: LCC) is up 1.2% at $10.84.

The one exception is Southwest Airlines Co. (NYSE: LUV) with its shares trading down 1.3% at $8.11 because it is a hedge-play. Southwest is an airline which often is more active in hedging out its oil price exposure, so a drop of more than 5% in oil prices from the peak in oil this week does not necessarily translate t quite as high of savings for Southwest.

What is important to remember here is that a $1.00 drop in crude is supposed to be worth about $400 million in profits to the airline industry.

JON C. OGG

Filed under: Airlines, Oil & Gas, Trading Alert, Transports Tagged: DAL, featured, LCC, LUV, UAL

Does Delta Make Sense as an Oil Refiner?

Paul Ausick — Tue, 01 May 2012 12:04:50 +0000

A deal that first made it into public view less than a month ago has now been completed. Delta Air Lines Inc. (NYSE: DAL), through its wholly-owned Monroe Energy LLC subsidiary, has acquired the 185,000-barrel/day Trainer, Pennsylvania, refinery from Phillips 66 (NYSE: PSX), the refining company spin-off from ConocoPhillips (NYSE: COP) that officially begins trading today.

Delta will pay $150 million for the refinery and expects to spend another $100 million to boost the plant’s capacity to make jet fuel, which is the reason Delta bought the refinery in the first place. The deal follows yesterday’s $5.3 billion acquisition by Energy Transfer Partners L.P. (NYSE: ETP) of downstream company Sunoco Inc. (NYSE: SUN).

A couple of interesting questions follow Delta’s entry into the refining business. First, will other airlines follow? United Continental Holdings Inc. (NYSE: UAL), US Airways Group Inc. (NYSE: LCC), and Southwest Airlines Co. (NYSE: LUV), like other large carriers, follow a hedging strategy that tries to even out the ups-and-downs of crude prices. When it works, as it did for Southwest in 2006 and 2007, management looks like geniuses and the airlines makes a ton of profit. When it doesn’t work, as it didn’t for Southwest a few years later, the less said the better.

The only reason to buy a refinery is to mitigate price risk on crude oil. Delta claims the cost of the refinery is equivalent to the price it would pay for one widebody jet. The company expects to save twice that much annually on fuel costs going forward. Before United and the other carriers jump into the refining business they will want to see if Delta can actually realize its projected savings.

Which brings us to the second question: how does Delta expect to mitigate crude oil price risk? When the possible refinery acquisition first became known, there were reports that JPMorgan Chase & Co. (NYSE: JPM) would take on the crude oil trading that would be needed to supply the refinery. As announced today:

[Delta subsidiary] Monroe is partnering with leading energy companies to supply crude oil and receive jet fuel in exchange for Trainer’s non-jet fuel outputs. Under a three-year agreement, BP will supply the crude oil to be refined at the facility. Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

The “leading energy companies” are ConocoPhillips and BP plc (NYSE: BP). If BP is supplying the crude, the price will be set at or very near Brent crude prices. Jet fuel is generally more expensive than gasoline and other refined products. As Brent prices rise, jet fuel prices will also rise and probably rise faster than gasoline or diesel prices. Thus, Monroe/Delta will be trading lower-priced products for a higher-priced product. No savings there.

The only way for Delta to make sure it saves money is to source its crude more cheaply. In the US, that means getting crude from North Dakota’s Bakken field to the East Coast. There’s no pipeline (yet) to do that. Surely the lack of cheap crude is why JPMorgan is no longer in the picture. The proposed sale of Sunoco’s 335,000-barrel/day Philadelphia refinery to The Carlyle Group will not be concluded if the private equity firm cannot find a source of cheaper crude.

Delta apparently believes that by sourcing crude from BP the airlines has insulated itself from crude price risk. Not having seen details of the contract it’s hard to say. But oil companies are not charitable organizations and BP won’t have made any big concession on price.

Shares of Delta are up about 2.2% in the pre-market at $11.20 in a 52-week range of $6.21-$11.60. A new annual high is certainly within reach today.

Paul Ausick

Filed under: Airlines, Mergers and Buy Outs, Oil & Gas Tagged: BP, COP, DAL, ETP, featured, JPM, LCC, LUV, PSX, SUN, UAL

Media Digest (4/26/2012) Reuters, WSJ, FT, Bloomberg

247wallst — Thu, 26 Apr 2012 10:41:43 +0000

Markets are lifted by Fed comments that the economy is recovering and that it will keep rates low. (Reuters)

Chrysler posts its best earnings since being partially taken over by Fiat. (Reuters)

Samsung says its new Galaxy phone will use a quad-core processor. (Reuters)

Georgetown University’s Center on Education and the Workforce and researchers from Harvard find that, for the first time in decades, young people are not better-educated than the generation before them. (WSJ)

AIG (NYSE: AIG) bonds attract a large number of investors. (WSJ)

The CEO of Groupon (NASDAQ: GRPN) says the company must mature to be more successful. (WSJ)

The China’s Ministry of Industry and Information Technology says foreign companies could team with China to produce rare earths. (WSJ)

The Senate passes legislation to underwrite Post Office losses and allow it to keep current services. (WSJ)

The UK falls back into recession in the first quarter. (WSJ)

The FDA will set a new system to detect faulty medical devices. (WSJ)

The European divisions of General Motors (NYSE: GM) and Ford (NYSE: F) are likely to drag down corporate earnings. (WSJ)

US Airways (NYSE: LCC) continues a push for a buyout of American Airlines parent AMR. (WSJ)

Caterpillar (NYSE: CAT) raises forecasts. (WSJ)

Yahoo! (NASDAQ: YHOO) to launch a new program hosted by Katie Couric. (WSJ)

Formula One plans a $2.5 billion IPO in Singapore. (WSJ)

Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) each raise dividends. (FT)

French presidential candidate François Hollande wants Germany to take up new stimulus plans for Europe. (FT)

Nasdaq (NASDAQ: NDAQ) shortens a waiting period for the Facebook IPO as a way to get the social network’s listing. (Bloomberg)

Alcatel-Lucent (NYSE: ALU) posts poor earnings, which drags down its shares. (Bloomberg)

Douglas A. McIntyre

Filed under: Press Digest Tagged: AIG, ALU, CAT, CVX, F, GM, GRPN, LCC, NDAQ, XOM, YHOO

24/7 Wall St. Closing Bell (AAPL, JCP, MCD, WMT, BWLD, AXE, EW, JNPR, NSC, NFX, AN, CWEI, GLW, HOG, LAD, LCC, CAT, CNH, BA)

Paul Ausick — Wed, 25 Apr 2012 20:06:51 +0000

Markets opened higher this morning, led by the Nasdaq which got a big boost from the strong report last night from Apple Inc. (NASDAQ: AAPL). The report from the US Census Bureau on durable goods orders showed a decline in new orders (our coverage here), but Apple’s strength overcame that news. The EIA report on crude oil inventories showed a larger than expected gain this week, holding crude prices in check (our coverage here). The FOMC announcement held no surprises, with the committee indicating that it expects interest rates to remain very low through late 2014 (our coverage here). The US dollar index fell today, now down -0.18% at 79.083. The GSCI commodity index is up fractionally at 674.83, with commodities mixed on the slightly weaker dollar. WTI crude oil closed up 0.6% at $104.12/barrel, and Brent crude trades up 0.74% at $1119.03/barrel. Gold settled down -0.1% today, at $1,642.30/ounce.

The unofficial closing bells put the DJIA up more than 89 points to 13,090.95 (0.69%), the NASDAQ rose more than 68 points (2.3%) to 3,029.63, and the S&P 500 rose 1.37% or nearly 19 points to 1,390.70.

There were several analyst upgrades and downgrades today, including Apple raised to ‘outperform’ at Scotia and maintained ‘buy’ with a target price of $775 at Canaccord Genuity; J.C. Penney Co. Inc. (NYSE: JCP) raised to ‘market perform’ at BMO; McDonald’s Corp. (NYSE: MCD) cut to ‘hold’ at Argus; Time Warner Cable (NYSE: TWC) started as ‘buy’ at Citigroup; Wal-Mart Stores Inc. (NYSE: WMT) cut to ‘hold’ at Argus; and Buffalo Wild Wings (NASDAQ: BWLD) raised to ‘buy’ at Deutsche Bank.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Apple is up 8.9% at $610.02 (our coverage here); Anixter International Inc. (NYSE: AXE) is down -4% at $66.76; Edwards Lifesciences Corp. (NYSE: EW) is up 11.5% at $81.74; Juniper Networks Inc. (NYSE: JNPR) is down -4% at $20.78; Norfolk Southern Corp. (NYSE: NSC) is up 3.6% at $72.77; Newfield Exploration Co. (NYSE: NFX) is up 5.2% at $35.47; AutoNation Inc. (NYSE: AN) is down -0.9% at $33.27; Clayton Williams Energy Inc. (NASDAQ: CWEI) is up 1.6% at $76.45; Corning Inc. (NYSE: GLW) is up 6.7% at $14.25; Harley-Davidson Inc. (NYSE: HOG) is up 6.1% at $53.45 after posting a new 52-week high of $53.98 earlier today; Lithia Motors Inc. (NYSE: LAD) is up 7.4% at $26.84; and US Airways Group Inc. (NYSE: LCC) is up 2.5% at $9.55 (more coverage here).

Other standouts from today include the following stocks:

Caterpillar Inc. (NYSE: CAT) is down -4.5% at $103.55. The heavy equipment maker reported declining sales in China as growth in the country has slowed, which led to the sell-off today.

CNH Global NV (NYSE: CNH) is up 3.6% at $45.66. The farm equipment maker beat EPS estimates by almost 50% and sales were also higher.

Boeing Co. (NYSE: BA) is up 5.3% at $77.06. The aircraft maker reported solid earnings and revenues this morning. More coverage here.

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

8:30 a.m. – New unemployment benefits claims
8:30 a.m. – Chicago Fed national activity index
10:00 a.m. – Pending home sales index
10:30 a.m. – EIA weekly natural gas storage report
11:00 a.m. – Kansas City Fed manufacturing index
1:00 p.m. – 7-year note auction
4:30 p.m. – Federal Reserve balance sheet and money supply

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: AAPL, AN, AXE, BA, BWLD, CAT, CNH, CWEI, EW, GLW, HOG, JCP, JNPR, LAD, LCC, MCD, NFX, NSC, WMT

Airlines Post Gains on Fuel Hedges, Revenues Up Too (DAL, LCC, LUV, AAMRQ, UAL, JBLU, FAA)

Paul Ausick — Wed, 25 Apr 2012 17:24:29 +0000

Two of the US’s largest airlines reported earnings today, Delta Air Lines Inc. (NYSE: DAL) and US Airways Group Inc. (NYSE: LCC), and both showed a profit thanks to mark-to-market gains on fuel hedges. At Delta, adjusted EPS actually showed a loss of -$0.05/share, right on the consensus estimate and far better than the EPS loss of -$0.38 that the company posted in the same period a year ago. Revenue of $8.41 billion topped the consensus estimate of $8.36 billion.

At US Airways, profits rose to $48 million, which included a one-time gain of $73 million on a transaction with Delta related to takeoff and landing rights at LaGuardia and Reagan National. Stripping out the one-time items, US Airways posted an EPS loss of -$0.13, far better than the EPS loss of -$0.68 in the same period a year ago and nearly two times better than the consensus analyst estimate for an EPS loss of -$0.25. Revenue of $3.27 billion was also better than the consensus estimate of $3.24 billion.

The two airlines follow Southwest Airlines Co. (NYSE: LUV) and AMR Corp.’s (OTC: AAMRQ.PK) American Airlines, both of which reported earnings last week. Southwest also posted a profit on hedging gains, and American’s loss, stripping out one-time charges, was 40% smaller than it was in the same period a year ago.

United Continental Holdings Inc. (NYSE: UAL) is scheduled to report earnings tomorrow, as is JetBlue Airways Corp. (NASDAQ: JBLU). The consensus estimates call for United to post an EPS loss of -$1.03 on $8.58 billion in revenue and for JetBlue to post EPS of $0.08 on revenue of $1.19 billion.

The good news for airlines is that traffic is up, ticket prices have been raised, and some capacity has been wrung out. The wild card, of course, is fuel costs. Data from the International Air Transport Association (IATA) indicates jet fuel cost $3.245/gallon, down -2.4% from March, and down -1.9% from the same period last year. The IATA estimates the average cost for a barrel of jet fuel in 2012 will be $135, which will raise the industry’s total fuel bill by $41 billion over the year.

Delta’s shares are down about -0.3% in the early afternoon, at $10.45 in a 52-week range of $6.41-$11.60. US Airways’ shares are up 2.9% at $9.58, in a 52-week range of $3.96-$10.35.

The lightly traded Guggenheim Airline ETF (AMEX: FAA) is up 0.14% at $29.30 in a 52-week range of $23.82-$39.18.

Paul Ausick

Filed under: Airlines, Earnings, Transports Tagged: AMR, DAL, FAA, JBLU, LCC, LUV, UAL

American Airlines and US Airways – Why They Will Fly Off Together

Charles B. Stockdale — Fri, 20 Apr 2012 20:27:54 +0000

Following several years of financial losses and industry under performance quarter-after-quarter; last November 29^th, American Airlines (NYSE: AAR) joined the long list of previously bankrupt airlines.

On the day of American’s bankruptcy filing AirlineFinancials.com LLC wrote:

“There is a 95% probability American Airlines will be merged within 18-24 months and the most likely merger partner would be US Airways”.

Today, AirlineFinancials.com fully expects that a merger of American Airlines and US Airways (NYSE: LCC) will occur. Due to the size of United (NYSE: UAL) and Delta (NYSE: DAL) –over 50%– of US market share, there is no way the DOT/DOJ would approve either of those airlines becoming larger with American assets.

Further, we believe without merging, both American and US Airways will face major challenges moving forward as they attempt to compete against Delta Airlines and the merged United/Continental Airlines.

This report provides in-depth analysis to support our position above.

Before looking at the current airline environment, let’s look at how the airline industry was just a few short years ago.

In 2007, American Airlines was by a measurable amount, the largest airline in the United States.

When comparing 2007 capacity (ASM’s), American was at least 14% larger than United and Delta and, significantly larger than all other competitors.

American was the industry’s revenue leader in 2007.

Fresh out of their own bankruptcies, Delta and Northwest Airlines merged in October 2008 creating the newest largest airline in the World. Not to be left behind, in September 2010, United and Continental Airlines merged to become the newest biggest airline in the World.

Fast forward to year 2011 and American had gone from largest to third largest airline in a relatively short time period.

Southwest merged with Air Tran in May 2011, pushing their mostly domestic capacity within reach of American’s and well ahead of US Airways.

As the chart shows, the cumulative total of American capacity and US Airways would top the industry.

As a side note. 2011 US airline capacity is little changed from what it was 12 years ago pre 911.AirlineFinancials.com disagrees with forecasts that show measurable increases in passenger traffic. We expect higher fuel prices and labor cost increases supported by industry consolidation, will provide the incentive and pricing power so that airlines can increase passenger fares to a high enough level to make consistent industry profits. As such, higher fares will discourage measurable passenger growth for the foreseeable future.

When comparing total revenue (includes regional affiliate income), the merged United and Delta are now 45-60% larger than American and significantly more than twice the size of US Airways. Combining the revenues of American and US Airways would move the merged carriers to the top of the largest airline in the world list.

Comparing aircraft fleet sizes, merging American and US airways would give them, by far, the largest fleet in the industry.

Let’s backtrack a little and see a short summary of when American found their way to financial failure.

Prior to the recent industry consolidation, American was able to carry a revenue premium over their major/network competitors.

As the chart shows, American’s passenger fare yield premium started to deteriorate in the first half of 2010. US Airways revenue performance declined over the same time period.

AirlineFinancials.com believes the mergers of Delta/Northwest and United/Continental provide those merged carriers pricing power above what either American or US Airways can achieve. Due to their significant larger global route networks, Delta and United were able to “poach” more-and-more of the higher fare premium/business passengers from both American and US Airways.

When comparing passenger revenue per available seat mile, the same conclusion can be found for the loss of revenue premium for American and US Airways.

Looking forward, what are the pros and cons for an American and US Airways merger?

The first issue is to look at capacity (ASM’s).

As the capacity chart for 2011 shows, American and especially US Airways are significantly smaller than both Delta and United.

When combining American and US Airways, the merged carrier is slightly larger and very competitive with both United and Delta.

Market share breakdowns for large hub airports show American/US Airways with the largest share of domestic and Latin capacity.

The Atlantic segment capacity would still have Delta and United measurably ahead of American/US Airways. But with the domestic feed combined from American and US Airways, it is likely additional Atlantic capacity could be supported.

The weak point for American/US Airways is the Pacific markets. Beyond alliance partners, the only solution for American/US Airways in the Pacific is future internal growth.

One of the longer-term questions for American and US Airways is, how do they achieve domestic traffic feed to support the typically, higher yield international markets?

When looking at the recent 2011 domestic traffic data, a combined American/US Airways would have the highest market share at eight of the largest US airports.

Specific to the New York area, American has 17% of the US domestic market at both LaGuardia and JFK airports. This is enough market share to competitively support American’s current JFK international route structure (see JetBlue comments below).

The relatively high passenger yields at all of the major airports where American/US Airways have large hubs and significant market share supports one of the very positive outlooks for a merged American/US Airways

Worth noting is US Airways and American’s largest domestic hubs, Charlotte and Dallas, have the first and third highest passenger yields of any major airline hub.

On the international side, American/US Airways provides service to the most Latin destinations and is somewhat competitive in the Atlantic segment.

Growth in the Pacific segment should be one of the clear objectives for American/US Airways.

Currently, neither American nor US Airways have the aircraft to competitively serve the Pacific segment. However, both airlines have a large number of long-range aircraft on order and within a few years, will have one of the most competitive, long-range fleets in the industry. In the meantime, American, through their One-World Alliance can provide service to nearly all of the Pacific markets.

American and US Airways are at opposite ends of the “labor cost” spectrum for the airline industry. Using either unit labor costs and/or labor costs as a ratio to operating expense/revenue, American is higher than all industry network competitors and US Airways is the lowest.

See comments below for how labor costs will become a competitive positive for a merged American/US Airways.

Airline expenses can be broken into three major categories.

Fuel expense
Labor expense
Core costs

Core costs are what are left after deducting fuel and labor.

US Airways, driven in part because they have a smaller network, consistently record the highest core costs.AirlineFinancials.com believes a merger of American and US Airways would reduce their core costs by a significant amount. In fact, American has the lowest core cost ratios of all network carriers.

Working out the numbers-

In the end, any merger of American and US Airways must provide legitimate support for a competitive and profitable airline. AirlineFinancials.com believes that can and will occur and here is why:

Reducing US Airways core costs to what American currently has would provide $500-$700 million in cost savings synergies. Note American’s core costs are likely to go down at the other end of their bankruptcy reorganization
American’s current labor costs, via the bankruptcy reorganization, are likely to be reduced by $700-$800 million per annum
American’s capital/financial costs due to reorganization are estimated to be reduced by $300-$500 million per annum
The merging of American and US Airways will be a much stronger global competitor to both United and Delta. We estimate this will provide the needed incentive to regain some premium/business revenue increasing annual revenues by 1-2% ($350-$450 million per annum)
Due to the older age of both American and US Airways pilot groups, pilot labor costs into the future will become 20-30% lower. Note: Over the next 5-10 years, thousands of the most senior pilots for American and US Airways will be forced to retire. They will be replaced by significantly lower cost new pilots.
Aircraft orders for both American and US Airways will move American from having one of the oldest most fuel/maintenance inefficient fleets to one of the youngest and most fuel efficient fleets. Fuel expense will be reduced by 10-20% as the new aircraft replace the current old fleet.

Total cost saving synergies = $1.8 – $2.5 billion accretive within 12 months of merger. Does not reconcile future savings from new fleet fuel savings and lower pilot costs. These savings will be offset by an approximately $600 million expense to bring US Airways labor up to parity.

Potential business model changes-

American has effectively lost the New York market to United and Delta. However, American still has enough market share and international operation further supported by the One World Alliance to maintain their current market share, especially with O&D traffic (see below on JetBlue).

JetBlue is frequently considered a potential merger partner for American. While JetBlue has a large number of JFK landing/take-off slots. Merging JetBlue with American does not “fix” American’s major problems long-term. Noting the above, American/US Airways could lock into a code-share agreement with JetBlue that would add significant passenger/revenue feed to American’s JFK international markets.

Removing US Airways from the Star Alliance and adding their network to American’s One World alliance would add dozens of new destinations to One World partners while weakening United’s Star Alliance.

Phoenix (PHX) is a large metropolitan airport with a single airport and two primary airlines. Excluding US Airways flights to Hawaii there are no flights to the Pacific region. Market/operational studies should be done to see if Phoenix could be used as a profitable connecting gateway to the Pacific bypassing the often flight delayed LAX airport and LAX competition.

Charlotte and Philadelphia are major international gateways for US Airways; it would be logical to expect these two hubs to grow as international traffic bypasses JFK and is connected through these two airports providing a much better consumer experience than what JFK frequently provides.

Both American and US Airways are operating with at or near maximum load factors. As such it is unlikely their merger would cause reductions in labor forces (excludes American’s current reorganization planned labor reductions and mid to upper level management positions).

For far too many years, American employees have focused on management as their primary and only enemy. While every other network airline experienced similar to American, obscene management bonuses, concessions, pension losses, bankruptcies, mergers, and furloughs etc. The employees of American’s competitors, while fighting withtheir management, never lost sight that their real enemies were the competing airlines trying to take as much market share -and jobs- as they could from competitors. For a merged American and US Airways to become long-term successful, American’s labor groups will have to understand and more so, accept, their real enemies are theother airlines doing all they can to take their passengers!

Conclusion- In every -potential-transaction there is a consequence to doing it and there is a consequence to not do it.

The merger of US Airways and American has far more positive benefits than negative ones and their merger would play a major role in making the US Airline industry better!

History shows a long list of once great airlines that failed. Each of those failed airlines had one thing in common. They all failed to remain competitive. It’s the opinion of AirlineFinancials.com that American and US Airways must merge to remain long-term competitive.

Unless stated otherwise, data is for mainline operations. Some data may be estimated and is subject to errors.

# # # #

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: General Tagged: AAR, LCC

Media Digest (4/20/2012) Reuters, WSJ, NYT, FT, Bloomberg

247wallst — Fri, 20 Apr 2012 10:40:55 +0000

BRICs want more of a say in the International Monetary Fund before they make their next contributions. (Reuters)

French president Nicolas Sarkozy almost certainly will be voted out of office, raising questions about the nation’s role in the European Union. (Reuters)

A Boston Consulting Group survey shows large American companies are more likely to locate workers in the United States than smaller companies are. (Reuters)

Microsoft (NASDAQ: MSFT) beats estimates for its quarterly earnings. (Reuters)

Verizon (NYSE: VZ) will sell Microsoft-powered phones to offset leverage from Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) in the smartphone market. (Reuters)

Ireland is losing more of its workers as it slips back into recession. (Reuters)

Layoffs and home sales raise concerns about the pace of the recovery. (WSJ)

Splunk (NASDAQ: SPLK), which organizes data for companies, sees its IPO price double on its first day of trading. (WSJ)

Hedge fund assets hit a new record, according to Hedge Fund Research. (WSJ)

New York sues Sprint-Nextel (NYSE: S) over what it claims are back taxes due to wireless sales. (WSJ)

Several AMR unions support a merger with US Airways (NYSE: LCC). (WSJ)

The Nelson A. Rockefeller Institute of Government reports that tax revenue for states rose. (WSJ)

Young women are more career driven than men, according to a Pew Research Center study. (WSJ)

Ford (NYSE: F) will build a fifth car plant in China as it hopes to double production capacity and sales outlets by 2015. (WSJ)

Nokia (NYSE: NOK) plans less expensive versions of its new Lumia to stimulate sales. (WSJ)

A weak Europe will be at the heart of IMF and World Bank meetings next week. (NYT)

Morgan Stanley (NYSE: MS) remains concerned about a rating agency downgrade. (NYT)

Microsoft says earnings were aided by strong PC sales, but revenue from its entertainment division dropped. (FT)

A rise in bond trading helps push Wall St. earnings. (FT)

The IMF expects to raise $400 billion after having brought in $320 billion. (FT)

More rumors arise that Apple will debut the iPhone 5 in October. (Bloomberg)

Douglas A. McIntyre

Filed under: Press Digest Tagged: AAPL, F, GOOG, LCC, MS, MSFT, NOK, S, SPLK, VZ

Media Digest (4/4/2012) Reuters, WSJ, NYT, FT, Bloomberg

247wallst — Wed, 04 Apr 2012 10:46:11 +0000

Apartment vacancy rates reach a 10-year low, according to Reis. (Reuters)

Tom Glocer, the departing head of Thomson Reuters (NYSE: TRI), makes $20 million. (Reuters)

China’s premier, Wen Jiabao, says the monopoly of large Chinese banks should end. (Reuters)

Facebook files patent claims against Yahoo! (NASDAQ: YHOO). (Reuters)

Roche presses its bid to takeover Illumina (NASDAQ: ILMN). (Reuters)

Citing sufficient strength in the economy, the Fed says it will stand by and add no stimulus. (WSJ)

Moody’s cuts the credit rating of General Electric (NYSE: GE). (WSJ)

Yahoo! to cut 2,000 jobs. (WSJ)

AT&T (NYSE: T) faces a walkout of 40,000 wireline workers. (WSJ)

Samsung takes a more active role in the mobile ad market. (WSJ)

Eurozone nations continue to cut costs despite concerns this will cause a deeper recession. (WSJ)

U.S. auto sales surge in March as people turn to more fuel-efficient cars. (WSJ)

US Airways (NYSE: LCC) increases its efforts to buy American Airlines parent AMR, which is in Chapter 11. (WSJ)

Burger King to go public again (WSJ)

A study published in the Administrative Science Quarterly says that workers hired from outside a company make more than current workers but perform worse. (WSJ)

Regulators finalize how they will oversee nonbank financial firms. (WSJ)

Regulators are set to fine JP Morgan (NYSE: JPM) for its role in the collapse of Lehman Bros. (NYT)

China moves its cap on foreign investments to $80 billion from $30 billion. (FT)

The departure of James Murdoch from the chairman’s job at BSkyB may allow News Corp. (NASDAQ: NWS) to make a bid for the part of the company its does not own. (Bloomberg)

One million paid TV customers move to the web in 2011. (Bloomberg)

BMW and Mercedes first-quarter sales in the U.S. are almost the same. (Bloomberg)

Douglas A. McIntyre

Filed under: Press Digest Tagged: GE, ILMN, JPM, LCC, NWS, T, TRI, YHOO