Monday, September 6, 2010

Q2 2010 Airline Financial Results

Revenue: $8.7 billion +17%
Net Income: +$467.0 million
Cash Balance: $6.0 billion


Delta said it expects to be solidly profitable for the year.
But it's reducing the size of its fleet by 20 aircraft next year on top of the 91 fewer it expects to have by the end of this year. And it doesn't expect to increase capacity much this year or in 2011, signs of a cautious approach with the strength of the U.S. economic recovery in question. Another sign: Delta is hoarding its cash.

Revenue: $5.16 billion +28%
Net Income: +$273.0 million
Cash Balance: $4.91 billion


United is getting some $400 million a year in baggage fees, but said they could eventually collect $1 billion in baggage fees alone. United still expects to close its combination with Continental Airlines Inc. by the end of the year.

Revenue: $5.67 billion +16%
Net Loss: -$10.7 million
Cash Balance: $5.5 billion


That's a big improvement for American, the nation's second-largest airline, from last year's loss of $390 million. Still, American's loss stands out against big profits reported this week at rivals Delta and United. American is pinning its hopes for recovery on a strategy of focusing flights at a handful of big hub airports and boosting revenue by working more closely with international partners. American also said Wednesday it ordered 35 more Boeing 737-800 jets as it upgrades its fleet and phases out gas-guzzling older McDonnell Douglas planes. The airline had already ordered 84 737s, which it started receiving in April 2009. AMR recently announced it was considering selling or spinning off American Eagle.

Revenue: $3.71 billion +19%
Net Income: +$233.0 million
Cash Balance: $3.5 billion


Continental made less money in the second quarter than Delta, United and US Airways, which between them combined to earn $1 billion in the April-through-June period. But Continental's ratio of profit to revenue was better than Delta's and United's. Continental raised doubts about what will happen once the peak summer travel season ends. It said advanced bookings for the next six weeks are running 1 to 2 percentage points behind last year's pace.

Revenue: $3.17 billion +19%
Net Income: +$279.0 million
Cash Balance: $1.99 billion


"This feels to us like a tepid recovery, and one that isn't getting rapidly better,
but certainly isn't double-dipping or getting any worse," US Airways stated. With its financing improving, the bank that processes the airline's credit card payments released $36 million of cash it had been holding back. US Airways expects to get another $50 million back next month.

Revenue: $3.17 billion +21%
Net Income: +$112.0 million
Cash Balance: $3.4 billion


Southwest said current year capacity will be flat. No fleet growth is planned for 2011 and 2012, but utilization will likely increase modestly in 2011. The airline would decide this year whether to fly international routes. If the airline were to pursue routes outside the United States, it would take a multiyear effort. The company is looking to offer wireless Internet on its flights by around 2013
and upgrade its frequent flier program.

Revenue: $939.0 million +8.5%
Net Income: +$30.0 million
Cash Balance: $1.0 billion


JetBlue also issued an optimistic outlook for the rest of the year, forecasting higher revenue and more flying to the destinations it serves. It's also teaming up with other airlines to bring more passengers to its network. The company said it will partner with El Al Israel Airlines, which will allow travel on both airlines on a single ticket. The company has similar agreements with Irish carrier Aer Lingus, German airline Lufthansa and American Airlines.

Revenue: $872.5 million +8.0%
Net Income: +$84.0 million
Cash Balance: $1.2 billion


Baggage fees provided a $27 million revenue boost to Alaska’s second-quarter performance. The company’s second quarter adjusted net earnings represent the best quarterly profit in it's history. Aviation Week Magazine named Alaska Airlines the “Top-Performing Airline” in the world among mainline/legacy

Revenue: $700.6 million +16.1%
Net Income: +$12.4 million
Cash Balance: $535.0 million


Second-quarter earnings plunged 84 percent as higher costs and bad bets on the price of fuel offset rising revenue. Plans to cut costs for at least two years and said it will defer the delivery of nine Boeing 737s that were scheduled to be delivered between 2011 and 2014. They are now set to be delivered between 2015 and 2017.

Revenue: $683.3 million +113%
Net Income: +$2.6 million
Cash Balance: $416.9 million


The cost of combining Frontier and Midwest actually pushed down Republic’s second-quarter 2010 earnings for the quarter by 82 percent from the second quarter in 2009. Income before taxes on the fixed-fee (regional) operations was $18.2 million for the quarter. Frontier posted a loss before taxes of $14.2 million for the second quarter. However, excluding items, Frontier produced a pre-tax profit of $2.9 million for the second quarter. During the quarter the Company took delivery of two A320 aircraft and the final two E190 aircraft previously purchased from US Airways and removed six Q400 aircraft from service. The Company also placed back into service two E145 aircraft that were previously removed to be returned to the lessors. The total operational fleet remains unchanged from March 31, 2010 at 282
aircraft as of June 30, 2010.

Revenue: $649.8 million -7%
Net Income: +$18.7 million
Cash Balance: $746.1 million


Reached agreement to aquire ExpressJet Holdings for $133 million and merge it into it's Atlantic Southeast Airlines unit. The combined airline would fly 696 aircraft, while serving 350 cities with 4,000 daily departures. At June 30, 2010, SkyWest's fleet totaled 452 aircraft, consisting of 404 regional jets (232 assigned to Delta Air Lines, Inc. ("Delta"), 168 assigned to United Air Lines, Inc. ("United"), four assigned to AirTran Airways, Inc. ("AirTran") and 48 EMB-120 aircraft
(36 assigned to United and 12 assigned to Delta).

Revenue: $315.9 million +8.2%
Net Income: +$8.9 million
Cash Balance: $314 million


Hawaiian stated - The introduction of the A-330 to our fleet marks the beginning of a new era in our Company's history. Later this year, we will further expand our horizons with the introduction of Hawaiian's award winning service to Tokyo, and in early 2011 we will launch our first flights to mainland Asia with new service to South Korea.

Revenue: $218.0 million +4%
Net Income: +$5.9 million
Cash Balance: $79.0 million


The Company acquired Mesaba Aviation, Inc. from Delta Air Lines on July 1, 2010. Mesaba operates a fleet of 60 Canadair regional jet aircraft and 32 Saab 340B+ turbo-prop aircraft. With this acquisition, the Company's consolidated fleet has grown from 190 regional aircraft to 282. This acquisition will significantly increase the Company's revenue and operating income, and is expected to result in an increase in net income in the second half of 2010. In late July, the Company took delivery of the first of 15 additional Q400 regional aircraft to be placed in service under the Company's operating agreement with Continental. The Company expects to take delivery of seven additional Q400 aircraft in 2010, and seven Q400 aircraft in the first half of 2011.

Revenue: $168.4 million
Net Income: +$17.6 million
Cash Balance: 185.4 million


Allegiant stated - While we will be limiting our in service fleet growth for the remainder of the year, by the end of this quarter, we will have nine owned MD80's in storage. These aircraft will fund our MD80 growth needs through 2011 and 2012. The MD80 continues to be a work horse for us and is our aircraft of choice for our growth in the lower 48. Our efforts on the 757 certification are progressing and we hope to be permitted to start service to Hawaii sometime in the first half of 2011.

*Net amounts include extraordinary items, all figures obtained from wire reports

Wednesday, May 5, 2010

Deregulation and the Last Chapter of Consolidation

It's the Summer of 1978... Most of the original players in the airline industry are still alive and well. The four largest carriers domestically (by passengers carried) are United, American, Eastern, and TWA. Pan Am and TWA are the country's international flag carriers. Other "smaller" majors include Delta, Northwest Orient, Braniff, National, and Western. The "regionals" are Piedmont, Ozark, Southern, Hughes Airwest, Allegheny, Air Florida, North Central, Air California, PSA, Alaska, Texas International, Frontier and Wien. Hubs are present but they are yet to be officially termed "hubs". Flash forward to October of 1978. A major act of Congress has been passed that will reshape the entire industry. Call it survival of the fittest or
call it whatever you want, but The Airline Deregulation Act of 1978 set the stage for where the industry has fundamentally found itself today. The irony is that The Act was intended to "open the skies" nationwide to unrestricted competition. And it did to some extent. Gone are the days when Eastern and National ruled the northeast to Florida corridor. And when American, TWA, and United called the transcontinental routes their own. The Act was to "encourage" the old guard mainline carriers to become more efficient and competitive. The Act was suppose to create a national transportation system with multiple options for travelers that would lead to lower fares. I was fortunate to have had Dr. Alfred Kahn, the leading government economist and the father of deregulation himself explain this to me personally on a flight in 1985. He stated that "in the end, deregulation will be seen as a positive for competition, and more importantly for the consumer. It's now 2010, and thirty-two years after the Carter Administration passed The Act, almost all of the airlines mentioned above are gone. Yes, the current survivors are more efficient than they were thirty years ago, but one can argue that industry conditions (recessions, oil, 9/11, etc.) forced the efficiency - not deregulation. Yes, deregulation in concept has produced the likes of JetBlue, Airtran, and a "grown-up" Southwest. But what about PeoplExpress, Laker, Midway, Independence, and the many others ? They are long gone. So, in reality the concept of deregulation producing a "plethora" of low-fare carriers has been a myth. And with the announcement of the United-Continental merger, along with the 2008 Delta-Northwest marriage, and an expected move by American, we will likely finish the chapter with three mainlines, five low-costs, and the regionals. In 1978 we had ten large carriers and fifteen smaller ones. So, it would seem that in the last chapter of the fairy tale that we call deregulation, the outcome is an environment that it's authors would have never envisioned. You be the judge.

1978 U.S. Airlines





Pan Am


Northwest Orient







Hughes Airwest


Air Florida

North Central

Air California



Texas International





1978 TOTAL = 25 (+Commuters)

2010 U.S. Airlines





US Airways



Republic (Frontier)



2010 TOTAL = 10 (+Regionals)

Tuesday, May 4, 2010

First Quarter 2010 U.S. Airline Financials

Sometimes in the airline industry we encounter a quarter that gives an accurate snapshot of where each carrier is in the current environment. The first quarter of 2010 did just that. On the positive side, total revenue and revenue per available seat mile (RASM) has continued a healthy climb through the quarter. Capacity (ASM's) has continued to remain in check producing the healthy revenue picture. On the downside, oil prices spiked to an average of $78 per barrel in the quarter compared to the $40 range a year earlier. There were also revenue losses from the severe snow events during the period. To sum it up, if not for good capacity control leading to higher fare levels and the economic recovery, then higher energy prices and of course the weather would have produced a more dismal outcome. Another interesting observation during the quarter was evidence of legacy cost reduction by those carriers who took advantage of the bankruptcy process during the last decade or earlier. The bankruptcy participants: United (one filing), Delta (one filing), US Airways (two filings), and Continental (two filings - 1982 and 1990), all have seen core legacy expense reduced substantially. Compare those results to American who did not participate in the bankruptcy process. American is in a tough spot. While cash balance (for now) is adaquate, its overall cost structure is on the high side. It still has substantial pension liability and is highly leveraged. It requires high fares and low oil prices just to approach break-even, let alone make an acceptable profit to pay down debt and remain competitive. American is also in tense contract negotiations with it's unions as they seek (and rightfully so) a fair return on concessions given during the last several years. American is expected to produce losses for the remainder of 2010, while the rest of the industry is expected to return to the black. Assuming that oil prices remain at the current level or lower, and the economy continues it's climb, we should see healthy results for the remainder of 2010. Finally, a true recovery may be at hand.

  • DELTA: Revenue=$6.8 billion (+2.0%), Net Loss=$266.0 million
  • AMERICAN: Revenue=$5.1 billion (+4.7%), Net Loss=$505.0 million
  • UNITED: Revenue=$4.2 billion (+15.0%), Net Loss=$92.0 million
  • CONTINENTAL: Revenue=$3.2 billion (+7.0%), Net Loss=$146.0 million
  • SOUTHWEST: Revenue=$2.6 billion (+11.6%), Net Profit=$11.0 million
  • US AIRWAYS: Revenue=$2.6 billion (+7.9%), Net Loss=$45.0 million
  • JETBLUE: Revenue=$870 million (+10.0%), Net Loss=$1.0 million
  • ALASKA: Revenue=$830 million (+8.0%), Net Profit=$13.0 million
  • SKYWEST/ASA: Revenue=$632.2 million (-9.3%), Net Profit=$15.0 million
  • REPUBLIC: Revenue=$608 million (+87.0%), Net Loss=$36.0 million
  • AIRTRAN: Revenue=$605 million (+11.7%), Net Loss=$12.0 million
  • HAWAIIAN: Revenue=$298.0 million (+9.0%), Net Profit=$216,000
  • PINNACLE: Revenue=$208.0 million (+0.9%), Net Profit=$1.7 million
  • EXPRESSJET: Revenue=$189.2 million (+11.5%), Net Loss=$16.1 million
  • ALLEGIANT: Revenue=$169.6 million (+19.4%), Net Profit=$22.6 million

*Net amounts include extraordinary items, all figures obtained from wire reports