Which Way Go Regional Jets?

Currently, airlines (especially Delta) must confront a massive glut of regional jets, and in that segment of the market, industry observers predict up to 1/3 of the capacity may need to be removed, because those aircraft burn high amounts of fuel per passenger. But, counter intuitively, if energy prices continue to go higher, regional jets may be seen as assets, not liabilities, since they can ferry travelers from small communities to big hubs cheaper than driving 300 miles on the highway. If gas prices will dissuade people from taking road trips, that can only encourage them to fly America's friendly skies, which will bring higher yields, and higher load factors for airlines.

Second Quarter Profits And Losses

Four different airlines reported numbers for the second quarter, 2005. The results for some were promising, and for others, worrisome. Some carriers have been able to cope better with the higher fuel prices, and others are just struggling to get to December. Here's the scoop:

Alaska reported, in my view, a mixed quarter even though it's an improvement on last year, which was a $1.7 million loss. Alaska reported a net income of $17.4 million in the quarter, which, granted was marred by ludicrously high fuel prices, is paltry compared to Southwest's profit. The reason that this isn't all good is that Alaska had by far, some of the worst on-time and completion numbers in that quarter. In addition, on today’s news about Southwest's move to Boeing Field, Alaska is calling for equal access to the airport, where Alaska is hoping to start as many as 100 daily departures from the airport. Alaska should be worried about its future, since Southwest is here for the long haul, and even though load factors at mainline Alaska (not Horizon) were 77.9%, passengers will not tolerate late flights. Not at all.

America West is doing a terrific job before of its upcoming merger with U.S. Airways. America West reported $13.9 million versus $10.7 million last year. America West, which doesn't exactly operate the world's most fuel-efficient fleet, was able to cope with the higher prices and still improve their profits, without significantly cutting their labor costs, like Alaska did with its baggage handlers, pilots, flight attendants, etc. Clearly, America West has been able to pass at least some of the cost of fuel onto its customers with an increase in revenue over last year of 20%! America West is looking good, and should have a successful merger with U.S. Airways. America West is getting better at making money, but they still need to cost-cut significantly, or else America West will lose its edge.

Thestreet.com was right on when it titled a piece on its website "Delta and the Red Ink Factory". However, I must congratulate Delta for reducing its quarterly loss in the second quarter 2005 by $1.6 billion. Not bad but that still leaves nearly $400 million, $382 million to be exact in losses. Delta's Fuel expense was up 57.5%, but even with that, Delta was still able to get cost cuts, and got its mainline unit costs, as in what it costs to fly one seat one mile, down 3.9% including the higher fuel costs. However, if they are losing money now, there will be bigger losses, significantly bigger losses in the third quarter. No wonder Delta's stock DAL was one of the biggest percentage losers on the market today.

Finally, we come to JetBlue, which has been warning recently that it will make a smaller-than projected profit, and that its margins will decrease to single digits because of high fuel costs. That's just what happened, as JetBlue's profit decreased $6 million to $39.1 million in the second quarter. Its operating margin, decreased 5% to 9.1%. This quarter, JetBlue will take delivery of its first Embraer 190 aircraft, which is bound to begin a new wave of growth for the airline. The aircraft should start service in October or November, and it will probably help JetBlue's earnings, as JetBlue will be flying to smaller cities with less service and higher fares, so although they will be lowered when JetBlue arrives, JetBlue can really set anything it wants to, as long as it's not exorbitant, so JetBlue might be able to find higher margins on those routes. This will be exciting, and will trigger moves by other U.S. carriers, as they might spring for the plane. It will be a fun third quarter ahead, full of losses, and new beginnings.

American, Continental Report Profits, Yes Profits!!!

The United States may be suffering a red-state, blue-state divide, but there does seem to be one thing that those in a very red state, Texas can do better than those in blue states. That's run a profitable airline. Southwest, very profitable, and in the second quarter we can add Fort-Worth based American and Houston based Continental to that list.

Continental reported a net income of $100 million for the quarter, which includes a $47 million special gain relating to the contribution of ExpressJet shares to Continental's pension plan during the quarter. In the quarter, RPMs were up 8.3% with ASMs up 5.5% The load factor for the second-strongest quarter of the year for most airlines, was 79.6%. That really shows how much demand for air travel has increased, it also means, that there are many full flights.

American Airlines reported a second quarter profit of $58 million. In the second quarter, RPMs were up 7.4% and ASMs were up just 2.3% and as was the case with Continental, decreased domestically. This helped set a company record load factor of 79.5%. Not bad at all. Both airlines did a wonderful job of cost cutting, especially since American spent $434 million more for fuel in the second quarter than it would have if fuel had stayed at second quarter 2004 prices. That's a great deal of money, and the kind of profit that would have brought back investors to the company.

Both American and Continental have done a great job of staying out of trouble, and have been able to diversify its strategies so that they don't have to always compete with low-cost carriers, especially Texas's third profitable airline, Southwest. Both American and Continental have decreased domestic capacity, but seem to be doing a better job of fighting Southwest. In Dallas, there is a huge debate about the Wright Amendment, there was a bill introduced in the Senate yesterday that American opposes that would allow Southwest to fly outside of a number of states that it's currently limited to by Wright. American would lose a great deal of money if that bill passes, but it would be the "Wright" thing for the industry, as it would lower fares for Metroplex customers, and American would be able to find it's strengths else where. Remember, growth in the Metroplex is occurring near DFW airport, not Love Field, so even though it would be a big win for Southwest if the bill passes, it would be far from the end of the world for American. American and Continental, however will continue to lose money for the year, but it will be a much better year, and with more expected cost-cutting, yes these airlines will be making money year-round again.

Southwest Announces 41% Increase In Profit And New Destinations From Ft. Myers

Southwest Airlines made two very exciting announcements today. The first, is that travelers in the Southwest Florida region will now be able to fly between Ft. Myers and Baltimore two times daily, Chicago Midway twice daily, Long Island/Islip once daily, Orlando three times a day, and Philadelphia once daily. Southwest will start serving Ft. Myers October 2, 2005. Southwest is timing some of these flights so that passengers will be able to connect to other Southwest destinations, such as Las Vegas, Los Angeles, or Seattle/Tacoma. What's interesting here is that Southwest generally has a criteria that a new destination must be able to sustain at least ten daily flights to Southwest cities before Southwest begins service there (some of Southwest's destinations in Texas are exceptions). Ft. Myers only has nine daily flights to start out, but it will most certainly grow to perhaps 15 or more by October 2006. But it all depends on how the travelers in that region respond, since Ft. Myers already has low fare service to certain areas, which might make it harder for Southwest, since travelers in many cities they open (such as Philly have suffered with high fares). Ft Myers already has some service, for example, JetBlue already serves Ft. Myers with service to New York, (Remember, Southwest scheduled one daily to Islip on Long Island) as well as Boston (which Southwest serves with Providence, RI and Manchester, NH, no service was announced to those destinations).

Southwest's second announcement, that they made $159 million in the second quarter, which was 41% better than the $113 million they made in 2004. Southwest did an excellent job of controlling its costs, considering the higher-than-expected price of jet fuel (though Southwest had hedges in place to help control that expense), and especially they glut of seats on the East Coast, considering the fact that Southwest's big city on the East Coast is Baltimore/Washington, and that the airline has been competing with a suicidal airline, Independence Air. It's hard to compete with an airline determined to commit suicide, but Southwest did it, and they should be congratulated. The second half will be tough, but with more flights out of Pittsburgh, and new flights to Ft. Myers, Southwest will continue to grow and prosper.

May 2005 Traffic!

These are the traffic figures which have been released thus far for May 2005. So far these figures are looking strong, especially Continental which showed a 6.1% increase in their domestic load factor for the month, which was 81.2% for May, and 79.4% for the year to date.

AirTran

America West

American Airlines

American Eagle

Continental Airlines

Independence Air

JetBlue

Northwest Airlines

Southwest Airlines

United Airlines

Kayak.com Recieves a Big Boost

Kayak.com, the total travel provider, announced today that it has received $7 million in Series B financing from Sequoia Capital. Founded by the co-founders of Orbitz, Travelocity, and Expedia, Kayak.com shows results from across the web and get the most competitive rate. (For more information, see my November, 3 post). Although the program is still in a beta stage, the system is currently available to the public. If you are looking to get the best deal on air travel, this is highly recommended.

Traffic (October 2004)

The only major news coming in the last couple days are traffic reports from various carriers. I didn't post yesturday because election day kept the markets fairly stagnant, the airline industry being no exception. No huge surprises here, however, if your hometown airline is listed, see how they did last month.
American Airlines here
American Eagle (AA's regional carrier, posts seperate traffic report) here
US Air here
Delta here
America West here

ATA Files Ch 11

We speculated on bankruptcy rumours yesterday and today ATA ATAH, has filed for chapter 11. The newly minted press release states that AirTran Airways AAI, will assume all of ATA's Chicago Midway gate leases on up to 14 gates, where they will form a hub. In addition, AirTran is taking ATA's take off and landing slots at Reagan National in D.C. and LaGuardia in New York, 8 and 19 respectively. ATA has significant operations at Midway, most of their flights are into and out of there, and so they will retreat to their home base of Indianapolis, where they are headquartered. They will almost certainly be reducing their operation, and will not, by most accounts be flying much longer. AirTran will certainly face new challenges going into Midway, and I will talk about those soon.

Midwest Air

Today, Midwest Airlines MEH may be heading off course with their reported third quarter loss of $13 million compared to last year's same quarter loss of $3 million after restructuring charges of $5.9 million. Midwest Airlines used to provide premium service, a nostalgic effort to go back to those happy days when airlines provided full meals and comfy seats to all their passengers. Midwest succeeded, but realized that they couldn't compete with the low-fare carriers. So they reconfigured some of their aircraft to hold more seats and put them to work on low-fare destinations such as Florida, Las Vegas, and Denver. Their load factor and revenue per seat mile are abisimal, and if they can't improve that most basic of airline profitability benchmarks, their future remains uncertain.

Fare Sales: AirTran is launching a fare sale today: http://www.airtran.com
Southwest too: www.southwest.com