Frontier goes Chap 11...

[JA'd]

If only Bush could run for a third term he could fix everything.

 

[list2002]

Lmao!!!

 

[Andy]

Yeah, you took a few potshots... But gave a few back yourself.

LOL! Dude, giving and taking shots is a requirement on FI. Personally, I love a good debate as it forces me to look at an issue from multiple angles. I've seen the Law of Unintended Consequences many times and have found that the best way to avoid it is by examining stuff from all angles, even if I don't fundamentally agree with someone else's point of view. I've changed my views more than once due to this.

Seriously, Andy may be a little alarmist, but it's going to be bad. Maybe not "Great Depression" bad but not that far off it, IMHO.

The Great Depression was only bad if you didn't have a job. From what I've read, it wasn't a problem as long as you were employed. (DUH - I'm stating the obvious here).
There will be a lot of social safety nets to keep the masses from starving, but there will be a lot of families that get kicked out of their McMansions, lose their Escalades, and have their 20' boats replaced with tire inner tubes. It's going to be an adjustment. I like to compare it as 'The Great Gatsby' meets 'Of Mice and Men.'

This is just the tip of the iceberg. Heard of all the bills being passed around the House and Senate to try to "fix" the housing market? That's because they know the bottom isn't here yet and are trying to shore up the housing market.

It will help a lot of people who are in danger of defaulting on their homes but are otherwise OK for credit by basically letting them refinance their ARM into a fixed-rate FHA loan at 5% or so. That will help, but won't fix the problem for people who are having income problems (low-paying jobs or no jobs with rising fuel, energy, and food costs).

The tax credits for people buying homes they plan to live in is great, but it's not anything NEAR an incentive to buy and won't stimulate the market at all. Those who plan on (and are capable) of buying a new home were going to anyway, regardless of tax cuts. I don't mind, every little bit helps on a personal level, but it will fail miserably as a "stimulus package" (like just about everything else Bush has tried).

The big problem with housing is that supply FAR exceeds demand. There was a LOT of speculators that drove prices higher and a LOT of people bought more than they could afford because they wanted maximum leverage in an up market.
We now have negative household formation which is going to be occurring for a while. That will absolutely kill home prices. I've read (and concur with) analysis of the housing market where we're looking at price drops of 80% from peak (fall 06) to trough (my guess is 2011). Mortgages are non-recourse; once Joe 6Pack figures out that a ding on his credit rating isn't going to kill him, the amount of jingle mail is going to skyrocket.

I expect the aviation market to get a lot worse as well. Wait until DAL and NWA start consolidating operations... why do you think they'll keep 6 RJ feeders who operate a LOT of money-losing 50-seaters? I'm betting another 2,000+ on the street by the end of the year from furloughs at regionals that may even shut down (maybe even Mesa) plus some furloughs at places like Midwest and Spirit (word on the street is that Spirit is cash-only in some of the cities they serve - not a good sign).

Who knows... airTran is OK for cash but, to preserve that spot, may sell some of their 717's that are coming up on heavy checks which will trigger some furloughs (hopefully enough voluntary to go back on Mil duty to keep from kicking too many people to the curb).

Spirit's a private company; I took a look at their cash on hand (latest data is end of Sep 07) and they looked OK. If that's true, that's bad news for Spirit.
No airline's exempt from this carnage. The only one that's sage for the forseeable future is Southwest.

Andy and I may disagree from time to time, but I think he's closer to the truth on this one than most here on FI want to believe.

Plan accordingly. Better safe than sorry.

Best of luck to the fine folks at Frontier. Been on you guys several times, always a class act!

Thanks. And yes, I agree that the employees of F9 are a class act.

 

[Andy]

"I SAY WHAT WHAT, IN THE BUTT, I SAY WHAT WHAT IN THE BUTT!!!"

BUTTERS! You need to make an internet video to save the airline industry.

Did you like the parody of the Writers Guild strike? Hilarious.
There are a lot of lessons that unions can learn from them.

 

[Andy]

Tanker Clown, barring something catastrophic specific to SWA, there is no way they are going BK within a year. Especially given their strong balance sheet relative to all the competition. SWA knows it's hedges are winding down and has a plan to make up that lost revenue (to the tune of about $1.5 billion a year according to Gary Kelly). But that is a few years down the road. They are the best positioned airline to withstand this current environement. 70% hedged this year at $51/barrel, 55% hedged for 2009 at $63/barrel, and 30% at $63/barrel for 2010. That's with their current growth plans. If they decide to cut their growth then all those numbers go up respectively. Their balance sheet has $2.7 billion in cash vs. $2.0 billion in long term debt. They spent $1.8 billion dollars the last 2 years buying back stock (money they obviously wouldn't be spending on a stock repurchase plan if they were having cash flow problems). Like I said, SWA needs to fix some things by 2010, but they are in great position for the rest of this year and into 2009.

SWA management is firing on all cylinders. Just as the speculative oil bubble deflates, their hedges will be gone. Talk about superior execution. For a company that size, I'm blown away with how nimble they are.

 

[Andy]

the worst case is china investment corp (ref 60 min special 4/6/08) comes in and starts buying failed banks, airlines, and pretty much starts setting u.s. monetary policy as a result. we are close to the brink. the fed can't fix everyhting.

China and most of the rest of the world are going to be facing MUCH more adverse financial conditions than the US. China's going to be cashing in all of their US treasuries in an attempt to shore up China. They won't have extra money to prop up the US.

The Chinese proverb, 'May you live in interesting times,' applies to the next decade.

 

[BILL LUMBERG]

SW. Just another gang of crooks on top hiding under smiles, pencil whipping, and shiny paint.

But I bet you'd love to be working at SWA right now. They are starting to look like the only guys who will be around in a few years.[/quote]

Wow....brilliant comment tanker, once again, if there was a contest for biggest Jackhole on FI, you'd win hands down!!!! Penekamp gets second in a close fight......

 

[737 Pylt]

Wow....brilliant comment tanker, once again, if there was a contest for biggest Jackhole on FI, you'd win hands down!!!! Penekamp gets second in a close fight......

Yeah but pennekamp doesn't want to play any more. He took his ball and went home.
With tanker clown, he's just killing time between photcopying and serving coffee. After all, what's a government worker to do?

737

 

[Daedalus]

I was reading an article from AW&ST (April 7th issue) about the US/EU Open Skies agreement and its second phase of implementation. The EU and several EU carriers believe that this first phase of implementation, which began on March 30th has greatly benefitted the participating US carriers over EU carriers, especially those in the UK.

The UK government has already signaled that it wants to see significant movement on foreign ownership rules or it will insist on withdrawing the current rights granted in this first stage. US and EU negotiators will meet in Slovenia next month to begin talks, but several industry watchers believe it could take at least four years to ink a deal for the second stage of this agreement.

Currently both sides believe it would be "tremendously" difficult to change US foreign ownership laws sufficiently to satisfy the Europeans. However, "many US airlines, though, are just as anxious as their UK counterparts for the restrictions to be lifted because it would allow a greater flow of capital to the beleaguered US airline industry." The industry experts contend that merely lifting the foreign investment cap would not change much (from the European perspective) and actual control of an airline is the crucial litmus test for effective change. Virgin's director of external affairs and route development, Barry Humphreys said the following:

"The percentage of ownership is not important; the control element is most important."

With this EU force being applied in Washington, all while the US airline industry is running headlong into a major recession; a recession that is beginning to manifest itself with the latest airline financial failures in the last two weeks, will make this Open Skies Stage 2 negotiation effort far more plausible as an acceptable alternative to another federal government bailout of the US airline industry.

As someone mentioned earlier in this thread, in a few short years we could look up and see Southwest as the only wholly-owned US airline remaining in our business.

 

[YourPilotFriend]

Tanker Clown, barring something catastrophic specific to SWA, there is no way they are going BK within a year. Especially given their strong balance sheet relative to all the competition. SWA knows it's hedges are winding down and has a plan to make up that lost revenue (to the tune of about $1.5 billion a year according to Gary Kelly). But that is a few years down the road. They are the best positioned airline to withstand this current environement. 70% hedged this year at $51/barrel, 55% hedged for 2009 at $63/barrel, and 30% at $63/barrel for 2010. That's with their current growth plans. If they decide to cut their growth then all those numbers go up respectively. Their balance sheet has $2.7 billion in cash vs. $2.0 billion in long term debt. They spent $1.8 billion dollars the last 2 years buying back stock (money they obviously wouldn't be spending on a stock repurchase plan if they were having cash flow problems). Like I said, SWA needs to fix some things by 2010, but they are in great position for the rest of this year and into 2009.

The fuel hedges are meaningless. The question is whether or not the company can "right size" itself into the coming recession. My personal opinion is it is 100 planes too many.