Frontier Done (?)

[BJK]

Are you sure that SWA lost 300M in 3 months? That seems a bit high?

From LUV's most recent quarterly report:

"The Company's first quarter 2008 net income was $34 million......this, however, did not compare favorably to the Company's first quarter 2007 profit of $93 million"

and

"The Company's hedging program resulted in the realization of approximately $302 million in cash settlements for first quarter 2008 compared to $65 million in cash settlements for first quarter 2007."

Looks like the loss without hedges would have been roughly $268 million.

For what it is worth.

 

[DOVPILOT]

uke:

 

[Skyboy722]

From LUV's most recent quarterly report:

"The Company's first quarter 2008 net income was $34 million......this, however, did not compare favorably to the Company's first quarter 2007 profit of $93 million"

and

"The Company's hedging program resulted in the realization of approximately $302 million in cash settlements for first quarter 2008 compared to $65 million in cash settlements for first quarter 2007."

Looks like the loss without hedges would have been roughly $268 million.

For what it is worth.

I don't know how many times it has been said over and over that this is not a conclusion you can draw this simply. In the face of a different hedging position, the ticket pricing would have been different. SWA can easily do this because they control the pricing in most markets they serve. So 302 millon minus 34 million is just not math that you can realistically apply here.

 

[airlinepilot]

Amen!

 

[Full of LUV]

What?????

I don't know how many times it has been said over and over that this is not a conclusion you can draw this simply. In the face of a different hedging position, the ticket pricing would have been different. SWA can easily do this because they control the pricing in most markets they serve. So 302 millon minus 34 million is just not math that you can realistically apply here.

So you claim that SW can just raise the price of their tickets $50 and everyone will still show up and pay?? If so, then why not squeak out a profit over 2007, or did mgt just mess up and make too much that year? Airline tickets, like everything else is an elastic commodity, as the price goes up, less people show up, so it is a losing proposition above a certain price point for any given segment. I agree that subtracting the revenue from hedging is not an accurate representation, but I'm not sure that even SW can raise it's prices nearly $1Billion a year and have the same overall pax count show up.

They may control the BOTTOM level of pricing in any given market, but they do not have a magic wand to do away with price vs demand economics.
LUV

 

[BJK]

I don't know how many times it has been said over and over that this is not a conclusion you can draw this simply. In the face of a different hedging position, the ticket pricing would have been different. SWA can easily do this because they control the pricing in most markets they serve. So 302 millon minus 34 million is just not math that you can realistically apply here.

I'm just a simpleton who flys airplanes. I do, however, recall the last quarterly conference call where Kelly made it pretty clear that hedges are what held it all together for the quarter. No matter how you crunch the numbers, it is pretty obvious that, atleast for the most recent quarter, LUV was in the business of making money with fuel hedging vs. carrying people. Good for them! A smart and well run company with a fantastic advantage over the competition. No need to debate it, hedges are HUGE for LUV:

2007 Q1 Net Income: $93M
2007 Q1 Cash f/ Hedges: $65M

2008 Q1 Net Income $34M
2008 Q1 Cash f/ Hedges: $302M

I don't work for LUV, but I can certainly appreciate the advantage they have consistently given themselves with a smart fuel hedging program over that last x number of years.

 

[ArmadilloJackal]

So you claim that SW can just raise the price of their tickets $50 and everyone will still show up and pay?? If so, then why not squeak out a profit over 2007, or did mgt just mess up and make too much that year? Airline tickets, like everything else is an elastic commodity, as the price goes up, less people show up, so it is a losing proposition above a certain price point for any given segment. I agree that subtracting the revenue from hedging is not an accurate representation, but I'm not sure that even SW can raise it's prices nearly $1Billion a year and have the same overall pax count show up.

They may control the BOTTOM level of pricing in any given market, but they do not have a magic wand to do away with price vs demand economics.
LUV

This is exactly right. SWA has incredible pricing power but they cannot just raise prices in every seat and keep the same LF's, it doesn't work that way. I hear this argument constantly about their hedging and business plan and it just isn't true. People will stop flying, they're already driving less. It doesn't take away the fact that they're an incredibly well managed and run company. I'm a fan, the argument just doesn't make sense to me.

 

[Skybus]

Ahhhh nothing like a bunch of pilots that think that they are now economists.....

I think it is safe to say NONE of us have any idea what the landscape would have looked like if not for the fuel hedges. 2 things are a certainty. Costs WOULD have been higher, ticket prices WOULD have been more, capacity would have been different, and NOBODY on this board has a clue as to what WOULD have been the end result.

Class over.

 

[ArmadilloJackal]

I am no economist but here are some of my personal economics. Was thinking about a family trip (4 tickets) for a week long trip. For $350 each I was going to buy, it's a short trip. Tickets went up a $100 each, so now I'm driving to a closer vacation. I know I'm not the only one who thinks this way.

 

[BJK]

Ahhhh nothing like a bunch of pilots that think that they are now economists.....

Economists...why not? Most message board pilots seem to be well educated in all aspects of managing an airline!.

Later.

 

[jmreii]

you do not have to be a economist, just have simple common sense which is why nobody outside this industry understands or could care less either way.
if you make you own bed, and the airlines have; you cannot expect anyone else to sleep in it.

 

[Networ-King]

So whats the cash on hand for Frontier? My buddy over there says that he is good for 6 more paychecks. However.... they are not telling them how much cash they have for fuel. Anyone know?

 

[momalley81]

The only thing worse than airline executives talking about airline economics is airline pilots talking about airline economics.

 

[StaySeated]

So whats the cash on hand for Frontier? My buddy over there says that he is good for 6 more paychecks. However.... they are not telling them how much cash they have for fuel. Anyone know?

They won't say, so you know it is bad.

The last public numbers showed around $100 million on May 1. During the last 3 weeks of April they were losing $300-700k a day, depending on the source. The 1110 cure was enormous but not publicly released. Try and wrap your head around 60 airbus payments and 10 q400's for two months.

If you take the low end of the cash burn, $300k a day, we are down to around $90 million by June 9th. Then factor in whatever the 1110 payment was. If it was $10 million we are at $80 million. If it was $25 we are down to $65 million.

Lets be optimistic and say we have $80 million. Divide that by $300k a day and you get roughly 8 months of cash. If we are down to $65 then we have 6 months. If the burn rate is actually $700k a day the lifespan changes to less than 4 months of cash to as short as two months. The courts will not let you run down to zero, so we have basically two options.

1. Oil drops rapidly and we all still have jobs.

2. We start burning the furniture "extending the runway" (I just threw up a little typing that).

I have heard the "6 paychecks" rumor as well. I think with the sale of 4 more aircraft we may live to see the leaves turn color.

 

[Flying the Line]

Keeping all the leases would allow you to sell a few (3-5) more airplanes and wait out the drop in oil and/or drop in service by competitors. I wish everyone at F9 a prosperous future.