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Unless AirTran can work a travel bank deal with DFW, they will face pressure on where to put the 737's. Nice Quarter though. Also, creatively moving maintenance overhauls into the 1st Q of 05 was a big help in showing a profit this Q.
Airtran reported 4Q profits of $300k ($0.00 per share) vs. $0.18, beating our estimate of a loss of -$0.13 and consensus expectations of a loss of - $0.08. Healthy November and
December offset weakness in October (affected by hurricane season) as revenues beat our
estimate by $10mn while costs came in $8mn better than expected. We are raising our
2005 and 2006 ests. from -$0.20 and $0.05 to -$0.05 and $0.20, respectively. Continue to
rate AAI shares underperform (Coverage view: Neutral).
YIELDS STABILIZE IN COMPETITIVE MARKETS: Despite Oct. bookings being
hampered by hurricane season ($3mn-$5mn), strength December and November holiday
months led to better than expected revenue performance in 4Q. Yields declined 5% (vs.
our expectation of down 8%). Unit revenues also exceeded expectations, down only 5%
(vs. our est of down 8%) and improving sequentially from down 6% in 3Q04. Results are
particularly impressive (industry unit revs. down 5%) given AAI's disproportionate
exposure to Florida markets where capacity is up double digits yoy. Unit costs, ex- fuel,
fell 7% in the qtr (vs. our est of down 2%) owing to lower maintenance expense (timing of
overhauls partially responsible).
EXPANSION PLANS UNCLEAR AT THIS POINT: Having lost bid for ATA assets in Chicago to
LUV, AAI will go back to the drawing board, evaluating its plans for expansion. Preliminary prospects include DFW, Philadelphia, Pittsburgh & increased frequency out of Atlanta. We believe that any redeployment of assets from lower yielding East Coast markets would be a positive for
FALLING UNIT COSTS OFFSET BY LOWER RASM: With integration of bigger aircraft (737-700s) to its fleet, AAI will enter longer haul markets, raising average stagelength (which was up 5.4% in 4Q04) further in 2005. While unit costs will benefit from this, increased stagelength will negatively weigh on yields. We estimate yields and unit revenues will fall another 5% as a result in 2005. On the cost side, we see CASM falling 3%. AAI is about 23% hedged at $0.98 per gallon for
CONTINUE TO RATE UNDERPERFORM: With US Airways liquidation looking less likely and
capacity continuing to build at double digit rates in Florida markets (up 13% in Q1 and accelerating to 15% in Q2), which accounts for 45% of AAI revenues, we believe unit revenue declines will continue in 2005. DAL and UAIR capacity adds in AAI mkts do not begin until February. With $340mn in cash, liquidity and staying power is not a problem but consensus estimates will have to
come down in 2005 as decline in unit cost will not be enough to offset unit revenue declines from competitive pricing and increased stagelengths on 737 routes. Labor savings in excess of $1bn at UAIRQ and DAL also narrow cost advantage gap.
Funny, it looks like our pay and work rules are actually better than what pilots are approving for similar equipment at other many carriers. Our twelfth year 737 pay is better than many "Legacy" carriers are paying their senior guys on wide-bodies.
If you need someone to blame, keep looking, jackass, 'cause it isn't us. Not even close.
As opposed to ALPA wanting each MECs negotiating committee to "raise the bar". Yeah, that worked great...oh wait, my friends at DL, NWA, US Airways, UAL, and AA (I know, not ALPA) all were furloughed.
Great looking contract though. Now what do we have? I just saw one of my old DC-9 Capts who is VERY senior and still in the left seat at USAir. We were talking about the future of his company, and then he told me that our Captains at AirTran are making more than he is.
I want AirTran to do well, but I don't see the predominant attitude here as blindly taking paycuts for the company. I also don't see the majority opinion being "let's get the biggest contract we can get and scr@w the company". Obviously, those of us who are here have to think long term. I don't see us leading a race to the bottom. Our union does know that the potential is there for exactly what you say, and I think they're sight picture is pretty accurate.