AirTran tacks on add'l $140M to cash

[maxblast72]

AirTran's business model over the last 7 years has been to take advantage of others misfortune i.e. Metrojet, US Airways, Independance Air, and ATA. Now that there are no east coast carriers in bankruptcy and the playing field is about even, what will be their plan? That is what wallstreet wants to see and me as well. I don't think you can sell airplanes to profitablity. What is the strategic long term objective? In this current environment, beware if your CEO can't state one!

We didn't sell airplanes this year for proftitablity, we sold airplanes to increase liquidity/preserve cash. Fornaro has stated the plan is to return to profitability (10 analysts predicting an average of $0.60 EPS for 2009), increase our cash reserve to $600-800 million, and then resume growth in 2011 with our 55 737 delivery spots we have between 2011 and 2016.

If something drastic happens in the domestic capacity situation and we thought there was a good opportunity to be had, we can get our hands on 717s pretty cheaply. Boeing already has the option to lease 5 old Midwest 717s in 2009 if they can't find another home for them.

Airtran has the lowest non-fuel CASM in the industry. As fuel prices drop, Airtran's non-fuel CASM advantage becomes a bigger deal as non-fuel CASM becomes a bigger percentage of total CASM. Lower cost airlines have more flexibility and usually do better during economic downturns. I wouldn't stick the fork in Airtran just yet.

 

[Eagle757shark]

We didn't sell airplanes this year for proftitablity, we sold airplanes to increase liquidity/preserve cash. Fornaro has stated the plan is to return to profitability (10 analysts predicting an average of $0.60 EPS for 2009), increase our cash reserve to $600-800 million, and then resume growth in 2011 with our 55 737 delivery spots we have between 2011 and 2016.

If something drastic happens in the domestic capacity situation and we thought there was a good opportunity to be had, we can get our hands on 717s pretty cheaply. Boeing already has the option to lease 5 old Midwest 717s in 2009 if they can't find another home for them.

AirTran sold 3 airplanes in the third quarter and made 10 million dollars off the sale of those aircraft. Please note: to sell airplanes for profitablity or to raise cash kind of works hand in hand at this point. With $318 million in unrestricted cash, the airline has a long way to go to raise $600-800 million dollars. Trust me it will not happen in this environment or from the sale of aircraft. With the yield AirTran generates from its tickets, I doubt they will get there that way either. AirTran will need a investor to pump a great deal of cash into them to reach $600-800 million cash in the next two years. Example for a seat on the board, Luftansa injected a large amount of cash into Jetblue along with a international code share. Something like this is the only way AirTran will reach their cash goals. ( by the way, I don't think Southwest wants anything to do with AirTran, so I don't see a code-share with them coming) Again selling airplanes to raise cash is not the answer and 2011 is not a strategic long term plan either!
From your post you say if something drastic happens 717s are available, that is my point. AirTran is a scavenger airline that only makes moves off of others failures. That is not a business plan. If you think that a business plan is to sit back and watch what happens over the next couple of years for something "drastic to occur", we better all start preparing our resumes. Let me give you a hint about what I mean. What do all these airlines have in common: Delta and Northwest, United, US Airways, Continental, Southwest, American, and Jetblue? They all have international code share partners.

 

[rajflyboy]

If the Price of Fuel stays this low Air Tran will be just fine.

I think Iraq Hussein Obomba may tax the hell out of gas though. (Hopefully he will leave aviation related fuels alone). It will be interesting to see if he does this next year.

 

[crxpilot]

We didn't sell airplanes this year for proftitablity, we sold airplanes to increase liquidity/preserve cash. Fornaro has stated the plan is to return to profitability (10 analysts predicting an average of $0.60 EPS for 2009), increase our cash reserve to $600-800 million, and then resume growth in 2011 with our 55 737 delivery spots we have between 2011 and 2016.

If something drastic happens in the domestic capacity situation and we thought there was a good opportunity to be had, we can get our hands on 717s pretty cheaply. Boeing already has the option to lease 5 old Midwest 717s in 2009 if they can't find another home for them.

Airtran has the lowest non-fuel CASM in the industry. As fuel prices drop, Airtran's non-fuel CASM advantage becomes a bigger deal as non-fuel CASM becomes a bigger percentage of total CASM. Lower cost airlines have more flexibility and usually do better during economic downturns. I wouldn't stick the fork in Airtran just yet.

I disagree with that statement. As of the end of the 3Q Airtrans non-fuel CASM was 6.0. Jetblue was 5.7 and Allegiant was 4.6. Even CASM including fuel Airtran was 11.0 and Southwest was 10.7, Allegiant was 10.0 and Jetblue was 9.8. Sorry charlie!

 

[maxblast72]

I disagree with that statement. As of the end of the 3Q Airtrans non-fuel CASM was 6.0. Jetblue was 5.7 and Allegiant was 4.6. Even CASM including fuel Airtran was 11.0 and Southwest was 10.7, Allegiant was 10.0 and Jetblue was 9.8. Sorry charlie!

I wasn't considering Allegiant as they really don't compete with anybody since they fly routes to medium cities where they are the only players. I need to qualify my statement about non-fuel CASM, when adjusted to equal stage length (for an apples to apples comparison), Airtran has the lowest non-fuel CASM.

Either way, Jetblue's, Airtran's, and Southwest's business model is for $100-150 average fares to stimulate new demand in markets between large cities. When Jet A is less than $2/gallon, these 3 companies can make alot of money at those average fares. When Jet A was near $4/gallon, this business model doesn't work well unless you have some pricing power. Jetblue probably rode through the high fuel prices the best. They have a really good product that is well liked and well known in their core markets allowing them to raise their average fares this summer to lose less than Airtran.

Jetblue has larger airplanes flying longer distances so their total CASM is going to be lower than Airtran's. Most of Airtran's system is large RJ's (B717's) flying short routes (under 1.5 hrs), in and out of hub airports (ATL and BWI).

 

[Max Powers]

I wasn't considering Allegiant as they really don't compete with anybody since they fly routes to medium cities where they are the only players. I need to qualify my statement about non-fuel CASM, when adjusted to equal stage length (for an apples to apples comparison), Airtran has the lowest non-fuel CASM.

Either way, Jetblue's, Airtran's, and Southwest's business model is for $100-150 average fares to stimulate new demand in markets between large cities. When Jet A is less than $2/gallon, these 3 companies can make alot of money at those average fares. When Jet A was near $4/gallon, this business model doesn't work well unless you have some pricing power. Jetblue probably rode through the high fuel prices the best. They have a really good product that is well liked and well known in their core markets allowing them to raise their average fares this summer to lose less than Airtran.

Jetblue has larger airplanes flying longer distances so their total CASM is going to be lower than Airtran's. Most of Airtran's system is large RJ's (B717's) flying short routes (under 1.5 hrs), in and out of hub airports (ATL and BWI).

Wise words as always maxblast.....Also I think if you adjust the CASM to average stage length of around 700nm you will find datranny to be the least.

 

[Eagle757shark]

Either way, Jetblue's, Airtran's, and Southwest's business model is for $100-150 average fares to stimulate new demand in markets between large cities. When Jet A is less than $2/gallon, these 3 companies can make alot of money at those average fares. When Jet A was near $4/gallon, this business model doesn't work well unless you have some pricing power. Jetblue probably rode through the high fuel prices the best. They have a really good product that is well liked and well known in their core markets allowing them to raise their average fares this summer to lose less than Airtran.

There lays the problem. Go back to before fuel started to really go up. Compared to Southwest and Jetblue, AirTran's profits were always significantly lower for an airline of its size. Bottom line AirTran has a revenue yield problem period. This is a problem that management better learn how to fix and fix it fast. The solution is not the employee compensation either! AirTran management has to find a better way to get better yield from their revenue or being the lowest cost airline doesn't mean a thing.

 

[PCL_128]

Hopefully PCL's now come around to the idea now that the probability of a depression is increasing rapidly and is being talked about in the mainstream media.

No, a depression is not likely, and I stick to my original prediction: the recession won't last longer than three quarters. You're still nuts.

 

[mad691]

"Go back to before fuel started to really go up. Compared to Southwest and Jetblue, AirTran's profits were always significantly lower for an airline of its size. "

Actually that's not correct. Airtran's net profit margin was 2.40 over the last five years. Jetblue's was 1.60 over the last five years. LUV is actually 5.86 over the last five years. The industry average over the last five years is 1.96. All three carriers were actually more profitable than the industry average. I do agree though they need to do a better job in yield management.

 

[lowecur]

No, a depression is not likely, and I stick to my original prediction: the recession won't last longer than three quarters. You're still nuts.

There will be an orchestrated global currency devaluation by Sept is my prediction. What isn't clear is whether Gold will be confiscated as it was during the 30's. Here's an article from a few years back that offers a rather bearish future for gold, but this guy is in the minority. Former Gold bear Jim Rogers, now says he owns gold and will buy more. He's been right too many times, but I wouldn't stake my future on it. I'll stick with treasuries and cash.

imp:​

http://www.gold-eagle.com/gold_digest_03/droke101003.html

 

[Kenney G]

There lays the problem. Go back to before fuel started to really go up. Compared to Southwest and Jetblue, AirTran's profits were always significantly lower for an airline of its size. Bottom line AirTran has a revenue yield problem period. This is a problem that management better learn how to fix and fix it fast. The solution is not the employee compensation either! AirTran management has to find a better way to get better yield from their revenue or being the lowest cost airline doesn't mean a thing.

Airtran is also the only airline not carrying cargo in the belly for profit. They abandoned cargo over a year ago. Seems like leaving money on the table.

 

[75M]

$15.00 per checked bag = cargo.

 

[Lear70]

*snicker*

Cargo traditionally pays a LOT more than that for the same space...

 

[Steeler Fan]

*snicker*

Cargo traditionally pays a LOT more than that for the same space...

So what you're saying is that we should charge MORE per each checked bag? (Like Delta?)

 

[75M]

Lear, thanks for pickin' up what I'm puttin' down.

Congrats on the new house.

 

[gt1900]

Heres what you guys forget.... Pax demand will drop off less for the low cost carriers in hard times. Hard times like these with low fuel costs are probably the best thing to happen to Airtran. Many people are still going to fly. When pax have excess money in their pockets they have more flexability in their choices. In times like these the excess cash is not there so they are more likely to choose the cheapest product. Just look at the grocery stores. Overall sales are lower yet many of the cheap "store" brands sales are higher. In other words, people will stop buying Kellogs Raison Bran but they will start buying Krogers Raison bran because its cheaper... People still want their Raison Bran, and they also want their airline tickets. If youve noticed pax demand hasn't fallen off for AAI as much as it has with most other airlines. With a drop in fuel prices and more people switching to AAI for airtravel, AAI's profits should be good next year..... BTW... Analysts are predicting a $74 million profit for AAI in 2009... Two years of profits like that and AAI can increase their cash flows tremendously..

 

[Andy]

No, a depression is not likely, and I stick to my original prediction: the recession won't last longer than three quarters. You're still nuts.

Your prediction has been proven incorrect, unless you are saying that the recession ended in September. Note:
US in recession since December 2007: official panel
1 day ago
WASHINGTON (AFP) — A US recession began in December 2007, a panel of economists charged with the official designation of business cycles said Monday.
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) said it made the determination during a conference call on Friday.
Link: http://www.google.com/hostednews/afp/article/ALeqM5hRvkyvGeuMDKzfcgn81xyNCWE1Ww

Your most recent post on this thread merely reinforces my original assessment of you:

Quite frankly, I am of the opinion that most of my posts are so far beyond your comprehension that you scoff at them rather than admit your ignorance on the subject.

The debt levels accumulated by all levels of society - personal, corporate and government - will result in a long and deep depression. The very best thing that could happen at this point is to stop all bailouts. I rarely agree with Kudlow, but I'm on the same page with him on ending bailouts. These bailouts merely drag out the inevitable and will make economic conditions worse in the long run.

 

[Andy]

2. Right now is a great time to buy. Yes, the market still has some drop left to it, but we'll see it happen in the next year. More importantly, because of the risk that Obama will make changes to the tax code, these banks are dumping a lot of NICE homes they were previously hanging onto.

Case in point, there was a foreclosure on the market for $248,000 a 2,700 sq ft home in a lakefront community. 6 year old home, under home warranty for 4 more years, great schools, fastest-growing area in the city, the last appraisal was at $265,000... I snagged it last week for $198,000, 30 year FHA Fixed at 5.78%. Because it's so far under appraisal, I have no PMI, my payments are about $1,300, and a 3 bedroom house for rent (unless it was a dump) would run me $1,100-1,200 a month anyway. I save money every month and, when the housing market recovers (2 years estimated if we don't have another big hit in the economy and get pushed into a 4-7 year depression), I'll sell it, take the equity, pay off my student loan, and use the rest as a down-payment on another home.

Houses CAN be invesments, you have to have housing anyway, and just because it's not going to make you money every month doesn't mean it's debt you need to avoid. Everyone needs to have a house... purchase smartly and you'll always be better off than renting.

Right now is a TERRIBLE time to buy a home. My original projections had housing prices bottoming in 2012. I've now moved that to 2014. That is, assuming that we don't see double digit inflation return.
In a deflationary environment, housing gets hammered more than most other assets. I'm sorry to hear that you decided to buy a house; I suggest that you step back for a bit and reevaluate that decision. You're currently in Memphis, right? Be careful, I think that you're going to see a lot of cutbacks at FedEx soon. And even if you don't see FedEx cutbacks, keep in mind that real estate is no longer local; it's national. You can thank securitization for that.

Homes can be an investment. In an inflationary environment. In a deflationary environment, they are an albatross. The smart money's renting.

 

[cybourg10]

I agree with Andy on the bailouts, it didn't help Japan in the 90s and it won't help us now. How long do you see this depression lasting and what can be done to help soften the blow? Do you think the dollar is going to continue getting stronger or will we see it collapse?

 

[JetFumes]

Right now is a TERRIBLE time to buy a home. My original projections had housing prices bottoming in 2012. I've now moved that to 2014. That is, assuming that we don't see double digit inflation return.
In a deflationary environment, housing gets hammered more than most other assets. I'm sorry to hear that you decided to buy a house; I suggest that you step back for a bit and reevaluate that decision. You're currently in Memphis, right? Be careful, I think that you're going to see a lot of cutbacks at FedEx soon. And even if you don't see FedEx cutbacks, keep in mind that real estate is no longer local; it's national. You can thank securitization for that.

Homes can be an investment. In an inflationary environment. In a deflationary environment, they are an albatross. The smart money's renting.

Not entirely correct. You have some tax advantages from owning. You need to figure out your tax bracket, and see if you could use some of the right-offs of interest, property tax,etc.. You can take home more every month. Obviously you need to buy at the right price, but the price of paying higher taxes can hurt as well.