DAL labor costs are "are still uncompetitive."

[crjdxr]

DL's labor costs are "are still uncompetitive."

Whoops....

Full article here: http://www.deseretnews.com/dn/view/0,1249,650197469,00.html

"The day we filed, we had over $20 billion in debt, much of it accumulated over the last five to six years as we were trying to stave off a court filing," Bastian said. He added that despite "significant head-count reductions, concessions" and other cuts to Delta's benefit structure, its employee costs and labor costs "are still uncom- petitive." (emphasis/bolding mine)

 

[DrewBlows]

Bastian said the airline is still fighting to fix its revenue problems. Currently, the airline's revenues represent about 93 percent of the industry's average, up from 85 percent a year earlier.

Hmmmm, maybe this is the real problem.

 

[DrewBlows]

But the airline's financial problems led to an even bigger issue, Bastian said, as Delta's service took a back seat to other carriers in the market.

Maybe you could charge more if your service didn't totally suck ass (that's an industry term). So what's the solution? Move more flight's per day to ATL and JFK, you say? Good idea. Hmmmm, I wondor why people aren't willing to pay more for these flights. I mean, you are consistantly late and you heard the people through over-crouded corridors like cattle. Why wouldn't Joe Passenger want to do that. Heck there's even a chance that they get a chance to spend the night in beautiful Atlanta, GA, because they missed a connection or their flight was canceled. What other airline offers that?

 

[BLUE BAYOU]

Tell me about the flood at JFK of Delta Jets and regional partners. Today it took us 1 hour and 5 minutes to taxi and takeoff from JFK at 3 in the afternoon!!! 31L had about 20+ arrivals of Delta 757s, 767s, CRJ-200s and even some Dash 8s in the mix. I don't care if they ramp up service at JFK, what I do care about is the fact that they continue to land them on the sole departing runway while 20+ jets wait to take off, many of whom were transcons and oceanic. What did Delta do, pay off the ATC controllers at JFK? Land them on 31R like everybody else-- even if the line goes out to the Hamptons...

 

[General Lee]

Tell me about the flood at JFK of Delta Jets and regional partners. Today it took us 1 hour and 5 minutes to taxi and takeoff from JFK at 3 in the afternoon!!! 31L had about 20+ arrivals of Delta 757s, 767s, CRJ-200s and even some Dash 8s in the mix. I don't care if they ramp up service at JFK, what I do care about is the fact that they continue to land them on the sole departing runway while 20+ jets wait to take off, many of whom were transcons and oceanic. What did Delta do, pay off the ATC controllers at JFK? Land them on 31R like everybody else-- even if the line goes out to the Hamptons...

That is the reason they added so many RJs and Dash 8s to JFK, to slow you guys down. And, Bastain was talking about Comair's costs. His statements were before the stews made the recent deal. Whitehurst, the likely successor to Grinstein, told everyone in attendance at the CVG performance speech (about 1 month ago) that there would be no more paycuts for mainline. We'll see.


Bye Bye--General Lee

 

[ReverseSensing]

Whitehurst, the likely successor to Grinstein, told everyone in attendance at the CVG performance speech (about 1 month ago) that there would be no more paycuts for mainline.

That promise and a buck two fitty will buy you a shiny new bauble on the streets of Tijuana! !Arriba! !Arriba!

 

[filejw]

BLUE BAYOU. Its been a while sense I was an ATC liaison but I'm pretty sure ATC gives preference to A/C in flight over those on the ground.So if the normal landing R/W has has backed up so much they are out of airspace they will use the departing R/W for arrivals.

 

[JP4user]

Whitehurst, the likely successor to Grinstein, told everyone in attendance at the CVG performance speech (about 1 month ago) that there would be no more paycuts for mainline. We'll see.

After how quickly ALPA folded? Round 2 will come shortly after his arrival.

 

[rjcap]

Whitehurst, the likely successor to Grinstein, told everyone in attendance at the CVG performance speech (about 1 month ago) that there would be no more paycuts for mainline. We'll see.


Bye Bye--General Lee

LMAO !!!!!

 

[JetPilot_Mike]

I think JFK could be run much better. BOS has planes all over the place, and JFK seems strained to even use 2 of its 4 runways.

 

[Spooky 2]

SWA vs Delta

Yesterday. SAT to SLC on Delta $655.00 (non-stop) on a RJ700. SAT to SLC on SWA $336.00, with a quick aircrat change in LAS on a B737-700. SWA answers the phone when you call to boot. Simply a no brainer. Delta is simply out by SWA in every discipline other than the SWA boarding process which is 3rd world IMO.

 

[instructordude]

More paycuts might be in the happening.

 

[FlyBoeingJets]

Yesterday. SAT to SLC on Delta $655.00 (non-stop) on a RJ700. SAT to SLC on SWA $336.00, with a quick aircrat change in LAS on a B737-700. SWA answers the phone when you call to boot. Simply a no brainer. Delta is simply out by SWA in every discipline other than the SWA boarding process which is 3rd world IMO.

Check the loads on these flights and get back to us. Is Delta filling the RJ? The cost per ticket yet unsold is only part of the equation.

I'm betting some on the Delta SAT to SLC are thru pax from somewhere else.

 

[General Lee]

More paycuts might be in the happening.

Thanks for that wonderful insight.....Wow.


Bye Bye--General Lee

 

[General Lee]

Yesterday. SAT to SLC on Delta $655.00 (non-stop) on a RJ700. SAT to SLC on SWA $336.00, with a quick aircrat change in LAS on a B737-700. SWA answers the phone when you call to boot. Simply a no brainer. Delta is simply out by SWA in every discipline other than the SWA boarding process which is 3rd world IMO.

And, the Southwest connections to Anchorage? How did they get there from SAT? Get the picture? Most of our pax connect through our hubs to places SW doesn't fly to, like Montana and Alaska. We are full most of the time.


Bye Bye--General Lee

 

[General Lee]

Another thing Bastian may be saying here is a partial warning not to react like the USAir pilots, who now after a few profitable quarters, want a change in their rates. Usually that is taken care of by a contract. From what I am hearing from people on Virginia AVE, he was most likely talking about Comair's costs. This statement was before the weekend agreement.

OR, it could be this:

The International Association of Machinists says it will launch a campaign Monday to organize about 6,000 fleet-service workers at Delta Air Lines


Bye Bye--General Lee

 

[Spooky 2]

No question about General the Delta flights are full and especially north of SLC. Once upon a time SWA only flew to a couple of destinations. Look at them now wait a few years to see where they go next. Still no reason for such a poorly run and user unfriendly reservation system.

 

[FlyBoeingJets]

The Worst Has Yet to Come for Regional Airlines

Why investors should avoid regional carriers.

by Brian Nelson |

For the safe and efficient transfer of passengers, regional airlines receive a guaranteed revenue stream with a contractual profit margin and are reimbursed for many flying costs such as fuel, landing fees, and insurance. Regional carriers are only indirectly exposed to the variations in ticket prices, passenger loads and fuel prices that trouble legacy carriers. With deals like this, it's not surprising that regional airlines have been consistently profitable through the course of the commercial airline cycle. But should investors be taking notice?

Most Morningstar followers know that we think a firm's intrinsic value is best determined by projecting and discounting its free cash flows. When looking at the regional airline group, we focus on the sustainability of a carrier's free cash flow over the long haul. To begin this approach, let's first take a look at the reasons behind the proliferation of regional flying in the United States.

Why So Many Regional Airlines?
The slowdown in air travel demand after 9/11 forced legacy carriers (like UAUA), for example) to downsize their fleets to match the reduced demand on many routes. Often, this required the replacement of larger mainline aircraft with smaller regional jets. This was a simple solution for slackening demand, except that mainline pilots at legacy carriers refused to fly these smaller planes in an attempt to protect their salaries. Pilots of smaller aircraft generally earn less than those who operate larger mainline planes. Legacy airlines, therefore, opted to outsource these short-haul flights to regional carriers.

But to protect their mainline jobs, pilots' unions negotiated scope clauses, or stipulations in union contracts that restrict the size and number of smaller jets that can be outsourced to regional carriers. As long as legacy carriers abided by these rules, they were allowed to allocate short-haul capacity to regional carriers, thereby matching capacity with demand and increasing route flexibility. As more and more routes were downsized, the market for regional flying took off, with regional passengers surging to more than 151 million in 2005 from just more than 80 million in 2001. Regional carrier growth has been impressive, and regional carrier profitability has been even more so, despite the massive losses by their network partners in recent years.

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Regional Carriers [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Legacy Carriers[/SIZE][/FONT]


[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]1998 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]17.0 %[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]8.5%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]1999 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]17.0 %[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]7.1%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2000 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]16.0 %[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]5.0%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2001 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]4.0% [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]-12.6%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2002 7[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2].0%[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]- 13.4%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2003[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]11.6%[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]-4.1%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2004[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]10.6%[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]-6.7%[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2005[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]9.2%[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]-4.4%[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Source: Regional Airline Association, Morningstar data[/SIZE][/FONT]

In our view, this imbalance is unsustainable over the long haul: Either legacy carriers will return to enduring profitability, or regional carriers will share more in legacy carriers' pain. The recent upswing in air travel demand has legacy carriers now turning profits alongside their regional brethren, but the next economic downturn, the timing of which is uncertain, will likely push mainline carriers back into the red, much like it has done in previous cycles. Also, legacy carriers, by necessity, must strive for leaner operations, as unit costs remain significantly greater than those of their low-cost rivals
With these factors in mind, we recognize that the recent profitability of legacy carriers is largely a function of the current upswing in air travel demand and not that legacy carriers have transformed into sustainable profit-making entities (check out this article, "Why We're So Bearish On Legacy Airlines"). Global shocks and the general economic cycle coupled with legacy carriers' high financial and operating leverage make enduring profitability nearly impossible to achieve. As a result, we think that to resolve this profit imbalance, margins will continue to shrink for regional carriers.

Weakening Economics, Fierce Competition, and Limited Supplier Power
To no surprise, pressure on contractual operating margins for regional flying has already taken hold, both in and out of the bankruptcy courts. CAL) recently achieved more than $100 million in annual cost savings by choosing Chautauqua to replace capacity previously operated by ExpressJet.
Though majors use regionals, in some cases, as a finance arm to expand their fleet, we contend that the primary value of regional services to the legacy carrier depends on regional carriers' labor cost advantage. Most regional carriers are younger than their network partners and often are not unionized, which translates into lower salaries and benefits for their workers. We believe that, as length-of-haul-adjusted labor costs for legacy carriers converge with those of regional airlines, the value of outsourcing regional flying deteriorates.

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Regional Carriers [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Legacy Carriers [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Difference[/SIZE][/FONT]


[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2001 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.46 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]4.60 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.14[/SIZE][/FONT].
[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2002 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.70 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]4.89 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.19[/SIZE][/FONT]
[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2003 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.54 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]4.60 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.06[/SIZE][/FONT]
[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2004 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.38 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]4.23 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]1.85[/SIZE][/FONT]
2005 [FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.21 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]3.73 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]1.52[/SIZE][/FONT]
[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]First half of 2006 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]2.10 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]3.30 [/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]1.20[/SIZE][/FONT]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]*Length of haul adjusted, 1,000-mile trip[/SIZE][/FONT][FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Source: SEC filings, Morningstar data[/SIZE][/FONT]

 

[FlyBoeingJets]

(continuation of article)



Though the difference between legacy and regional labor costs is still sizable, the gap has closed substantially. We expect this labor disparity to shrink even further as a result of recent structural changes in the airline industry. For starters, the growing overlap in aircraft sizes operated by mainline and regional pilots suggests that pay scales could potentially converge, especially if scope clauses continue to be relaxed. One example is US Airways (NYSE:LCC - News), which, after emerging from bankruptcy, chose its own mainline pilots to fly its regional Embraer 190 jets, rather than hiring Republic (NASDAQ:RJET - News) to provide the service. In addition, with fewer spots available for mainline pilots as domestic flying continues to be outsourced to feeder airlines, regional pilots are gaining tenure, putting upward pressure on wage rates within the regional ranks. We expect these conditions to lessen the attraction of regional flying services over time.
What's more, over 80 regional carriers in the United States will ensure that market rates will match the value of regional flying, as there are only a handful of large domestic network operators from which to seek business. To make matters worse, most requests for proposals for regional flying are based on number of aircraft, not on the amount of capacity to be flown or passengers to be carried. Therefore, the trend toward larger regional aircraft (70 to 90 seats), which can provide incremental capacity with fewer planes, will likely slow the growth of domestic regional jets in service, despite continued outsourcing by the majors. We expect this deceleration to heighten competition as regional carriers become increasingly aggressive in their attempts to secure new business or retain existing capacity.
But perhaps most ominous is that network carriers possess substantial bargaining power during contract negotiations. Most feeders are ill-equipped to break ties with their larger affiliates due to the higher unit costs associated with flying smaller jets on shorter routes. One has to look no further than the Independence Air liquidation to ascertain the possible fate of regional carriers that attempt to go at it alone. Also, flying rates on most contracts are reset annually, providing legacy carriers with frequent opportunities to adjust terms to match the market or demand further concessions. In the worst cases, network airlines can cancel agreements with one year's notice to replace existing capacity with a lower-cost provider.
Declining Profitability Is Inevitable
So, what does all this mean? For one thing, we expect operating margins to continue to fall for the regional group. For example, our long-term operating margin assumptions for Mesa Air (NASDAQ:MESA - News) and ExpressJet are significantly lower than their 2005 levels. Additionally, we think SkyWest and Republic will experience reduced profitability in coming years, as legacy carriers continue to seek out the lowest-cost regional service provider. Our long-term margin forecasts would be even lower for these regional carriers if we excluded the positive impact from declining fuel costs, which are direct pass-through expenses.
To see the related chart, click here:

http://news.morningstar.com/article/article.asp?id=175416
What's more, due to the fragility of regional carrier contracts and the "musical chairs" the industry has experienced in recent years, we have little confidence in the sustainability of a regional carrier's future free cash-flow streams. Though we expect the number of code-share feeders to decline as carriers with bloated cost structures fail or team up with better operators, we do not think this change will be enough to stifle cutthroat competition among the regional clique. As investors may have gathered by now, we think regional airlines represent poor long-term investment opportunities.

 

[FlyBoeingJets]

Why We're So Bearish on Legacy Airlines

Is there never a good time to buy these perennial value-destroyers?

by Chris Lozier | 03-10-06 | 06:00 AM |

We wouldn't recommend buying and holding a legacy airline stock now nor at any point in the airline industry cycle. There--we said it. I feel better already.

Kidding aside, it should be no secret by now that we do not consider any airlines other than the very best low-cost carriers--to be wise buy-and-hold investments. If we did, legacy airlines would not all have moat ratings of "none," and "speculative" risk ratings, and we would not model regional airlines (which partner with the legacies) as having steadily declining margins. That said, when Morningstar's fair value estimates are 20%-50% of Wall Street's target prices for an entire industry subsegment, we like to offer the occasional reminder of why.


Two Things We're Not Saying

We are not predicting the demise of the hub-and-spoke airline model, the operational foundation of the legacy carriers. Many of the markets served by such carriers are simply too thin to be economically attractive to low-cost carriers that fly point-to-point, no matter how low their operating costs.
What's more, the air transportation system is very much a public utility in its import to states around the world. If the (mostly) free market for air travel can't correct itself, you can be sure that governments will step in as they have done many times in the past (witness the recent involvement of the Air Transportation Safety Board and the Pension Benefit Guarantee Corporation since 2001). Other changes like liquidations and consolidation might also benefit the majors to a limited degree. Ultimately, we expect most of the legacy airlines to be flying planes in 2020, though the structure, composition, and regulation of the industry may look quite different.
Neither are we suggesting that money cannot be made by buying and selling airline stocks. These securities are extremely volatile, with betas (a measure of a stock's relative volatility) in the 2-3 range, implying frequent and sizable mispricings regardless of intrinsic value. One week spent observing the airlines will illuminate this crazy reality. In fact, if one could develop a way to consistently predict the short-term movements in these stocks, that investor could make a killing. Good luck doing that. We've had little success here, and even Warren Buffett was befuddled when he tried. The short-term game of speculating on the largely random movements of airline stocks is often illogical and maddening on top of running counter to Morningstar's investment philosophy.


A Fundamentally Troubled Industry

So what should investors make of our markedly low fair value estimates? Here is where we get to the crux of the matter. One of our most basic beliefs about the airline business is that it's becoming increasingly commodified with each day. We acknowledge that there will always be some people willing to pay more money for certain amenities, whether they be http://im.morningstar.com/im/premIcon.gif XM Radioto be wise buy-and-hold investments. If we did, legacy airlines would not all have moat ratings of "none," and "speculative" risk ratings, and we would not model regional airlines (which partner with the legacies) as having steadily declining margins. That said, when Morningstar's fair value estimates are 20%-50% of Wall Street's target prices for an entire industry subsegment, we like to offer the occasional reminder of why.

Two Things We're Not Saying

We are not predicting the demise of the hub-and-spoke airline model, the operational foundation of the legacy carriers. Many of the markets served by such carriers are simply too thin to be economically attractive to low-cost carriers that fly point-to-point, no matter how low their operating costs.
What's more, the air transportation system is very much a public utility in its import to states around the world. If the (mostly) free market for air travel can't correct itself, you can be sure that governments will step in as they have done many times in the past (witness the recent involvement of the Air Transportation Safety Board and the Pension Benefit Guarantee Corporation since 2001). Other changes like liquidations and consolidation might also benefit the majors to a limited degree. Ultimately, we expect most of the legacy airlines to be flying planes in 2020, though the structure, composition, and regulation of the industry may look quite different.

Neither are we suggesting that money cannot be made by buying and selling airline stocks. These securities are extremely volatile, with betas (a measure of a stock's relative volatility) in the 2-3 range, implying frequent and sizable mispricings regardless of intrinsic value. One week spent observing the airlines will illuminate this crazy reality. In fact, if one could develop a way to consistently predict the short-term movements in these stocks, that investor could make a killing. Good luck doing that. We've had little success here, and even Warren Buffett was befuddled when he tried. The short-term game of speculating on the largely random movements of airline stocks is often illogical and maddening on top of running counter to Morningstar's investment philosophy.

A Fundamentally Troubled Industry

So what should investors make of our markedly low fair value estimates? Here is where we get to the crux of the matter. One of our most basic beliefs about the airline business is that it's becoming increasingly commodified with each day.

But as access to air travel continues to proliferate, even more customers who base their purchase decisions predominantly on price will enter the market. This phenomenon has contributed to the steady decline in real yields (passenger revenue per revenue passenger mile on a constant dollar basis) over many decades.



[SIZE=-2][COLOR=#0]1950 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]15.04[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1955 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]13.04[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1960 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]13.41[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1965 1[/COLOR][/SIZE][SIZE=-2][COLOR=#0]2.54[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1970[/COLOR][/SIZE] [SIZE=-2][COLOR=#0]10.08[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1975 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]9.32[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1980 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]9.09[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1985 7.40[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1990 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]6.70[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]1995 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]5.78[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]2000 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]5.52[/COLOR][/SIZE]
[SIZE=-2][COLOR=#0]2004 [/COLOR][/SIZE][SIZE=-2][COLOR=#0]4.16[/COLOR][/SIZE]

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-2]Source: ATA [/SIZE][/FONT]

 

[FlyBoeingJets]

This measure cannot fall too close to $0 without airlines become insolvent, but we think real yields are approaching some non-zero asymptote. Basically, we see little--short of reregulation--that might precipitate permanently higher ticket prices. Sure, yields were up substantially in 2005 as bankruptcies and stratospheric fuel prices helped reduce industry capacity. Others will be quick to remind of yields on international flights, where low-cost competition is noticeably absent. And what if we see further consolidation like the merger of America West and http://im.morningstar.com/im/premIcon.gif US Airways

To these optimists, we would point out the long history of new and existing airlines picking up capacity that has been dropped by others. We would also warn of proliferating "open skies" agreements that are bound, eventually, to invite lower-cost competitors into international skies. For these reasons, we expect real pricing yields to remain basically flat over the long term.

On top of its commodity pricing environment, the airline industry is deeply cyclical. Because of their bloated cost structures, legacy players typically lose money in economic downturns, and P/E multiples become meaningless by definition. When times are good, P/E multiples can start to look very attractive. Investors should recognize that this does not mean that a major airline's intrinsic value varies over the course of the business cycle.

In 1999, Delta Air Linestraded as high as $70, implying a trailing P/E of just under 10. In 2005, about a year after we assigned the firm a $0 fair value estimate, Delta filed for Chapter 11 bankruptcy. Without question, 9/11, SARS, and record fuel costs expedited this decline. But aggressive low-cost carriers were in plain view in 1999, and a downturn was to be expected in the coming years based on the history of that cycle. So, did Delta's intrinsic value fall from $70 to $0 in those six years, or was it never anywhere near $70?


http://im.morningstar.com/im/DALRQ10year.png

Intrinsic Value vs. Price Targets

Unlike sell-side analysts, who try to predict what stock prices will do in the next 12 months, we here at Morningstar are attempting to estimate the intrinsic value of businesses. Had we covered Delta in 1999 when the stock's P/E was attractive by most standards, our discounted cash-flow model would not have included the impact of the largely unexpected factors we noted above. However, our cash-flow forecasts would have incorporated an industry downturn, which, because it was more than a year out, was not considered by Delta's P/E multiples at that time. For differences like this, investors should expect to see stock prices--and Wall Street price targets--of airlines and other cyclical companies vary around our fair value estimate at different points in their respective cycles. Now that the current airline cycle is well into an upswing, for instance, these stocks are trading at 3-6 times our fair value estimates and 9-10 times next year's earnings forecasts.
Yet despite massive restructuring efforts and positive industrywide trends, we simply expect the legacy airlines to produce weak cash flows because their business model remains less efficient in a highly commodified pricing environment. The effect is particularly harsh through cyclical downturns, for which we account in our models. As we noted above, forward P/E ratios do not capture these more distant struggles, and such earnings multiples may admittedly be better suited to the game in which short-term investors and speculators participate. But for the investor who is thinking about buying and holding a stock longer than a year or two, the method is severely limited.
The bottom line is simple: We do not recommend legacy airlines to long-term investors who seek stable price appreciation throughout economic cycles. For those who want to gamble, please do so at your own risk.

 

[Chest Rockwell]

And, the Southwest connections to Anchorage? How did they get there from SAT? Get the picture? Most of our pax connect through our hubs to places SW doesn't fly to, like Montana and Alaska. We are full most of the time.


Bye Bye--General Lee

Anchorage is the hot rumor for the next city at SWA. Probably 12 months away though.

 

[FDJ2]

From Whitehursts Oct 11 online chat.

Q.Yesterday an article quoted Ed Bastian as saying at the Aviation Forecast Conference that our "employee costs and labor costs are still uncompetitive". By what measure is this statement made? After all we have given it is disheartening to read quotes like this time and time again. We have nothing left to give.

Jim Whitehurst: I think that was taken out of context. He was referring to where our costs were in September 2005 when we filed for bankruptcy. Given the sacrifices you have all made since that time, costs are competitive now.

 

[beytzim]

General Lee, you surprise me with your cocky statement on how DL gives pax the ability to connect to more airports than SWA. You, more than anybody, has seen SWA add more and more cities to its structure over the years (while everyone else like DL has gone the other way) You know that its just a matter of time till SWA enters Alaska and Montana! What are your excuses going to be then? Oh, I know, DL connects pax to int'l destinations - there you go!

 

[FDJ2]

General Lee, you surprise me with your cocky statement on how DL gives pax the ability to connect to more airports than SWA.

Is it "cocky" or a fact?

Southwest flies to 62* cities in 32 states.
Delta offers flights to 461 worldwide destinations in 96 countries.

 

[canyonblue]

Is it "cocky" or a fact?

Southwest flies to 62* cities in 32 states.
Delta offers flights to 461 worldwide destinations in 96 countries.

Yea, but how come nobody points this out when your management looks for a paycut to compete with Southwest?

 

[FDJ2]

Yea, but how come nobody points this out when your management looks for a paycut to compete with Southwest?

SWA had the best fuel hedge program in the industry when DAL had none and fuel was at all time record prices, no pay cut could make us competitive against that advantage at the time. Luckily for us, on that front, times are a changing. Additionally, DAL didn't see SWA as our main domestic competitor, management preferred to point out JBLU and AAI pay rates, although your were significantly lower than ours just two years ago.

 

[Ex737Driver]

Tell me about the flood at JFK of Delta Jets and regional partners. Today it took us 1 hour and 5 minutes to taxi and takeoff from JFK at 3 in the afternoon!!! 31L had about 20+ arrivals of Delta 757s, 767s, CRJ-200s and even some Dash 8s in the mix. I don't care if they ramp up service at JFK, what I do care about is the fact that they continue to land them on the sole departing runway while 20+ jets wait to take off, many of whom were transcons and oceanic. What did Delta do, pay off the ATC controllers at JFK? Land them on 31R like everybody else-- even if the line goes out to the Hamptons...

I don't see a problem here at all.................if it costs JBLU more money and it helps them show a bigger loss for the entire year, it's got to be a good thing!

On another hypocritical note, http://forums.flightinfo.com/showthread.php?t=87683..........

 

[General Lee]

Anchorage is the hot rumor for the next city at SWA. Probably 12 months away though.

Great, Alaska Airlines will kick your butts. (they own those route by far--from SEA and PDX to ANC)

Bye Bye--General Lee

 

[Sailpilot]

More paycuts might be in the happening.

Am I the only one that LOVES this guy? He's like the retarded little brother that you let hang out just because. You let him come along and try to be nice, but you just know things are going to get funny.

Oh ya, I hope I didn't offend anyone with the retarded comment, I have a retarded brother... he just doesn't know it. He functions pretty well, he's been a CA at ASA for 7 years now.:laugh: (True)