JP Morgan says Major Bankruptcies just a matter of "when" not "if"

[ultrarunner]

I wonder why he was so hard on NWA?

So they can load up on the stock when it tanks, then flip it when the merger is announced!

 

[UALjan15]

Why does anyone think that hub proximity is relevant? Consolidating operations can only go so far. Many airports are unwilling to build the level of facilities necessary to accomodate one very large airline (ask PIT). And operating only A380's domestically is pretty unrealistic. So you will need to carry a large number of people to keep the revenue stream going (both UA and US are reporting fairly high load factors). That will necessitate multiple hubs to move the traffic. Why would UA close PHX and begin to oversaturate DEN with it's mixed bag of weather? Why not operate PHL and IAD instead of cramming everything into a rickety PHL operation?

You bring up some interesting questions. I think the assumption is that hubs add a lot to overall costs, and therefore hub consolidation will save money and add to the all-important synergies.

In a traditional hub/spoke system, a passenger can't fly non-stop anywhere unless they happen to live in the hub or visiting it. The plan is, however, that 2 hops is all it takes to get most anywhere. Using the example of a passenger living in Reno who needs to go to Cleveland, could he fly on the new United to SEA, SFO, LAX, LAS, PHX, or DEN and catch a flight to CLE from any of those hubs? There's only so many folks that have to get to CLE every day, so the airline would have to trim down some of that service I would think. I think with this many hubs, the classic model kind of breaks down, and maybe a "focus city" concept works better.

Internationally, I think the smart money is on hubbing out of large O&D markets, which United does real well. If you're building a big Int'l hub out of CLT, for example, you're counting on people choosing your airline even though most passengers know they'll have to land, clear customs, and re-check bags for a connecting flight to wherever they're going. This is a huge hassle that people will avoid if they can find a direct flight. PHL, while large enough to attract O&D traffic, has bad capacity problems as you alluded to that limit its appeal.

 

[n757st]

You bring up some interesting questions. I think the assumption is that hubs add a lot to overall costs, and therefore hub consolidation will save money and add to the all-important synergies.

In a traditional hub/spoke system, a passenger can't fly non-stop anywhere unless they happen to live in the hub or visiting it. The plan is, however, that 2 hops is all it takes to get most anywhere. Using the example of a passenger living in Reno who needs to go to Cleveland, could he fly on the new United to SEA, SFO, LAX, LAS, PHX, or DEN and catch a flight to CLE from any of those hubs? There's only so many folks that have to get to CLE every day, so the airline would have to trim down some of that service I would think. I think with this many hubs, the classic model kind of breaks down, and maybe a "focus city" concept works better.

Internationally, I think the smart money is on hubbing out of large O&D markets, which United does real well. If you're building a big Int'l hub out of CLT, for example, you're counting on people choosing your airline even though most passengers know they'll have to land, clear customs, and re-check bags for a connecting flight to wherever they're going. This is a huge hassle that people will avoid if they can find a direct flight. PHL, while large enough to attract O&D traffic, has bad capacity problems as you alluded to that limit its appeal.

If US Airways is to merge with United, PHL will still be a hub. It might not be as large as it is now, but just as you said, the large O&D markets are where the money is. This was quite evident by the last round of airline hub closures. Hubs that increased capacity were PHL, IAD, JFK, EWR, etc... ones that lost capacity were PIT, STL, CVG, despite the fact that these airports have spare capacity and then some. The next step is not to flee from these capacity constrained hubs, but rather just up gage the equipment. If United and US do merge, to give up PHL would just invite Delta, American, Continental or some other legacy to set up shop. There are just far too many people and far too much business for PHL not to have large international operation present.

 

[FBN0223]

If United and US do merge, to give up PHL would just invite Delta, American, Continental or some other legacy to set up shop. There are just far too many people and far too much business for PHL not to have large international operation present.

International presence? Yes. But, I think it would be difficult, at best, to compete with WN in the domestic market out of PHL.

 

[scarlet]

I stated in JAN that the airlines would be back in BK..GREAT SOURCE !!

 

[Deadalus]

Ummm... JP Morgan as a COMPANY press release is a "news numbnut"?

They might have a teensy-weensy little bit of experience calling the market,,, then again, what's a few HUNDRED Billion in an investment bank.

You mean the kind of investment banks that loose huge amounts of money and have people in jail? Notice in the article they downgraded CAL while upgrading JBLU even though they ranked CAL less likely to file. Who did the ranking, a junior analyst? Alaska 2nd and US last, sorry I don't think so.

 

[_BravoWhiskey_]

Some "news" numbnut needed to get an article out so they made up some stupid list probably with little to no facts to back it up. NWA has some of the best financials in the industry, there is no question about it. That alone should be enough to discredit this "source".

Pan-Am anyone? Seriously, read the book "Skygods".

 

[Deadalus]

This list wasn't made by Baker of JP Morgan was it? Mr. wonder airline analyst. That sleeze is the same one that testified that if the airlines weren't allowed to walk from their pension responsibilities they'd all go bankrupt. Lear what kind of scumbags are you quoting on this board?

 

[Lear70]

You mean the kind of investment banks that loose huge amounts of money and have people in jail?

Yes, amongst the same ones that lose large amounts of money and go to jail if they buy and sell on the highs and lows that come after their announcements. It's called "manipulating the markets" and it's illegal.

Notice in the article they downgraded CAL while upgrading JBLU even though they ranked CAL less likely to file. Who did the ranking, a junior analyst? Alaska 2nd and US last, sorry I don't think so.

I think you might have misunderstood the list. It was a "who is LEAST likely to have to file bankruptcy in the near future" list and yes, I'd pick Alaska much less likely to file than USAirways every day of the week in this environment.

Alaska has a lot of cash on hand. They're not bleeding money. They have a nice niche market that few compete on and a good product to go with it. That's called "insulation" and it works.

I understand why JBLU was upgraded - working hard to control costs, cash position is decent compared to daily operating expenses, although selling off airplanes and not replacing them isn't exactly my idea of a "great strategy", at least it'll keep them out of the poor house.

Yes, a few on the list surprised me, but overall it makes sense given cash position, rate they are burning through cash, and their abilities to survive the downturn.

This list wasn't made by Baker of JP Morgan was it? Mr. wonder airline analyst. That sleeze is the same one that testified that if the airlines weren't allowed to walk from their pension responsibilities they'd all go bankrupt. Lear what kind of scumbags are you quoting on this board?

He as well as a few others testified and he didn't exactly say that, but you're not far off the mark. He's not any kind of friend to labor, that's for certain, but I don't think he's far off the mark on the upgrades and downgrades, although a little alarmist in that only a couple on that list are in any real danger.

I still think some more Ch. 11 filings are coming in the fall, and one or two more Ch. 7's as well. Most of those on my short "bankruptcy betting list" aren't even on his list at all; they're "major non-legacy", carriers, but I won't be surprised to see one or two on Baker's list on the Ch. 11 reorganization block if their merger ploys don't work (UAir/UAL).

Personally, I wouldn't be surprised to see UAir use the Ch. 11 playbook one more time if they can't merge with anyone to finalize the labor strife and enforce Nicolau without constraint from the unions, pretty much a "here is your new domicile and aircraft, report or hit the road", along with some last refinancing of some of the AWA debt and a bunch of new airplane orders within a year of their exit.

UAL... I'm still trying to figure out what their long-term strategy is. Or if their fearless leader even has a long-term strategy.

 

[h2oskier]

"I understand why JBLU was upgraded - working hard to control costs, cash position is decent compared to daily operating expenses, although selling off airplanes and not replacing them isn't exactly my idea of a "great strategy", at least it'll keep them out of the poor house."

Even though we are selling a few 320s, I think we still show a net gain of 3 for this year, so we're actually replacing them with new ones.