Midwest Air Warns On Profit, Cites Weak Fares

[Eagle757shark]

NEW YORK, June 12 (Reuters) - Midwest Air Group Inc. (MEH.A: Quote, Profile , Research), which is trying to fend off a hostile takeover by AirTran Holdings Inc. (AAI.N: Quote, Profile , Research), said on Tuesday that second-quarter earnings would fall below analysts' expectations and possibly year-earlier profit because of weak fares.
Midwest, whose shares declined 1.6 percent, said the expected earnings shortfall was primarily due to industrywide pricing weakness that may continue for some time. Analysts on average were expecting quarterly profit of 67 cents per share, according to Reuters Estimates. Year-earlier earnings were 39 cents.
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Midwest said the pricing weakness would probably affect full-year earnings, but said it was unable to determine the impact. It therefore suspended its previous 2007 earnings forecast of $1.30 to $1.50 per share.
The analysts' average forecast for 2007 is $1.22 per share, according to Reuters Estimates.
The second and third quarters, boosted by spring and summer travel, are traditionally strong periods for the U.S. airline industry.
Midwest has spent more than $2.6 million defending itself against AirTran.
AirTran said the warning was evidence that Midwest's plan to remain a stand-alone airline is flawed, and it renewed its call for Midwest management to begin merger talks.
On Monday, AirTran said it had extended its takeover offer of $15 a share until Aug. 10. Midwest shares were down 24 cents at $14.67 in afternoon American Stock Exchange trade, while AirTran was down 22 cents, or 1.9 percent, at $11.31 on the New York Stock Exchange. (Additional reporting by Kyle Peterson)
© Reuters 2007. All Rights Reserved.

So much discussion about the pilot TA, this is really going to make this week a very interesting week. I find it interesting that Midwest released this information just prior to its shareholder meeting and vote for board members this Thursday. I imagine we will see more flights in and out of MKE by AirTran to put more pressure on Midwest's pricing. Hang on everyone involved, the ride is just beginning.

 

[Lear70]

Yes, very interesting timing... I wonder why they did that? Quite possibly they believe it might not matter anymore, as AAI already has enough shares tendered to probably get proxies for most of them and vote their BOD members in anyway.

Can't do anything if the BOD still won't agree to sell after that, except wait for next year's BOD meeting or just drop the offer, let the stock tank, then use their tendered shares to purchase the stock outright this time, poison pill and all, and duke the takeover out in court.

Either way it's not looking to be much fun for anyone involved.

 

[Propsync]

That excuse is B.S. Midwest has no competition in MKE, little in KC. Their revenue management is one of the few things I thought the company did well. They were full all last summer, I don't see how this year would be any different. And the company did well if I remember correctly in Q2+3. The problem is getting an expensive 50 seat program up and running while having Skyway cancel between 10-40 flights a day due to lack of crews. I'm sure the misconnect, reaccomodation, reposition, and cancellation costs are through the roof. Bet nobody loses their job over it, either.

 

[Lear70]

It doesn't help that the 50-seater is, historically, a money-loser for a "mainline" company.

The feeders that operate them make money because they're being paid a set "fee per departure". Unless you can connect that marginal feed to a high margin international flight, they're simply useless.

That's why you don't see any other LCC using them, why Frontier went with larger RJ's and a 90-seat Turboprop, and why AirTran has stated they're not interested in any RJ's with fewer than 70 seats.

Midwest's "growth" plan isn't going to work; that much is certain.

 

[gt1900]

Well... With Midwest doing poorly and AAI weathering the storm, it seems to me like the BOD of Midwest and Timmy are running out of excuses.. Midex's new business model seems to be tanking yet AAI's seems to be working fairly well.... What kind of things are Timmy and Carol gonna come up with next to bash AAI...



CHICAGO, June 13 (Reuters) - AirTran Holdings (AAI.N: Quote, Profile , Research), parent of low-cost carrier AirTran Airways, has not seen the softening in domestic travel demand that some carriers have predicted, the chief executive said on Wednesday.
Speaking at a Merrill Lynch investor conference, Joe Leonard said second-quarter demand has been strong.
"We have not seen softness in our demand in April or May," Leonard said on a Webcast of the conference. "We have seen a little softness going into June on near-term bookings."
The airline industry has been on the mend following a years-long slump. Industry experts warn, however, of weakening domestic revenue in 2007 due to excess capacity.
Orlando, Florida-based AirTran has its hub in Atlanta, where it competes directly with the newly restructured Delta Air Lines (DAL.N: Quote, Profile , Research) on East Coast routes.
AirTran hopes to expand its reach by merging with Midwest Air Group (MEH.A: Quote, Profile , Research). AirTran, which has issued a hostile takeover proposal for Midwest, this week extended that offer until Aug. 10.
AirTran shares were down 7 cents at $11.20 in early trade on the New York Stock Exchange.

 

[metroplex]

not trying to defend midwest, but is it not an industry trend , to lower your earnings forecast(continental, Southwest, united...).Airtran got downgraded, saying their yield will be 4% lower.

 

[CitationLover]

Well... With Midwest doing poorly and AAI weathering the storm, it seems to me like the BOD of Midwest and Timmy are running out of excuses.. Midex's new business model seems to be tanking yet AAI's seems to be working fairly well.... What kind of things are Timmy and Carol gonna come up with next to bash AAI...

it hasn't even been ramped up yet. give it some time. no nwa codeshare yet. no seating config change yet. only a few of the rj's are out and they are still announcing routes.

you should be more concerned with your crappy TA than this merger. the MEH pilots are the only ones in this merger who do not want to screw you.

besides latest rumor is southwest to buy you guys.

 

[Lear70]

besides latest rumor is southwest to buy you guys.

That rumor's been floating around for about 3 years before I got here... pretty much ever since AAI got that sweet deal on the 737's.

Not expecting fireworks tomorrow, but anything's possible.

 

[CitationLover]

That rumor's been floating around for about 3 years before I got here... pretty much ever since AAI got that sweet deal on the 737's.

Not expecting fireworks tomorrow, but anything's possible.

well let the politicking begin. those directors who have been paid $40g's by Joe will make it a vote of 6-3 so nothing really has happened except a listening of their plan.

we will see what develops. as a new FO i implore you to please stay strong on the TA.

 

[737 Pylt]

re:
Midwest Air Warns On Profit, Cites Weak Fares

Oh where, oh where is chuck/einstein/lawman/clyde frog/400ahole when you want to rub it in his face!?

737

 

[Lear70]

No worries... was at the road show today, and only the NC Chair still thinks this thing is a good deal. Everyone else was like, "Yeah, we know that sucks. Yeah, we know the insurance section sucks worst of all. Yeah, that's a concession."

There's the "beginnings" of some good ideas, just not worth all the give-backs, and yes, it will probably tank pretty hard. Word is it'll be out for vote in the next 7-10 days with a pretty short voting timeline, but that's just "the word on the street".

What was that Chinese blessing/curse? "May you live in *interesting* times."

 

[gt1900]

Citation... It may not have ramped up yet but when MEH is missing thier own earnings estimates that don't even take into account the things your talking about, its no wonder the shareholders voted the way they did.... 2 quarters in a row MEH has missed their estimates, how long are shareholders supposed to wait until Timmey can realize hes ridding a sinking ship?? BTW...Its funny you are calling AAI's TA a "crappy" TA... You better hope AAI buys MEH.. Even with the "crappy" TA MEH's 15 year capt pay would increase by around $37 per hour... AAI's current contract is much, much better than MEH's contract.... Hell, you should be happy as a MEH new hire that AAI's is probably gonna purchase MEH.. You axcepted a job with MEH and your gonna bash AAI's TA.. Dude, listen to yourself. You don't have a clue... I hate to tell you this... But the cookie got eaten..

 

[likeitis]

Citation... It may not have ramped up yet but when MEH is missing thier own earnings estimates that don't even take into account the things your talking about, its no wonder the shareholders voted the way they did.... 2 quarters in a row MEH has missed their estimates, how long are shareholders supposed to wait until Timmey can realize hes ridding a sinking ship?? BTW...Its funny you are calling AAI's TA a "crappy" TA... You better hope AAI buys MEH.. Even with the "crappy" TA MEH's 15 year capt pay would increase by around $37 per hour... AAI's current contract is much, much better than MEH's contract.... Hell, you should be happy as a MEH new hire that AAI's is probably gonna purchase MEH.. You axcepted a job with MEH and your gonna bash AAI's TA.. Dude, listen to yourself. You don't have a clue... I hate to tell you this... But the cookie got eaten..

I wouldn't say much much better. A couple sections of your contract are better but for the most part they are equal. Our training and scheduling are better along with the fact that our language is tighter.

 

[Lear70]

I wouldn't say much much better. A couple sections of your contract are better but for the most part they are equal. Our training and scheduling are better along with the fact that our language is tighter.

From what I understand of the MEH contract, this statement is correct.

The worst thing that would happen to us under an "imposed" Midwest contract (which is a ludicrous threat, but I digress), is that we take a $1 to $5 an hour pay cut. The rest of their contract is fairly comparable plus or minus a few things here and there.

Scope is the biggest concern, as obviously JL and BF want 70- to 90- seaters, and I haven't read the MEH language personally yet.

 

[SkiFishFly]

From what I understand of the MEH contract, this statement is correct.

The worst thing that would happen to us under an "imposed" Midwest contract (which is a ludicrous threat, but I digress), is that we take a $1 to $5 an hour pay cut. The rest of their contract is fairly comparable plus or minus a few things here and there.

Scope is the biggest concern, as obviously JL and BF want 70- to 90- seaters, and I haven't read the MEH language personally yet.

I don't understand the infatuation of management with 70-90 seaters. Gate space is at a premium at so many airports. Couple this with the bogged down ATC system - I forsee a lot more airports moving to impose slot restrictions and a min number of seats. The 737 is definitely the way to go - maybe even something with more seats.

 

[CitationLover]

Citation... It may not have ramped up yet but when MEH is missing thier own earnings estimates that don't even take into account the things your talking about, its no wonder the shareholders voted the way they did.... 2 quarters in a row MEH has missed their estimates, how long are shareholders supposed to wait until Timmey can realize hes ridding a sinking ship?? BTW...Its funny you are calling AAI's TA a "crappy" TA... You better hope AAI buys MEH.. Even with the "crappy" TA MEH's 15 year capt pay would increase by around $37 per hour... AAI's current contract is much, much better than MEH's contract.... Hell, you should be happy as a MEH new hire that AAI's is probably gonna purchase MEH.. You axcepted a job with MEH and your gonna bash AAI's TA.. Dude, listen to yourself. You don't have a clue... I hate to tell you this... But the cookie got eaten..

it's pretty simple

a low key, low stress training event versus old school AAI screaming and yelling from gramps

guaranteed MKE base versus a possible ATL commute (as MKE domicile is no guarantee in the merger)

sure the pay rates are better, but realistically would we be under the new < 100 seat rates? probably, flying AAI's new 190's. how do those rates compare?

and frankly I like the small airline atmosphere and the customers who love us (cookie digestion i guess).

low domestic yield is biting ALL domestic airlines. AMR is seeing it, you are seeing it, SWA is seeing it, as are we.

i left AMR to get away from that management style. no love to fall right back into it with AAI.

 

[CitationLover]

I don't understand the infatuation of management with 70-90 seaters. Gate space is at a premium at so many airports. Couple this with the bogged down ATC system - I forsee a lot more airports moving to impose slot restrictions and a min number of seats. The 737 is definitely the way to go - maybe even something with more seats.

whose going to bight the bullet and adjust their route structure first? AA/AE in LGA/ORD? United/SKYW/CHQ in ORD? Delta/ASA/Comair in ATL/JFK? not enough 737's around to describe what you want.

 

[SkiFishFly]

whose going to bight the bullet and adjust their route structure first? AA/AE in LGA/ORD? United/SKYW/CHQ in ORD? Delta/ASA/Comair in ATL/JFK? not enough 737's around to describe what you want.

I think the Gov is going to impose it. Sort of a scaled down re-regulation. The enviro wackos coupled with the atc problems are going to push it.
Picture how LGA and ATL would look if you cut out the RJs. Prob 30 percent fewer departures all with 120 or more seats. Free up a lot of ramp/taxi and gate space. Cut down on wait times/lines and wasted jet fuel.
Just hope I'm working where the company has the foresight to be ready for it. Right now it looks like AAI management has a severe case of shiny RJ pay rate syndrome...

 

[CitationLover]

Picture how LGA and ATL would look if you cut out the RJs. Prob 30 percent fewer departures all with 120 or more seats. Free up a lot of ramp/taxi and gate space. Cut down on wait times/lines and wasted jet fuel.

so I take it the 717's (60% of AAI fleet) are on your target of elimination by the govt.?!?!

 

[gt1900]

Skyfish is 100% right....If you look at the projected pax increase in the next 10 years and then look at how our ATC system is already tapped out you are going to see airports place minimum seat restrictions on airplanes.. They won't have a choice......
Citation.. Since you don't work at AAI I would be careful what you say.. You have no idea what the training environment is like.. My 717 training was very laid back and there was no yelling.. Actually, it was too laid back for me. I wish my instructor was harder on us.. The only people who have problems and get yelled at are the people who don't study and don't prepare.. Yes, if you don't come prepared for training AAI will not hold your hand like many other airlines will.. They will kick you to the door, but, if you study, it will be a piece of cake.......
As for the shiny RJ syndrome.. I wouldn't be too worried about it. KG may want RJ's, but he doesn't run the company. Leonard has stated that if he were running the company when the 717's were ordered, AAI would be an all 737 fleet right now. I listen to what Leonard and Fornaro have to say. Not KG and SK.... I'm not saying AAI won't get big RJ's, but I believe they see that 5-10 years down the road, even the E-190's wont be nearly as profitable as the bigger 737's... HMMM I wonder if thats why they wanted to get rid of the 13% override on the large narrow body pay scale??? Your more likely to see 737-800's on line than you are 190's.... However, with all that said, if they do get that chity 100 seat pay to pass you would be more likely to see 190's on property.. But I still don't think your gonna see the next big order from AAI be 190's..