Most stable carriers and why

[N2264J]

I wouldn't be hoping for bankruptcy my friend. It will be darned near catestrophic for everyone involved -- including us.

Especially when there are so many "independant" regionals out there licking their chops to take a bite out of Comair's flying.

Where did you get the notion I'm hoping for bankruptcy? I'm not. No more coffee for you today.

The mainline pilots have a lot more at risk than we do, however. The Comair contract is still vulnerable but as a percentage of the whole, insignificant. In BK, the cheaper we are and considering the mainline pilots will certainly lose control of scope...well, make up your own ending. I still rather be at Comair today than code sharing with another dinosaur.

It's not clear to me why, in these desperate times, Delta would even consider farming out any profit at all to another shareholder group. Why do it when you've already got the certificates and infrastructure in place? As we get closer to bankruptcy, it seems like good shareholder stewardship to me to keep every penny of profit on the property. They could try to stand up another wholly owned like US Airways did, staff it with furloughees and divert all the CL-700s and 900s over there to keep it all in house but the start up costs would be prohibitive now. Another certificate, layer of management, maintenance, training...I'm getting dizzy.

 

[N2264J]

Allright guys take it over to the regional page please.

Why? When Delta bought Comair we had already achieved and surpassed the DOT's definition of major airline ie 1 billion in annual revenue.

 

[FurloughedAgain]

N2264J

Originally MidAtlantic was supposed to have been a new wholly owned. Obviously they shared your opinion of the challenges of starting a new company because today, MidAtlantic is a division of mainline. (not much different than Song, but fenced from the rest of the company)

As far as your question regarding outsourcing to companies like Chautauqua, Skywest, et al' and your assertion that outsourcing diverts profits, you and I are going to have to disagree.

Remember that the fee-per-departure system is a wet-lease. Delta essentially wet-leases 50 seats. Once they are the leasee of those seats they can do whatever they choose with them.

Obviously they try and sell them. Just as with a Comair RJ or a Delta 757 once those seats are sold Delta collects the cash.

So, all else being equal, a 50 seater at Chautauqua and a 50 seater at Comair generate the same amount of REVENUE for Delta Air Lines.

The question becomes, who has the greaters COSTS for Delta Air Lines.

Chautauqua: Very simply the cost of the "wet-lease" or the fee. Delta has nothing to do with the infrastructure of Chautauqua. They simply send them a check every month and what Chautauqua does with that check is their business. Just as we pay ASA for ground service in Atlanta, so does Chautauqua pay Comair for the use of our ground service in Cincinnati and in other outstations.... but WE bear the cost of keeping that equipment and staff.

Comair: The operating cost of the aircraft plus the cost of the infrastructure of the entire airline... the general offices, maintenance, stores, ground support, ground service vehicles, training... you name it. EVERYTHING. AND, Delta has to make the initial investment to buy/lease new aircraft, facilities, hire new people etc. (with CHQ they simply add a bit to the monthly check)

So what's greater? The Fee or the costs of running an airline? And what is the value that they put on the ability to whipsaw us? Your guess is as good as mine but i'll close with this:

When Chautauqua completes their most recent aircraft order they will be larger (in terms of fleet size) than Comair.

Companies such as Mesa, Chautauqua, and Skywest did not become as large and powerful as they have by offering an inferior product and generating substandard profit for their mainline partners. If companies like Delta, USAir, American, and United did not profit from those relationships they wouldn't exist.

I'd be willing to bet that Delta makes pretty darned close to the same money on the codeshares as they do on the wholly-owneds... and in bankruptcy we might find a lot of our flying heading in that direction.

 

[N2264J]

As far as your question regarding outsourcing to companies like Chautauqua, Skywest, et al' and your assertion that outsourcing diverts profits, you and I are going to have to disagree.

If Chautauqua and Skywest are making any profits at all, that's money that isn't going to the Delta stockholder. I think there's an economic limit to contracting. I submit that Chautauqua took our base in Florida where the yields are low primarily as a replacement for Delta Express. Delta Express was disbanded and some of Comair flying was diverted to where the yields were but Comair still grew.

Of the seven largest "regional" airlines, our cost per seat mile was the least even including the expense of our current contract. It's the business model. Is Chautauqua cheaper? Maybe but we don't know that. What we do know is Comair's benchmark success before the buyout, the largest airline buyout in history. If we, Delta, bear all the costs of keeping equipment, staff, infrastructure, etc. why not amortize or dilute it out over more block hours?

(As a friend, you'd tell me if I started sounding like General Lee wouldn't you?)

 

[FurloughedAgain]

Absolutely Captain. Friends dont let friends act like the General.

 

[General Lee]

Unless I am right---which is most of the time....(not all of the time).


Bye Bye--General Lee

 

[TexaSWA]

Why? When Delta bought Comair we had already achieved and surpassed the DOT's definition of major airline ie 1 billion in annual revenue.

Whatever

 

[FlyBoeingJets]

Stability may be an oxymoron in this industry. It is without a doubt a moving target. Of the big three, Delta looked the best able to weather the "downturn" right after 9/11. Right now AMR looks to be in better shape, at least to me. Look at yahoo financial info for each company. Income statement, cash flow, and balance sheet. Since I'm not a business major I don't understand every line entry but I think the most used terms are plain. Book value, free cash flow, revenue, and operating margins are rough guides to business health. But I have to admit that some of the changes over the last year in the numbers for AMR and DAL don't make sense to me. For example, how did AMR raise it's book value to near zero? And how did JetBlue raise it's cash position so much?

Southwest and JetBlue look the best. Airtran is close behind. But that is a snap shot in time. Will they suffer when Virgin America begins operations and experiences meteoric growth? The deployment of 70 and 90 seat jets will also change the balance of power. Time will tell.

As for the regionals, I can tell from the discussion that their stability is much harder to guage. Regionals make good money and owning one is a hub and spoke carrier's insurance against LCC market gains in bigger markets. There will always be a market for smaller jets in smaller/medium markets...AT THE RIGHT PRICE. Just like the tendency for mainline union employees to shoot themselves in the foot during good times I think there is a danger of wholely owned regionals of doing the same. I hope not. I hate seeing anyone lose their job. Or worse, waiting for an ailing carrier to get better and miss out on better job opportunities.

The biggest non-wage factor that is worrying me is debt servicing. In the income statements for DAL and AMR interest expenses are 6% of their cost of revenue. Southwest's is 1%. CAL is 4%.

DAL spent over $190 mil on interest last quarter. LUV spent $10 mil. For most of the carriers these numbers change a lot quarter to quarter. I wish I knew why. Maybe my amateur evaluation is letting me draw the wrong conclusions. Still, big debt is scary and will be a burden for years to come. It will encourage new carriers to start up if the cost advantage for a low debt carrier makes sense.

Stable carrier? I vote FedEx and UPS.