flying mantis
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Thought this was an interesting read:
An excerpt from the PlaneBusiness Banter - 04/04/08
An excerpt from the PlaneBusiness Banter - 04/04/08
The Titanic Watch Gets Really Busy
Editor's Note: I was going to re-edit this, given the events of Friday night, but hey, after re-reading it, I figured it was better to leave things as they were.
This industry now finds itself in one sad state of affairs. And hey, listening to Lehman Brothers' analyst Gary Chase didn't help my mood much last week out in Phoenix as he made the statement that "With [the effect of] fuel, it's like this is three recessions at once," he said. "And then, we also have a recession."
Great.
Needless to say, between the time I first mapped out our revival of our "Titanic Watch" two weeks ago and this week, some of the airlines on the list couldn't wait. They just went ahead and hit the ocean floor with a sickening thud.
There's really no secret in trying to figure out what is important in this current environment. As we have written here before -- it's cash. But right behind cash is an airline's fuel burn, and/or the airline's aircraft ownership costs.
This point was made clear a few weeks ago when Merrill Lynch analyst Mike Linenberg put together his chart showing just which two airlines would still be profitable with oil at $110 a barrel. That odd couple? Southwest Airlines and Allegiant. Yes, Allegiant. The airline that flies those gas guzzling MD-80s.
Why? Because right now Southwest has the drop-dead fuel hedges and Allegiant has the low aircraft ownership costs. Or to put it another way, if you don't pay much for an airplane, you can run through a lot of fuel before you get up to the same ownership costs of a brand spanking new Boeing 737.
As Gary Chase also pointed out last week (and we talk more about in our column this week), if you have older aircraft, it's much easier to manipulate your capacity because you can park them. You can cut utilization. It's not like you're parking new expensive metal. So as the cost of fuel goes up you can pull back on capacity fairly easily.
But if you have a lot of nice new "fuel efficient" aircraft -- you have to keep flying the hell out of them to cover your costs of ownership. And well, that then causes you to burn more fuel, and here we go.
I thought about this when I read a long story in MarketWatch Friday in which the traditional argument was made that the airlines that have higher maintenance costs, older aircraft, and higher fuel costs were the ones that had potentially the biggest problem -- in a high fuel environment. But as Gary reminded me last week, the other side of that argument, obviously, is how much is the airline paying for the airplane?
So before another list member decides to leave us, it's time to unveil the PlaneBusiness Titantic Watch. Note: List members are not necessarily listed in the order in which they could find themselves having to ask for third party support, i.e., bankruptcy.
As was the case in the past, by placing an airline on this list, we are saying that financially, the airline has issues that put the continued operation of the airline at risk.
Skybus
If reports we hear can be believed, Skybus is probably looking at a shutdown at any minute. We began to hear more chatter towards the end of this week that problems here were either going to result in a substantial pull-down, or a complete closure.
After the airline's CEO left last week, supposedly going back to his book writing, this week the airline's vice president of operations, Bud Sittig, left the building.
Never a good sign. But then again, this one has had ominous signs all over it since it opened the doors.
As our guest columnist pointed out in a recent column here in PBB, Skybus not only has problems with its pricing and route strategy, the airline was probably doomed from the start because of its decision to base itself in Columbus. We said when the airline first announced it was going to fly that it made much more sense for the airline to base itself in a much larger market. I still think if an airline of this type set up shop at DFW International, for instance, that it could cause some serious havoc.
But no -- because part of the money behind the airline was based in Columbus, that is where it was headquartered and that is a big, big, stumbling block to have to overcome.
We don't see the airline lasting much longer.
Sun Country
The airline has already furloughed nearly 30% of its pilots -- saying that they are going to bring them back in the fall. The airline also announced this week that it is going to cut unprofitable routes, and sublease two of its aircraft over the summer. Over the summer? So then you are going to bring them back in the slowest time of the year?
Nope. This one is definitely listing.
Virgin America
The question here is this: What is distinctive enough about this airline's business plan that it can extract more money from potential investors to keep it afloat?
Clearly, if this airline was named "No-Name Airlines" the writing would already be on the bankruptcy papers.
But because it has "Virgin" in its name, you have to believe that the powers that be of the Virgin Group are going to do whatever it takes to put more resources into the product.
But that doesn't take away from the fact the airline has to be losing money at a tremendous rate. We already talked here about how the airline is trying to keep its DOT financial information from being released. There's only one reason for this attempt -- the numbers are bad.
In addition, the anecdotal information that many of us continue to receive in regard to the airline's loads continues to affirm that the airline is posting very marginal load factors.
Add to that the cost of "new metal" as we were just discussing, and low margin trans-con flying, on top of record fuel costs, and the numbers have to be rather hard to swallow.
So my bet on this one is this. The only thing that will keep this one flying longer than it should is the ego power attached to the brand name. How valuable that is, in terms of the ability to find more investors to chip in to the cause, will be the factor that determines the airline's eventual longevity.
PART II Below:
An excerpt from the PlaneBusiness Banter - 04/04/08
An excerpt from the PlaneBusiness Banter - 04/04/08
The Titanic Watch Gets Really Busy
Editor's Note: I was going to re-edit this, given the events of Friday night, but hey, after re-reading it, I figured it was better to leave things as they were.
This industry now finds itself in one sad state of affairs. And hey, listening to Lehman Brothers' analyst Gary Chase didn't help my mood much last week out in Phoenix as he made the statement that "With [the effect of] fuel, it's like this is three recessions at once," he said. "And then, we also have a recession."
Great.
Needless to say, between the time I first mapped out our revival of our "Titanic Watch" two weeks ago and this week, some of the airlines on the list couldn't wait. They just went ahead and hit the ocean floor with a sickening thud.
There's really no secret in trying to figure out what is important in this current environment. As we have written here before -- it's cash. But right behind cash is an airline's fuel burn, and/or the airline's aircraft ownership costs.
This point was made clear a few weeks ago when Merrill Lynch analyst Mike Linenberg put together his chart showing just which two airlines would still be profitable with oil at $110 a barrel. That odd couple? Southwest Airlines and Allegiant. Yes, Allegiant. The airline that flies those gas guzzling MD-80s.
Why? Because right now Southwest has the drop-dead fuel hedges and Allegiant has the low aircraft ownership costs. Or to put it another way, if you don't pay much for an airplane, you can run through a lot of fuel before you get up to the same ownership costs of a brand spanking new Boeing 737.
As Gary Chase also pointed out last week (and we talk more about in our column this week), if you have older aircraft, it's much easier to manipulate your capacity because you can park them. You can cut utilization. It's not like you're parking new expensive metal. So as the cost of fuel goes up you can pull back on capacity fairly easily.
But if you have a lot of nice new "fuel efficient" aircraft -- you have to keep flying the hell out of them to cover your costs of ownership. And well, that then causes you to burn more fuel, and here we go.
I thought about this when I read a long story in MarketWatch Friday in which the traditional argument was made that the airlines that have higher maintenance costs, older aircraft, and higher fuel costs were the ones that had potentially the biggest problem -- in a high fuel environment. But as Gary reminded me last week, the other side of that argument, obviously, is how much is the airline paying for the airplane?
So before another list member decides to leave us, it's time to unveil the PlaneBusiness Titantic Watch. Note: List members are not necessarily listed in the order in which they could find themselves having to ask for third party support, i.e., bankruptcy.
As was the case in the past, by placing an airline on this list, we are saying that financially, the airline has issues that put the continued operation of the airline at risk.
Skybus
If reports we hear can be believed, Skybus is probably looking at a shutdown at any minute. We began to hear more chatter towards the end of this week that problems here were either going to result in a substantial pull-down, or a complete closure.
After the airline's CEO left last week, supposedly going back to his book writing, this week the airline's vice president of operations, Bud Sittig, left the building.
Never a good sign. But then again, this one has had ominous signs all over it since it opened the doors.
As our guest columnist pointed out in a recent column here in PBB, Skybus not only has problems with its pricing and route strategy, the airline was probably doomed from the start because of its decision to base itself in Columbus. We said when the airline first announced it was going to fly that it made much more sense for the airline to base itself in a much larger market. I still think if an airline of this type set up shop at DFW International, for instance, that it could cause some serious havoc.
But no -- because part of the money behind the airline was based in Columbus, that is where it was headquartered and that is a big, big, stumbling block to have to overcome.
We don't see the airline lasting much longer.
Sun Country
The airline has already furloughed nearly 30% of its pilots -- saying that they are going to bring them back in the fall. The airline also announced this week that it is going to cut unprofitable routes, and sublease two of its aircraft over the summer. Over the summer? So then you are going to bring them back in the slowest time of the year?
Nope. This one is definitely listing.
Virgin America
The question here is this: What is distinctive enough about this airline's business plan that it can extract more money from potential investors to keep it afloat?
Clearly, if this airline was named "No-Name Airlines" the writing would already be on the bankruptcy papers.
But because it has "Virgin" in its name, you have to believe that the powers that be of the Virgin Group are going to do whatever it takes to put more resources into the product.
But that doesn't take away from the fact the airline has to be losing money at a tremendous rate. We already talked here about how the airline is trying to keep its DOT financial information from being released. There's only one reason for this attempt -- the numbers are bad.
In addition, the anecdotal information that many of us continue to receive in regard to the airline's loads continues to affirm that the airline is posting very marginal load factors.
Add to that the cost of "new metal" as we were just discussing, and low margin trans-con flying, on top of record fuel costs, and the numbers have to be rather hard to swallow.
So my bet on this one is this. The only thing that will keep this one flying longer than it should is the ego power attached to the brand name. How valuable that is, in terms of the ability to find more investors to chip in to the cause, will be the factor that determines the airline's eventual longevity.
PART II Below:
