This Week in Airlines
by Holly Hegeman (MF Wings)

Dallas, TX (Feb 10, 1997) -- Foolish readers - lots to report this week, as many carriers reported traffic figures last week. In addition, both World Airways and Vanguard reported quarterly earnings information. And yes, as it is also Valentines Week, this MF Wings' Weekly Update would not be complete without a few slings of the arrow from the resident Fool Air cupid--who, for lack of a better name, we will just call MF LUV.

But first, what happened in the markets in general last week? Well, are you a fan of roller coasters? Like those thrills? The feeling in the pit of your stomach when it feels like the bottom is falling out? The thrill of the exhilaration of the ascent? Well, my Foolish friends, you must have LOVED last week. The stock market was up, was down, was all around. And Friday, that was true all day, with the market plunging, then finally ending up 82.74 points at the close of the bell. The Dow Jones Industrial Average ended the week at 6857.73, while the Dow Jones Transportation Index ended the week at 2331.50.

And what about out Foolish Friends, the Motley Flock? Of the thirty five stocks we cover here in Fool Air, only 11 were up on the week, with World Airways leading the way as the high flyer -- as the carrier reported its fourth-quarter earnings soared 236%.

World Airways <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WLDA)") else Response.Write("(Nasdaq: WLDA)") end if %>

World posted income from continuing operations of $4.7 million, or 42 cents a share. That was well above the mean estimate for earnings per share of 31 cents, provided by First Call. A year ago, the company earned $1.4 million, or 12 cents a share, from continuing operations.

Including a gain of $150,000, or 1 cent a share, from discontinued operations, the company's bottom line was $4.8 million, or 43 cents a share, in the latest quarter. A year ago, the company had a charge of $2.99 million, or 25 cents a share, from discontinued operations, which resulted in a net loss of $1.6 million, or 13 cents a share. Revenue climbed to $82.3 million from $56.7 million. The market was more than pleased with this news, as World was up 15% on the week, ending the week at 10 3/8.

On the other end of the spectrum we saw Vanguard checking in with their fourth quarter figures and the results were grim, to say the least.

As most of you know, we have been watching Vanguard very closely ever since their CFO departed last June. We put the stock on the official MF Wings' Titantic Watch in July, and it has not shown us any reason to believe that things are changing.

Vanguard <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VNGD)") else Response.Write("(Nasdaq: VNGD)") end if %>

Vanguard Airlines announced fourth-quarter results and reported their net loss for the fourth quarter of 1996 was approximately $12.6 million compared to a net loss of approximately $5.4 million in the fourth quarter of 1995.

Vanguard's net loss for the year ended December 31, 1996 was approximately $24.1 million, as compared to a net loss of $12.2 million in 1995. Total operating revenues for the year ended December 31, 1996 increased 90% to $68.6 million compared to $36.2 million in 1995. Total operating revenues for fourth-quarter 1996 increased 31% to $13.9 million from the same period in 1995.

John P. Tague, Chief Executive Officer and President of Vanguard was quoted as saying, "Clearly, these results are not acceptable, but they should be understood in the context of the Company's major route restructuring on December 21, 1996, which followed a largely unsuccessful expansion initiative during September and October 1996."

Largely unsucessful expansion? I would say that was putting it mildly.

In adddition, two more Board members of Vanguard announced their departure this past week. Not a good sign Foolish investors. I don't care what they say about pursuing other interests and whatever the press release said. Translation? They do not want to go down with the ship and are bailing out.

As far as the stock is concerned, we still follow the stock in Fool Air, although is certainly falls in the category of a "Penny Stock" at this point. The stock ended the week down 6%, closing at 1 13/16.

Traffic

Most carriers reported January traffic figures this past week, and thanks to our newest Foolish Associate, MF Rockies, we now have these traffic reports posted post haste in the Fool Air Airline Industry folder on a daily basis--in addition to other news items of note.

So, as a service to those of you who cannot get in the folder on a regular basis, or who are not connected to AOL, here is a summary of the traffic information that was released this past week.

January Traffic Figures

American Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %>

American Airlines announced that its load factor, increased to 66% in January from 63.6% a year ago.

American said it flew 8.47 billion revenue passenger miles in January, up 6% from the 7.98 billion miles it flew in January 1996.

ValuJet Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %>

ValuJet Airlines reported that the company flew 64.6 million revenue passenger miles (RPMs) and 155.6 million available seat miles (ASMs) during January 1997. The load factor for the month was 41.5 percent and enplanements totaled 137,873 passengers. ValuJet's flight completion rate for the month was 99.8 percent and on-time arrivals within 15 minutes equaled 84.2 percent.

USAir <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %>

USAir Group Inc. reported a 19.6% increase in January traffic and improved load factor.

USAir said it flew 3.09 billion revenue passenger miles in January, compared with 2.58 billion in January 1996. Load factor, climbed to 62.5% from 58.9% a year ago.

United Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %>

United Airlines announced that its January load factor, was 67%, up from 66.5% in January 1996.

United stated it flew a total of 9.16 billion revenue passenger miles in January, up 7.6% from 8.51 billion a year ago.

Continental Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAIB)") else Response.Write("(NYSE: CAIB)") end if %>

Continental Airlines reported January traffic rose 16.5% to 3.49 billion revenue passenger miles, compared with 3 billion revenue passenger miles in January 1996.

Continental said the January load factor, climbed to 64.5% in the latest month compared with 62.9% a year ago.

The airline stated January traffic at its Continental Express unit increased 16.8% to 63.4 revenue passenger miles, from 54.3 miles a year ago. The regional carrier had a January load factor of 43.1%, compared with 45.2% in January 1996.

Alaska Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %>

Alaska Air announced that its January traffic increased 14.1 percent to 722 million revenue passenger miles (RPMs) from 633 million flown a year earlier.

Alaska said capacity during January was 1.205 billion available seat miles (ASMs), 3.0 percent higher than the 1.170 billion in January 1996. The passenger load factor for the month was 59.9 percent compared to 54.1 percent in January 1996.

Alaska Air's subsidiary, Horizon Air also reported an increse in January traffic of 2.0 percent to 67 million RPMs from 66 million flown a year earlier. Capacity for January was 119 million ASMs, 1.3 percent higher than last year's 117 million. The passenger load factor for the month was 56.8 percent, compared to 56.4 percent last January.

Northwest Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NWAC)") else Response.Write("(Nasdaq: NWAC)") end if %>

Northwest Airlines Inc. reported its systemwide passenger load factor in January rose 1.5 points to 67.4 percent from 65.9 percent with domestic load factors for the month gaining 0.2 points to 62.3 percent from 62.1 percent. International load factor rose 3.8 points to 75.4 percent from 71.6 percent.

Northwest said its January available seat miles rose 4.6 percent to 7.75 billion from 7.42 billion. Revenue passenger miles gained seven percent to 5.22 billion from 4.88 billion.

America West <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AWA)") else Response.Write("(NYSE: AWA)") end if %>

America West Airlines announced the percentage of available seats filled on flights last month was 62.9% compared with 64.1% a year earlier.

America West reported January traffic rose 19.3% to 1.24 billion revenue passenger miles from 1.04 billion miles a year earlier.

TWA <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %>

Trans World Airlines announced its load factor was 62.1 percent in January, up from 58.9 percent a year ago with revenue passenger miles for the month reporting in at 1.9 million, up from 1.8 million a year ago, while available seat miles were 3.0 million, the same as a year ago.

Atlantic Coast <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %>

Atlantic Coast Airlines reported its load factor was 37% last month, down from 38.5% in January 1996 and said it flew 23.5 million revenue passenger miles in January, up 13.6% from 20.7 million miles a year ago.

Southwest Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %>

Southwest Airlines load factor rose to 60.2% in January from 53.7% in the year-ago month.

Southwest announced that traffic rose 24.4% to 2.15 billion revenue passenger miles from 1.73 billion miles in January 1996.

Mesa <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MESA)") else Response.Write("(Nasdaq: MESA)") end if %>

Mesa Air reported that the percentage of available seats filled on its flights last month rose to 51.3% from 50.3% a year earlier.

Mesa's traffic increased 0.1% to 105.5 million revenue passenger miles from 105.4 million miles flown in January 1995.

Tower Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOWR)") else Response.Write("(Nasdaq: TOWR)") end if %>

Tower Air Inc. announced Thursday it flew 2,414 block hours in January, down 22.9% from a year ago, attributing its decline in block hours to reductions in international scheduled service, including its withdrawal from the India market.

Tower said load factor, or percentage of seats filled, in January fell to 67.7% from 68.7% a year earlier, while traffic fell 23.7%.

Mesaba <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAIR)") else Response.Write("(Nasdaq: MAIR)") end if %>

Mesaba Airlines reported passenger load factor in January was 44.5 percent, up from 44.3 percent a year ago, with revenue passenger miles reporting in at 32.1 million, up from 27.6 million, while available seat miles were 72.0 million, up from 62.3 million.

Reno Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RENO)") else Response.Write("(Nasdaq: RENO)") end if %>

Reno Air announced its January traffic rose 19% from a year ago - but load factor, or percentage of seats filled, in the month fell to 57.3% from 60.1%.

Reno Air stated it was hurt by floods in Reno and storms that hit the Pacific Northwest and California.

Valentine Slings of the Arrow

Before we close this week's update, MF LUV, the virtual fictional Fool Air cupid (and obvious alias of MF Wings), would like to pass along some Valentine's Messages and gifts to those we love so much in this cut-throat and vicious industry.

Roses are red, violets are blue,
If you have reservations on American after February 14th,
Woe be to you.

The issue of American and the APA is one that we obviously cannot even begin to touch on here in the update. Just check in with us in Fool Air for the latest. But suffice it to say, a big box of Godivas go to Robert L. Crandall, (although I'm sure he would prefer a bagel with peanut butter), CEO of American Airlines, and a large bunch of red roses to the members of the APA.

Hey, like the official street signs in Irving, Texas say..."Be Kind." Yep--that's right. They don't say.."Watch for Children." They don't say "Deer Crossing." They don't even say "Send Jerry Jones Money." Nope--they say.."Be Kind." So--we're being kind to everyone here this week.

Roses are yellow, shamrocks are green,
Frontier is out to prove that United Airlines is just plain MEAN.

Next, I send a big bunch of yellow roses to Sam Addoms, CEO of Frontier Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRNT)") else Response.Write("(Nasdaq: FRNT)") end if %>. One of the most personable and intelligent CEO's in this industry, Addoms has kept Frontier in better financial shape than most of the smaller low-fare carriers over the last six months. As most of you know, last year the smaller carriers suffered a double-whammy--the after-effects of the ValuJet crash (fewer pasengers flew the smaller carriers as a result of the crash) and the rise in jet fuel cost. As a result, earnings for all the low-fare carriers suffered a dramatic plunge the second half of the year.

Frontier has not been unscathed. After rising nearly 32% last year, the stock plummeted, and now stands at 3 3/16. The stock is down 2% on the year, after having lost 53% of its value in 1996.

Three weeks ago, Addoms held a press conference that denounced United Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %>--saying the carrier was guilty of predatory pricing. United has a strangle-hold at Denver's International Airport, where Frontier is based, and for the most part in the past, has let Frontier live off the small scraps somewhat related to its mammouth route structure. The two carriers had really not had a hostile relationship.

However, last fall UAL announced they were bringing their "Shuttle by United" concept to Denver this spring. That's fine, but Addoms claims that UAL has been selectively lowering fares on flights that directly compete with Frontier.

Before, talk like this would have fallen on deaf ears. However, The Department of Transportation apparently feels there may be some merit. Predatory pricing seems to be on the DOT's radar. The DOT confirmed this past week that it has met with a number of smaller airlines to discuss their concerns about predatory pricing by the major airlines. Both Valujet <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %> and Frontier acknowledged they had met with them--United said that they were not contacted.

In addition, Western Pacific <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %> --which has up until this point--only flown out of the Colorado Springs airport, has announced they are going to start flying out of Denver as well.

My point? Sam Addoms has more than a few alligators to contend with. Whether Frontier can weather the storm successfully is not known at this time--but we send a huge virtual bunch of yellow roses as acknowledgment of the effort of Sam and his folks out in Denver. They are a cut above most.

Peanuts are salty, cookies are sweet.
So why does Southwest's stock act more like a trick--and not like a treat?

To our many friends at Love Field, I send a large box of chocolate covered peanuts (what else?) and a bottle of Wild Turkey for Herb. (BTW--what does Colleen drink? Someone write me and tell me!) Five years ago, Southwest Airlines came up with a truly innovative concept as a way to to motivate employees to do the best they could in three key areas--ontime performance, baggage handling, and number of customer complaints. The company actually created an award and called it the Triple Crown. If Southwest placed first in all three categories, according to the DOT's Air Travel Report for the year, then the company would honor the employees.

Southwest, for the fifth year in a row, has indeed finished first in all three categories, and as a result, a new Boeing 737, which will bear the signature of every Southwest Airlines employee, will be dedicated to the employees this summer. This is just one more indicator of what I consider to be the best-managed airline in the country.

Now, of course, I can hear you stockholders whining from here. "But what about the STOCK?" Yes, Foolish investors, Southwest stock has been stagnant for about a year, after it shot up to over 33 last March, it has dropped back and now has been mired around 22-24 for most of the last 10 months. Why? Well, first Southwest incurred added expenses with its move into Florida, and its move into the Northeast. In addition, maintenance expenses were heavier than expected for 1996. However, the biggest fly in the ointment, and the reason the stock has remained so stagnant, is the effect of rising fuel prices. Southwest, because of its point-to-point fast turnaround schedules, is more affected by the rise in fuel prices than larger carriers. Why? Simple. They take off and land more. They burn up more fuel.

This past quarter saw Southwest pay an additional $28 million to cover the cost of fuel. Last quarter was no different. And when you have low fares to begin with, and you don't have those high-yield passengers that the big boys enjoy, well, you can see the problem.

Translation? Wall Street sees continued pressure on earnings because of the higher costs. Translation? Stock is seen as fairly priced at this time.

I should also mention that Southwest CFO Gary Kelly has already said that fuel costs will continue to hamper first quarter earnings, but he also announced that the airline had started on a number of cost-reduction plans that would help defray these increased costs for the first half of 1997. Kelly also said he hoped fuel prices would begin to drop a bit after the end of the winter season, when the demand for heating oil drops. Of course, MF Wings had to wonder? If this does not happen, will Southwest start raising fares?

Kelly had said that he hoped this did not have to happen. We Foolishly thought it just might. And guess what?

According to our resident yield expert in Fool Air, Stokaholic, Southwest just raised fares this past week. Intra-Texas walk-ups were raised $2 (about 2-3%) and 7 and 14 day advance purchase fares were raised $5-$10 on long-hauls.

If you are a Southwest investor, this is good news, as usually increases by LUV are matched by other carriers and they stick.

Southwest closed flat on the week, ending at 22. The stock is also flat on the year. Do we think this translates into a "Code Blue"? Nope. Just a temporary lull. We still like Southwest long-term.

Roses are pink, violets are blue.
Continental created their own award...and won it...too!

A stylish bouquet featuring Birds of Paradise for the old Proud Birds with the Golden Tails as we continue to like what we see Gordon Bethune and the troops doing at Continental Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI/B)") else Response.Write("(NYSE: CAI/B)") end if %> in Houston. The company is racking up awards left and right, and I get the sense that these guys are just in that "Take no Prisoners" mode. And hey, you have to love their competitive spirit. They decided to come up with their own equivalent of the Southwest Triple Crown--only they call theirs the Grand Slam Award. (What do they say--imitation is the sincerest form of flattery?) So, yes, they had to announce this past week (couldn't let Southwest get all that publicity you know) that they were the only airline with a top-three finish in each of FOUR key performance categories that are tracked by the DOT. I love it.

What's next? The Triple Grand Slam One Up Award, where some airline is ranked above the last two, but below the first three, in 5 of the categories?

Continental ended the week up 3%, closing at 28 5/8. The stock is up 1% on the year. We continue to be bullish on Continental stock.

That's it for a VERY long MF Wings' Valentine Version of the Weekly Update. Remember--if you would like to receive a copy of this update in your own little e-mail box, just send me a note--MF Wings @aol.com, and we will make sure you are on the list.

Thanks to all who have asked to be placed on the list, and thank you even more for the great notes and letters you have sent along.

Have a great week everyone.

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