This Week in Airlines
by Holly Hegeman (TMF Wings)

Dallas, TX (May 11, 1997) -- Foolish readers, welcome to this week's edition of the TMF Wings' Weekly Update. This week saw the markets continue to rise, with thanks going to two main items on the weekly agenda. First, Federal Reserve Chairman Alan Greenspan appeared to indicate in his latest comments that an interest rate hike might not be imminent. (But who knows? I think they will go with another 1/4 point rise.) Second, the market jumped 51 points on Thursday after a proposed cut in the capital gains tax was announced.

However, the mood on the Street still seems to be a cautious one as analysts seem to be divided on whether the Fed will pause before moving again. Many argue that regardless of the next move, the stock market's recent rebound has taken prices to a level where risks likely outweigh rewards over the near term. [Translation? They too are getting those Ratty Old Bear Suits out of the closet and are taking them to the cleaners.]

With wholesale and retail price, industrial production and housing starts reports all due next week and the Fed's May 20 meeting drawing closer, most analysts think the market will continue this volatile pattern, living from report to report. We think this pattern will continue to affect our Motley Flyers as well.

On the week, we had about the same number of Motley Flyers up as were down, and we had a good number who were flat on the week.

US Airways Announces Major Changes

As expected, US AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> announced major cost cutting measures this past week. Now, remember, what happened on Wall Street when a company -- especially one headed by Stephen Wolf -- announces things like lay-offs, parked airplanes, and shut-downs in service? BBBBBBZZZZZT. Time's up! You guessed it. The market ate it up. Well, at least on Thursday, the day the changes were announced, when the stock gained a nice 8.7% in one day to close at $34 1/2. Even though the stock slipped a bit on Friday, it still managed to close up 1% on the week to close at $33.

So just what did US Airways announce? It will cut back flying by 6.5% and ground 22 old jets. US Airways plans to halt service to its top money-losing destinations: Cincinnati, San Antonio, Albuquerque, N.M.; Austin, Texas; Bangor, Maine; Daytona Beach, Fla.; Islip, N.Y.; Melbourne Fla.; and Newburgh, N.Y.

It will close its Los Angeles-based pilot and flight attendant crew base and phase out maintenance centers in Roanoke, Va., and Greensboro and Winston-Salem, N.C.

Maintenance centers in Pittsburgh, Charlotte, N.C., and Tampa, Fla., will be expanded to absorb the work of the shops in Virginia, Greensboro and Winston-Salem. Those operations will be phased out from September through the end of 1998.

Five old F-28 jets and 17 old DC-9s will be grounded in the next few months. Retiring the F-28s will eliminate one entire fleet type for the airline.

ALPA, which represents the US Airways' pilots in their continuing negotiations, accused management of "introducing a pressure program that could derail an airline that, at long last, was reporting record profits on a consistent basis.''

Well, yes, while I did liken the Wolfman's threats to "shrink" the airline last week to the same threats Bob Crandall spouted in 1993 and 1994 at AMERICAN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> --I think I need to make a point here. The situation that US Airways finds itself in now is a far cry from where American was at that point in time. US Airways needs to get rid of older equipment, they need to cut non-profitable routes, they need to concentrate on their strength on the East Coast and forget the things that they are not making good yields on, and they need to try and rebuild the airline into a much more flexible and leaner operation. All this was NOT the case with American in 93-94.

Everyone knew US Airways needed serious retooling when Wolf came aboard. Now, he is at long last doing just that, or at least setting the stage for the beginning of the retooling. Now, whether his plans are going to be a short-term panacea that makes Wall Street positively giddy with anticipation, or whether they are also long-term winning strategies remains to be seen.

However, I also did not put that much stock in their great results from the first quarter. The weather was very kind to US Airways this year. Yes, there were other factors at work--but did the great numbers they posted signify a major return of profitability to the airline? No. There is still a lot of work to do.

In addition, US Airways, I think, still has to figure out what its identity is. It is a major carrier, but without a true cross-country stature such as American, UNITED AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %>, DELTA AIR LINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> or NORTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NWAC)") else Response.Write("(Nasdaq: NWAC)") end if %> . The British Airways link-up is now a dead issue, and they are not linked with any other major European carrier. Meanwhile the UAL/Lufthansa link-up continues to be a superb match-up for UAL, and Delta code-shares with so many European carriers we have lost count.

In addition, SOUTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> is eating away at the fringes of US Airways' territory on the short-haul side, and I think at some point in the not too distant future, US Airways will cede its position at BWI. Southwest will do nothing but beef up its presence at BWI.

But that points up another problem that US Airways has had. Too many hubs too close together. So, fine, close some of them. Go with Philly and let BWI go, for example.

Point? The airline has a great deal to sort through and restructure. Is Wolf whistling dixie when he says he is going to shrink the airline? Nope. Should the airline be shrunk? Maybe the problem is with that word. No, the airline needs to be restructured from top to bottom.

US Airways is up a nice 41% year to date.

Senor Pena's Palace of Planes...The Saga Heats Up

Okay folks, you remember our cast of characters at Senor Pena's Palace of Planes. (Denver's International Airport for the uninitiated). In one corner we have the bully on the block, United Airlines--which controls a hefty 77% of the traffic in and out of the airport, and which has now brought in its Shuttle operation to the airport as well. In the other we have FRONTIER AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRNT)") else Response.Write("(Nasdaq: FRNT)") end if %> , the small fry underdog, which controls around 3.5% of the traffic in and out of DIA. And hanging around just south of the marbled-floor Palace of Planes, in Colorado Springs, is WESTERN PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %>--the airline with the Las Vegas showgirls and the Colorado resorts on their tails.

Well, there have been some interesting developments since the last time we checked in on this particular group of Motley Flyers. As you may remember, last time we checked in on this fun-loving group, Frontier had filed suit against United with the Justice Department, citing United with unfair and predatory pricing efforts. Then Frontier filed a request to the DOT asking for an exemption to the "slot" restrictions at LaGuardia Airport. Frontier said they wanted to fly three daily non-stops on the LGA/DIA route, a route that United virtually owns.

My reading of the situation at the time was that Frontier had turned up the heat with the Feds and the Feds were listening. So, in a really brilliant move, Frontier CEO Sam Addoms had moved forward with the request for the slots. I called it a gutsy move at the time and I still think it was.

Well, let's look at what happened in the last week or so.

First, United filed a suit with the DOT this week, accusing Frontier of waging an "unrelenting campaign of mischaracterizations, misrepresentations, and misstatement" aimed at reintroducing goverment interference in the market place at the expense of consumers". My read? I think UAL is getting a bit antsy at the attention the DOT is paying to Frontier and its claims.

But hey--this is just the tip of the proverbial iceberg in this ongoing soap-opera. Meanwhile Western Pacific announced what had been expected -- that they are moving the majority of their flights from Colorado Springs and up to DIA. But wait, that's not all. The airline, thanks to some superb lobbying efforts by CEO Robert Peiser, convinced the Colorado legislature to make available some $5 million to the airline -- an incentive of sorts. (Actually the bill signed by the Governor on Friday will allow the city of Denver will tap into part of a $5.5 million fund that will be used to guarantee loans for the carrier.)

Whew. So now the state, which detests the fact United has a stranglehold on DIA, (and more importantly on DIA fares) has told WPAC they can get $5 million if they move there. Well, so what about Frontier?

Of course, the first thing you might be tempted to think is....okay, Frontier and Western Pacific will merge and they can then both survive. Wrong! In February, after rumors began to circulate about a possible merger, Frontier's Board of Directors adopted a "poison pill" strategy to prevent just such a thing from occurring.

So, as of June 29, all three of these Motley Flyers will be flying out of DIA, and well, as we say in Fooldom, let's get ready to rumble!

United Airlines ended the week flat, closing at $73 3/4. Western Pacific was also flat on the week, closing at $6 1/2. Frontier had a stellar week, propelled by a great April traffic and load figure report. The stock was up 15% on the week to close at $3 3/8.

Watch out! The Mechanics Are Restless!

While we have talked in the past few months about the on-going ill-will between AMERICA WEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AWA)") else Response.Write("(NYSE: AWA)") end if %> and its mechanics, it is clear that AWA is certainly not the only carrier that is undergoing problems involving mechanics. Activity this past week heated up with several carriers involving those folks who make sure the blades keep rotating correctly and those brakes stop us before we run into the gate.

Friday, mechanics at CONTINENTAL AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI/B)") else Response.Write("(NYSE: CAI/B)") end if %> and Continental Express Airlines announced they are filing a petition with the National Mediation Board for representation by the Teamsters Union.

As is the norm, mechanics will have to vote on whether to join the union before it will become official.

However, a news release issued by the union says, ``An overwhelming majority of the approximately 5,000 mechanics have indicated support for the job security, better wages and benefits and respect on the job that a Teamsters contract can mean.'' [Well, then again, what would we expect the union to say?]

Continental pilots are currently in negotiations with management on a new contract.

Bottom line? Yep. We can be pretty sure that Continental's costs are going to rise as a result of both of these. But then, we've known this for some time. Wall Street was also unfazed by the announcement of the mechanics, as the stock gained a nice 5% on the week, to close at $34.

(All of you who went out and plunked down money on Continental when yours truly made it her Foolish Fave going into 1997 can just thank me in a small way -- just send me half your profits when you go and sell your stock!)

Mechanical Difficulties at Delta

No, we are not talking about the livery. We've talked enough about that! My sources continue to indicate that the mechanics at Delta are not a happy bunch. The new wage and benefit package the company threw at them is looked upon as a joke, and the move to get union representation there is heating up as well. While there have been attempts in the past to do this, the company has always managed to short-circuit the efforts. I would not be surprised if the movement is successful this time. Stay tuned.

Bathtubs Cited by Airline CEO as Dangerous

And, this week, I would like to leave you with a bit of wisdom gleaned from none other than Herb Kelleher, CEO of Southwest Airlines.

In a press briefing that was held prio to the opening of the Air Transport Association's (ATA) Engineering, Maintenance and Materiel Conference which was held here in Dallas this past Monday, there was a rather long discussion with Herb and Carol Halett, President of the ATA, about a number of different safety issues. Needless to say, the conversation and comments were serious, especially in light of the news regarding the TWA and ValuJet crashes that had been made public the day before.

But then there was a long silence.

Finally, Herb spoke up and said, "Just remember this." He took a long drag off his cigarette and looked intently at the small group assembled at the conference table. "More people die getting in and out of bathtubs every year than are killed in airplane crashes."

Thank you, Herb.

Weekly Market Wrap-Up

Okay, we got no, none, NADA, negative comments on our new format this past week that we used to list all the weekly stock percentage gains and losses. So, once again, we will use the same listing format we used last week.

Re: "NADA". Yes, my thanks to three eagle-eyed readers who pointed out to me that it is in fact, "Nada", and NOT "NATA". Whew. So, VOILA! we stand corrected!

Weekly Performance, Rank by Percent Change over Previous Week

        Closing Price   Closing Price    Percent
Symbol     05/02/97        05/09/97       Change

TOWR         2  7/8         3  7/16         20%
FRNT         2 15/16        3  3/8          15%
MAIR        12  5/16       13  1/4           8%
ACAI        13  3/4        14  3/4           7%
CAIB        32  1/4        34                5%
KLM         30             31  1/4           4%
ASAI        21  3/4        22  7/16          3%
ATLS        28  3/4        29  5/8           3%
WLDA         8  5/8         8  7/8           3%
HA           3  5/8         3 11/16          2%
BAB        111  3/4       113  5/8           2%
U           32  5/8        33                1%
COMR        20  3/8        20  1/2           1%
AIRT         4  5/8         4  5/8           0%
AMTR         9  1/8         9  1/8           0%
FDX         54  1/4        54  1/4           0%
JAPNY        8  1/4         8  1/4           0%
MEH         43  3/4        43  3/4           0%
SKYW        12  3/4        12  3/4           0%
WPAC         6  1/2         6  1/2           0%
UAL         74             73  3/4           0%
CEA         31  1/8        31                0%
VJET         7 11/32        7  5/16          0%
DAL         95  1/2        94  5/8          -1%
NWAC        40  7/8        40  1/2          -1%
PAA          8  1/8         8               -2%
AWA         15  1/8        14  7/8          -2%
ABF         35  1/2        34  7/8          -2%
ALK         25  1/4        24  5/8          -2%
TWA          7  3/8         7  3/16         -3%
AMR         95  1/8        92  5/8          -3%
MESA         5  7/8         5 11/16         -3%
RENO         7 11/16        7  3/8          -4%
LUV         27  7/8        26  5/8          -4%
AAIR         6  1/8         5  1/2         -10%
VNGD         1 47/50        1 20/29        -13%

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Thanks everyone and as always, have a good week.

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