This Week in Airlines
by Holly Hegeman (TMF Wings)

Dallas, TX (May 25, 1997) -- Foolish readers, here is hoping you are enjoying your Memorial Day Weekend. While we remember to take a moment to remember the more somber reason for this holiday, we certainly cannot dismiss the other important significance of this weekend. In case you missed it -- Mother Nature's built-in alarm clock just went off and announced "It's SUMMER!" TMF Wings might just have to drag the Foolish Barco-Lounger out on the balcony and take in some rays here before the day is over.

Where has the year gone, Foolish readers and investors? Just 30 some days from now we will be giving you the second quarter scorecards for our Motley Flyers. I guess this all must mean we are having some kind of fun, because time has certainly flown by this year. So, the important Foolish question of the day is this -- are you having fun yet?

TMF Wings' Market Watch

Well, if you owned stock in COMAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMR)") else Response.Write("(Nasdaq: COMR)") end if %>, FRONTIER AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRNT)") else Response.Write("(Nasdaq: FRNT)") end if %>, PAN AM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PAA)") else Response.Write("(AMEX: PAA)") end if %> or MIDWEST EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEH)") else Response.Write("(NYSE: MEH)") end if %>, you really had fun this past week as all four carriers posted nice double-digit gains on the week. Right behind them was a group of 16 carriers that posted single digit gains. In fact most of the 36 carriers we follow in Fool Air posted gains on a week that saw the Dow Jones Industrial Average and many other indexes hit new all-time highs on Friday.

However, given the lighter than usual trading on Friday (have any of you ever seen a Wall Street trading floor at noon the day before a long weekend? that's right -- practically deserted as they all head to the Hamptons or their favorite Connecticut cottage) it will be interesting to see if this buying frenzy continues into this next week. It just might. Yes, the Ratty Old Bear Suit is still in the trunk at the TMF Wings' household.

The Dow industrials jumped 87.78 points on Friday, or 1.2%, to close at 7345.91 - about 12 points above its May 15 record close. For the week, the DJIA advanced 151.24 points, or 2.1%.

The Nasdaq Composite Index jumped 17.12, or 1.3%, to give the technology-laden index its first new high since Jan. 22. Also setting closing highs: the NYSE index rose 5.62, the S&P 500 soared 11.37, the Russell 2000 small-stock index gained 4.21, and the Dow Jones Transportation Average climbed 32.68. Though not in record territory, the Amex composite rose 4.21.

In terms of Treasury Bonds, the long bond edged up 1/32 to yield 6.98%. Again, as we have talked about in the past, this is an important indicator to keep your eyes on--as the higher the yield on these bonds go, the more attractive bonds become and the less attractive stocks become. If you will remember, the yield was way up there in the 7.18 range after the minor correction we had in March. But for now, it remains below the important 7% level.

Big Movers--COMAIR Reports Strong Quarterly Earnings

We had three airlines post a 14% gain on the week--all for very different reasons. First up? Comair . The commuter airline that is affiliated with DELTA AIR LINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> posted spectacular quarterly numbers this past week. The carrier reported fourth quarter net income of $19.4 million, or $0.44 per share on revenues of $149.0 million. This handily beat the First Call Analyst Consensus estimate of $0.40 a share. Net income for fiscal 1997 was a record $75.4 million or $1.70 per share on revenues of $563.8 million, which represents a 25% increase in earnings per share from last year.

Comair also reconfirmed its common stock repurchase plan where common stock may be purchased from time to time as market conditions dictate. According to previously authorized repurchase plans, the Company may purchase up to approximately 4.8 million shares of its common stock in the open market or through privately negotiated transactions.

Comair, which was one of the Foolish Feeder Four that we had great hopes for at the beginning of the year, has not had a particulary good year in terms of stock performance. But then again, we were looking longer term-not three or four months. The carrier did suffer a crash the beginning of the year, but there have also been questions as to how the new Delta Express operation would impact Comair. The carrier did announce a new code-sharing agreement with AIRTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAIR)") else Response.Write("(Nasdaq: AAIR)") end if %> in the last few weeks however, (this agreement does not infringe on its Delta affiliated operations) and the carrier seems, at least with the announcement of these earnings, to be holding its own quite nicely.

Comair closed the week up 14% to end at 2$4 3/4. Year to date the stock has gained 3% on the year. For those of you who are interested, the other Foolish Feeder Four stack up this way for YTD gains--ATLANTIC COAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %> --up 22%, ATLANTIC SOUTHEAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASAI)") else Response.Write("(Nasdaq: ASAI)") end if %> up 17%, and MESABA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAIR)") else Response.Write("(Nasdaq: MAIR)") end if %> down 11%.

Frontier and Western Pacific--

A Shot-Gun Marriage with UAL's Finger at the Trigger

Foolish readers, the ongoing saga of Pena's Palace of Planes continues. As we had reported previously--WESTERN PACIFIC AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %> announced a few weeks ago what had been rumored for some time -- that it was packing up and moving most of its flights to Denver International Airport from Colorado Springs. In the meantime, FRONTIER AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: Frontier)") else Response.Write("(Nasdaq: Frontier)") end if %> continued its assault on UNITED AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %>, picking up steam when it petitioned the DOT for slots at LaGuardia Airport, thus allowing the carrier to fly non-stop flights from Denver to LGA -- a route that UAL practically owns.

Frontier's fight on behalf of the smaller carriers has not gone unheeded -- and the government held hearings the week before last to hear both sides of the issue. Needless to say United Airlines thinks that if the government does anything it is nothing more than re-regulation. Frontier and other small carriers claim they just want a chance to compete on an equal footing. As Herb Kelleher, CEO of SOUTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> said, in a comment about all of this in a press briefing after Southwest's annual meeting two weeks ago --"The line has to be drawn somewhere. Maybe all of this will succeed in finally getting that done."

Well, in the meantime, rumors of a merger between Western Pacific and Frontier have been circulating for some time. Unfortunately there seems to be no alternative -- other than both of the smaller carriers beating their brains out while UAL matches their fares until the cows come home.

In fact, I need to make a correction here to something I said in an earlier update. In an earlier update I said that Frontier's Board had passed a "poison pill" measure in February in an effort to preclude any kind of merger with another carrier. That was simply a mistake. What I meant to say was that it would preclude any kind of "front-end" deal or hostile take-over of Frontier. It was an effort to protect Frontier shareholders. But it certainly was not done to preclude any kind of "friendly" merger.

And that is exactly what is being seriously worked out right now, according to sources on both sides of the agreement. Both boards met this past week, and it appears that a merger is indeed in the making. As both carriers are strapped for cash, it would basically be a stock swap, with no cash changing hands. It also appears that the management of Western Pacific will take over the management of the third entity, which would retain the name "Frontier."

This would leave the management of Frontier out to pasture. This disturbs us, as while we have nothing personal against Robert Peiser, CEO of Western Pacific, I do think the management of Frontier is the best of any smaller carrier, or most large carriers out there for that matter. CEO Sam Addoms has done a great job with the carrier, navigating it successfully through a continued set of industry-wide set-backs (the after-effects of the ValuJet crash), aggressively going after United and the anti-competitive tactics they employed and taking an active role in speaking out on behalf of the smaller carriers, and setting a standard for company pay and benefits that should be required in other smaller carriers. Sam Addoms makes $84,000 a year. He pays his pilots and other workers more than most smaller carriers, while management works for much less.

Contrast this with Western Pacific, where Robert Peiser was given a $300,000 bonus, has a $300,000 salary, and where Chairman Ed Beauvais continues to draw a $350,000 salary.

Where would you rather have your money invested?

Anyway--a merger appears to be on the horizon and Frontier's stock was the beneficiary this week, as the stock ended up 14% on the week to close at $3 9/16. This was actually down from Tuesday, when the merger talk hit the press big-time. The stock gained 22% on Tuesday on very heavy volume. Oddly enough WPAC stock was flat Tuesday, and only ended up 2% on the week, closing at $6 1/8.

Midwest Express Continues to Rock and Roll

Remember we told you that MIDWEST EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEH)") else Response.Write("(NYSE: MEH)") end if %> declared a stock split in April? Well, we expected a run-up of the stock, as the May 12th deadline for shareholders of record approached. But, Foolish readers, the run-up shows no sign of stopping -- stock split, or no stock split. Shareholders will receive one additional share of common stock for every two they held on May 12th. The new shares will be issued this Wednesday, May 28th. The stock continued its ascent this past week, as it gained 10% to close at $48 5/8.

Year to date, Midwest Express has turned in a great performance this year, posting a 35% gain.

Pan Am Takes Off with a 14% Gain

Marty Shugrue's troops posted a nice 14% gain on the week on no earth-shattering news of note. PAN AM (PAA: AMEX) The airline, as we reported last week, is adding flights, and adding capacity, with the 727's they had wet-leased from Nation's Air going bye bye and more Airbus aircraft coming on board. This stock has been interesting to watch this past year, as it really moved before the Carnival/Pan Am merger deal was announced. There may be something else going on here that is reflected in this move this past week -- since the earnings the carrier announced recently were really not enough to get this excited over.

The stock closed at $8 3/16, up 14% on the week. Year to date, Pan Am is up 8%.

Alaska Air CEO Says Carrier Is On Track for a Great Year

ALASKA AIR GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %> Chairman and Chief Executive John Kelly said Tuesday in the Wall Street Journal that the company is "in its best competitive position in years and is "poised for a "profitable" year.

The mean estimate of 10 analysts compiled by First Call looks for the company to earn $2.55 a share in 1997. In 1996, the airline earned $38 million, or $2.05 a diluted share, on revenues of $1.59 billion.

According to Merrill Lynch, Alaska is now No. 1 in market share in 21 of its top 25 routes and has higher yields -- the average a passenger pays to fly a mile -- than its competitors on 22 of its top 25 routes. In the past two years, Alaska's market share has grown in the double digits to more than 70% of the traffic between Alaska and the West Coast and between the Pacific Northwest and Southern California.

Alaska Air was one of our Foolish Faves last year, and it did not disappoint us. It continues to do well, and obviously the major changes the airline put itself through as it changed into a low-fare, high-service carrier (as opposed to a high-fare, high-service carrier) is beginning to really see fruition. The stock was up a nice 5% this past week, closing at $25 1/4. Year to date, the stock has gained 20% on the year.

US Airways--Never a Dull Moment

Whew--I don't even know where to begin with US AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %>. So much to talk about, so little room.

First things first. Did the stock end the week up or down? Flat. It started at $35 and ended at $35 1/8. But there was a whole lot of shakin' goin' on in-between.

First, US Airways announced it would buy back part of the preferred stock held by British Airways on Tuesday.

US Airways' move was in response to British Air's offer in March to sell the T-2 preferred shares unless US Airways elected to purchase them by May 14. US Airways had turned down two prior offers by the London carrier to buy parts of British Airways' stake. The first offer was made last December and the second in February.

US Airways spent $126.2 million to buy all 9,919.8 shares of its Series T-2 stock, as well as all 152.1 Series T-1 preferred shares and 1,940.6 of the 30,000 Series F preferred shares British Air holds.

But then, on Wednesday, British Airways sold its remaining holdings in US Airways. While it had been expected this would happen, British Air took action a little sooner than had been expected.

British Airways sold its remaining 14.5 million shares of US Airways stock for $499 million, or $34.50 a share. That price was down $3.375 from Tuesday's closing price. The block represented 22.5% of US Airways' shares outstanding.

But don't cry for British Airways. It said it expects total proceeds of $625 million from the sale of its entire investment in US Airways, which it acquired at an original cost of $401 million. Add that to the money the carrier estimates it made off the alliance and all and all, BA did quite well with the arrangement, thank you very much.

On Wednesday US Airways also held its annual meeting.

Stephen Wolf, US Airways CEO, told those at the meeting that he would rather spend money buying larger jetliners, expanding the carrier's terminal at Philadelphia's airport, adding international routes and purchasing Shuttle Inc., which flies under US Airways' name between Boston, New York and Washington.

But without union givebacks to get US Airways' costs down, he said, the company has been forced to change course and begin downsizing. As examples, he cited US Airways' recent decision to furlough pilots, close maintenance bases and reservations centers, and drop some unprofitable routes.

Likewise, he said, the announcement of US Airways' repurchase and retirement of $126 million of its stock held by British Airways was "a good use of our shareholders' cash."

Mr. Wolf said US Airways is in early talks with two makers of regional jets -- Canada's Bombardier Inc. and Embraer SA of Brazil -- over a possible order for an undisclosed number of the 50-seat planes. Such an investment in US Airways' wholly owned commuter subsidiaries or even in the fleets of affiliated commuter lines would be a "viable alternative" to buying big jets for the main airline, Mr. Wolf said. US Airways has a provisional order with Airbus Industrie for up to 400 jets, but the airline has said affirming that commitment depends on achieving lower labor costs.

Members of the Air Line Pilots Association, which represents US Airways' 5,000 pilots, presented their suggestions at the meeting as well. ALPA released its own analysis of what the company needs, and it really does not differ substantially from what US Air has said it seeks. "We're not seeking to have the top contract (in the industry)," he said. But the pilots resent "being painted as an obstacle" to US Airways' expansion, he said.

Shuttle Up For Grabs

Just a little side note here. As many of you probably know, the US Airways Shuttle is not owned by US Airways. One of our most observant readers has written me and asked that I touch on this subject.

The Shuttle was originally the Eastern Airlines' Shuttle and then was owned by the Donald, when it flew as the Trump Shuttle. (Is that the most scary thought in the world? Donald Trump--airline CEO? Anyway--I digress.)

So, the situation is this. US Airways has been operating the Shuttle since the banks foreclosed on poor Donald. As we reported earlier this year, the agreement ended on April 10, 1997. There are other airlines that are interested in the Shuttle -- as is US Airways. So, why the delay?

Many possibilities here. There are other suitors besides US Airways, including Continental, American and others. The Shuttle is a very strategic little gem. And thanks to Terry Hallcom, the President of the Shuttle, the operation of the shuttle is now devoid of excess overhead. It is one mean and lean little money-making machine.

So, couple of questions to you Foolish readers. Why hasn't US Airways made a firm bid yet? Delay tactic on the part of management perhaps? And what if they lose it? What would the impact be? What if another carrier picks it up?

Just Food for Foolish thought.

Hawaiian Air Sees Strong 2nd and 3rd Quarters

HAWAIIAN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HA)") else Response.Write("(AMEX: HA)") end if %> whose stock has basically languished of late, is "cautiously optimistic" that it will be "very profitable" in the second and third quarters of this year, John L. Garibaldi, chief financial officer, told the Wall Street Journal this past week.

Garibaldi cited strong bookings for the summer, dropping fuel prices and a surge in tourism as helping the airline. Hawaiian Air said last week that its April traffic rose 16% from a year earlier, pushing its load factor up 1.7 points to 80.4%.

In the year-ago second quarter, Hawaiian Air earned a record $1.54 million, or five cents a share, on revenue of $96 million. In 1996's third quarter, the carrier earned $1.37 million, or five cents a share, on revenue of $101.2 million. Garibaldi wouldn't say if he expects to top those quarterly results this year but expects the airline to be profitable for the entire year.

For 1996, Hawaiian Air posted a loss of $1.53 million, or five cents a share, on revenue of $384.5 million. But the carrier had operating income of $2 million for the year, its first annual operating profit in a decade, Garibaldi said.

Higher Fares will Help to Offset Ticket Tax Effect

Major airlines boosted some domestic air fares by 3% over the weekend last week even as most carriers were offering fare sales on summer travel.

United Airlines was the first to raise fares on seven-day and 21-day advance-purchase excursion fares late last week, but Delta was right behind. Even Southwest, which usually abstains from participating in such price increases, raised fares by $1 on a quarter of its routes.

Dasburg Sees the End of TWA, US Airways "Iffy", and No Need for Consolidation

NORTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NWAC)") else Response.Write("(Nasdaq: NWAC)") end if %> President and Chief Executive John Dasburg said in a luncheon in Minneapolis this last week he does not see any reason for airlines to consolidate.

Dasburg said Northwest, AMERICAN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %>, Delta Air Lines Inc., United Airlines, and CONTINENTAL AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI/B)") else Response.Write("(NYSE: CAI/B)") end if %> are "sustainable on a free-standing basis."

Dasburg also assured himself the position of "Most Liked Person in St. Louis" when he said Trans World Airlines is "probably not sustainable". He also probably didn't make the troops in Virgina very happy as he said he thought US Airways "is iffy."

Maybe Dasburg was just dismayed at the current situation with Northwest's partner, KLM. The Dutch carrier KLM said on Wednesday its net profits fell 57% in 1996-97 as runaway costs outpaced revenue growth and its bottom line was hit by a hefty restructuring charge aimed at boosting future earnings.

KLM also said its president and chief executive Pieter Bouw had announced his resignation, effective the end of August. Bouw and former NWA Chairman Al Checchi were known for their somewhat tempestuous relationship. Dasburg is widely credited for being the conciliatory "man in the middle."

The slide in KLM's earnings came despite a higher contribution from Northwest of $234.5 million vs. $136.9 million in the prior year.

This was mainly derived from the sale and revaluation of various types of NWA shares, but the fourth quarter also brought $31.3 million in operational profits from Northwest.

Weekly Stock Performance

Weekly Performance, Rank by Percent Change over Previous Week

        Closing Price   Closing Price    Percent
Symbol     05/16/97        05/23/97       Change

COMR        21  5/8         24  3/4        14%
FRNT         3  1/8          3  9/16       14%
PAA          7  3/16         8  3/16       14%
MEH         44  1/4         48  5/8        10%
RENO         6 29/32         7  7/16        8%
JAPNY        8  7/8          9  1/2         7%
UAL         75  1/8         79  1/8         5%
TWA          7  1/8          7  1/2         5%
ALK         24  1/8         25  1/4         5%
ABF         34  3/4         36  1/4         4%
AMR         95  1/8         99  1/8         4%
ASAI        24  1/2         25  1/2         4%
AMTR         9  1/4          9  5/8         4%
AWA         15              15  1/2         3%
NWAC        41              42  1/4         3%
AIRT         4  1/2          4  5/8         3%
DAL         93              95  3/8         3%
WPAC         6               6  1/8         2%
CAIB        34  3/4         35  1/8         1%
VJET         6 15/16         7              1%
FDX         52  5/8         52  7/8         0%
ATLS        27  7/8         28              0%
U           35              35  1/8         0%
HA           3  7/8          3  7/8         0%
LUV         27  1/4         27  1/4         0%
MAIR        13  1/2         13  5/16       -1%
KLM         30  7/8         30  3/8        -2%
ACAI        15  1/4         15             -2%
CEA         29  1/8         28  5/8        -2%
SKYW        13  3/8         13  1/8        -2%
MESA         5  3/8          5  1/4        -2%
AAIR         5  1/8          5             -2%
BAB        124  1/2        118  7/8        -5%
TOWR         3  9/16         3  5/16       -7%
WLDA         8  1/4          7  5/8        -8%
VNGD         1  3/4          1 14/25      -11%

E-Mail Delivery

Would you like a copy of the Weekly Airline Update sent to your own e-mail box? Well, faster than a speeding Concorde and quicker than you can say, "Wings, please send it to me!", we can add you to our e-mail delivery list. Just sent a note to me, [email protected], and I will make sure you are added to the list.

That is it for this week's edition of the TMF Wings' Weekly Airline Update. And as always, have a good week everyone.

Holly Hegeman
TMF [email protected]

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