This Week in Airlines
by Holly Hegeman (TMF Wings)

Dallas, TX (June 1, 1997) -- Well, Foolish readers, this was one strange week in the financial markets -- and one newsworthy one in the airline sector. Never a dull momento. The markets bounced around all week on this piece of economic news and that piece of earnings news. The melodrama was intense. But the melodrama of the markets had nothing on our own Motley Flyer news this week. And okay, so how many of you wondered why we talked about the US AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> Shuttle so much last week? Hmmmmm? Ten points to you if you put two and two together and realized that this piece of the financial puzzle that is now US Airways had indeed become a little strategic hot potato in the ongoing turf battles between that infamously embattled airline menage a trois: AMERICAN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %>, US Airways and BRITISH AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAB)") else Response.Write("(NYSE: BAB)") end if %>.

More later on the Shuttle news, but let's take a short look at what the markets did this week.

The markets continued the Bear and Bull two-step this week as investors tried to get a handle on just where the market is headed. For some time it has seemed that just as one piece of news is released that seems to indicate the economy is growing like a weed, some other piece of news will surface that contradicts it.

That was the case this week, as Commerce Department figures released on Friday showed that the gross domestic product indicator hummed along at a 5.8% annual rate in the three months from January to March. This was the strongest for any quarter since a 6% rate in the final quarter of 1987. (Hmmm... that is interesting.) However, other indicators, including new home starts, are showing declines. Most economists interpreted the data as saying the economy is just fine thankyouverymuch--and should wind down a bit as the year goes on.

The Dow Jones Industrial Average finished nearly even on the week, after both it and the Nasdaq had a turbulent session on Friday. The DJIA lost 88 points on Friday before ending up 41 points on the day. For the week the Blue Chippers ended down 14.87 points to close at 7331.04. The technology-heavy Nasdaq ended the week at 1,400.32, a rise of 10.60 points after a wild and wooly ride on Friday.

Our Motley Flyers? The majority of our fine aluminum-clad flyers ended down on the week. However, we have three double-digit gainers to talk about. TWA <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> set volume records all week as it finally moved above the $8 price point for the first time in a long time. The stock closed up 16% on the week to close at $8 11/16, with most of that gain, a hefty 11.2%, coming on Friday alone. SKYWEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SKYW)") else Response.Write("(Nasdaq: SKYW)") end if %> surprised Wall Street with stronger than expected earnings and the Street rewarded the commuter airline handsomely, as the stock gained a hefty 15% on the week, closing at $15 1/8. MESABA HOLDINGS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAIR)") else Response.Write("(Nasdaq: MAIR)") end if %> was the other double-digit winner on the week as it also announced earnings this week. This stock had already been in play before the announcement -- methinks some folks knew about these earnings -- and the stock ended the week up 10% to close at $14 5/8.

American Airlines makes bid for the US Airways Shuttle

Yes, airline fans, as we talked about at great length last week, the US Airways' Shuttle, which is not actually owned by US Airways, but is merely managed by them, has become a very controversial little property.

On Thursday, American Airlines let it be known that it had made an offer for the Shuttle for roughly $300 million. But here is where it gets interesting -- as we talked about last week. US Airways still has the right to make its own deal.

Now, does this move by American force the hand of US Airways' CEO Stephen Wolf? Wolf has been stalling on a decision about the Shuttle. Conjecture as to why? Think it is because Stephen doesn't know how much it is worth? Nah. TMF Wings' doubts this is the case. Oh, you know the script. It all has something to do with labor negotiations and the fact he is seeking wage concessions from the carrier's unions.

While the 64 flights the Shuttle operates daily trail Delta Air Lines' shuttle in market share, the operation has become profitable in recent years; estimates put the shuttle's operating profit at about $20 million last year.

A 1992 agreement gave US Airways the option to purchase 100% of the shuttle at fair market value, determined by appraisal, beginning in October. Exclusive bidding rights expired in April, and other carriers were invited by the banks to bid. US Airways can still pay the as-yet-undetermined fair market value, or match American's bid price. American has also negotiated a $10 million breakup fee with the banks that it would receive if US Air exercises its option, people close to the deal said.

Hey, not bad, eh? I tell you, the possible scenarios boggle the mind.

I think Stephen Wolf would rather cut off his suspenders than see the Shuttle decked out in Crandallesque brushed aluminum, but then again... and Foolish readers, this is just conjecture. What if Wolf and Crandall have a deal? Crandall makes the offer -- and gets $10 million for his trouble. Wolf gets the pressure he needs to gain leverage with the unions. And if he doesn't get concessions -- Bob has decided that for $300 million he will be glad to take the Shuttle off Stephen's hands. And then Stephen would REALLY have leverage.

A message on the US Airway's employee-information phone Thursday complained that "as a result of our inability to put in place a competitive cost structure, which would have allowed us to purchase and operate the shuttle, American has entered the picture." The message also warned employees that "losing the shuttle has serious negative revenue implications for us in our key markets."

Now -- let us also not forget that American is trying to align itself with British Air, US Airways' estranged partner.

As I said last week before the news hit -- the possibilities boggle the mind.

US Airways ended the week down 1% to close at $34 3/4, American was SOOO close to breaking the $100 mark and staying there -- but oops -- no cigar. The stock closed flat at $99 3/8.

TWA --Undisputed Newsmakers of the Week

TMF Wings has always been of the opinion that there are those companies and chief executives who understand how to get Wall Street interested in a stock. And then there are companies who don't actively understand incessant investor cravings for care, feeding and attention.

Guess which one TWA has become?

The fax machine just did not stop this week as it cranked out press releases on the company. And guess what, Foolish readers? The stock had one heck of a week --posting its first appearance above the $8 level in quite some time. The stock was consistently one of the most actively traded on the AMEX, and ended the week up a whopping 16%, closing at $8 11/16.

But, is this, as one reader said in a post this week, the RETURN of TWA? Or merely a concerted effort to push the stock price up and front-load the cash flow for this quarter?

Here is just a brief summary of things that went on in regard to the carrier this past week:

1) The company held its annual meeting. CEO Gerald Gitner laid out his vision of the company going forward. Union representatives questioned CEO Gitner's vision going forward. BTW--I have to hand it to Gitner, I like what he is saying, how he is saying it and I think Wall Street is very enamored. Check out his comments at the TWA website, http://www.twa.com.

2) Gitner also intimated that when Department of Transportation (DOT) on-time figures are released this week, TWA will have made a remarkable recovery -- like maybe number 1? Number 2? This would truly be a major event.

3) The company has also announced an "On-Time or Else" promotion for June. If your flight is more than 15 minutes late, you will be credited 1000 frequent flier miles.

4.) The company has also unveiled its new advertising campaign. The campaign, which is a whole heck of an improvement over the previous one, is slick. The commercials feature employees of the airline and those nice gorgeous shots of new liveries that make all of us go... ohhhh, gorgeous plane.

However, the fact also remains that TWA has also slashed fares as part of a summer sale. This is when other carriers have increased fares and when demand for seats is VERY high. Why would they do this? Of course, the obvious answer is -- cash flow. As we all know, the carrier is operating on a very slim stash of cash, and this is one of the ways a carrier can generate fast income -- but at what long-term cost?

One last note--our best to John McDonald, former Director of Media Relations for TWA. As one of my regular readers and TWA senior folks wrote me, "John was one of those folks who never said NO NO NO. He was one of those that always figured out a way to make something happen."

Our best to him in his new endeavors.

SkyWest Turns in a Nice Surprise; Stock Takes Off

SkyWest Inc., the holding company for SkyWest Airlines, reported a fourth-quarter profit this past week, surprising analysts who had expected a break-even quarter after substantial losses a year earlier.

The company reported net income of $1,108,000, or $0.11 per share, for the fourth quarter of fiscal 1997, compared to a net loss of $2,150,000, or $0.21 per share, in the fourth quarter of fiscal 1996. Operating revenues were $68,857,000 for the fourth quarter of fiscal 1997, compared to $63,187,000 for the fourth quarter of fiscal 1996.

SkyWest reported net income of $10,111,000, or $1.00 per share, for the fiscal year ended March 31, 1997, compared to $4,366,000, or $0.42 per share, for the previous fiscal year. Operating revenues increased 12.5 percent to $283,307,000 in fiscal 1997, compared to $251,734,000 in fiscal 1996.

The reported financial results for fiscal 1996 included a pretax fleet restructuring and transition expense of $6.2 million, or $0.38 per share of which $4.6 million or $0.28 per share was included in the fourth quarter results. The fleet restructuring and transition expense resulted from a fleet rationalization plan that required a restructuring of the company's turboprop fleet.

The stock, which ended the week up 15% to close at $15 1/8, was up 6.5% alone on Wednesday when earnings were announced.

SkyWest is an unusual commuter operation in that is acts a as a feeder to both Delta and Continental Airlines. It operates as a Delta connection from its Salt Lake City, Utah, hub to 49 cities in 11 Western states and as a Continental connection to several locations from its Los Angeles hub.

Skywest is now up 9% on the year.

Mesaba Reports Yearly Earnings; Investors Like What They Hear

This stock began to make strange movements about two weeks ago, and we wondered if earnings were the reason. Well, I think we got our answer this week.

Mesaba reported this week that net earnings for the fiscal year ending March 31, 1997 rose to $12.0 million, a 71.9% increase from the previous year's results of $7.0 million. Earnings per share for the year were $0.93, a 55.0% increase over the previous year's earnings per share of $0.60. For the year, consolidated operating revenues increased 8.9% to $185.7 million compared to $170.5 million reported during the previous fiscal year. It should also be noted that the prior year's revenue figures include the results from Airtran Airways prior to its spin-off from the company in September 1995.

The company also reported that its operating revenues for the quarter ended March 31, 1997 totaled $48.6 million, an increase of 17.6% over the $41.3 million level achieved in the same period last year. The airline reported a net profit for the quarter of $2.1 million, or $0.17 per share, compared to net earnings of $1.4 million, or $0.11 per share for the same quarter one year ago.

AirTran Reports Earnings; Stock Makes Positive Move

AIRWAYS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAIR)") else Response.Write("(Nasdaq: AAIR)") end if %>, parent company of AirTran Airways Inc., reported a net income of $276,000 or $0.03 cents per share in the fourth quarter ended March 31, 1997, a significant turnaround from the net loss of $2,862,000 or $0.32 per share in the third quarter. Net income for the fourth quarter of fiscal 1996 was $737,000 or $0.08 per share.

Operating revenues rose to $29,777,000 in this year's fourth quarter, up 43% from the third quarter and up 9% from the year-earlier period.

For fiscal 1997, the company reported operating revenues of $102,623,000, up 50% from $68,361,000 in fiscal 1996. The company's net loss for the current year came to $6,991,000 or $0.77 per share, compared to earnings of $1,187,000 or $0.13 per share in fiscal 1996.

AirTran has been the hottest stock we cover this year, although it has fallen back a bit of late. The stock gained 8% this past week to close at 5 3/8, and is up 87% on the year.

Comair Announces Major RJ Deal

COMAIR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMR)") else Response.Write("(Nasdaq: COMR)") end if %> parent of Comair, announced an agreement this week to buy up to 75 Canadair Jet aircraft and related support equipment. Comair said the agreement includes a firm order for 18 50-seat aircraft, valued at $330 million. It also involves conditional orders for 12 jets and options for 45 additional jet aircraft.

If exercised, some of the options could be converted to Canadair's 70-seat jet, which was introduced this year. Aircraft being acquired under the new agreement will be phased into revenue service beginning in September. Canadair jets currently comprise 75% of Cincinnati-based Comair's seating capacity.

The 50-seat Canadair regional jets will be used to continue growth and to replace turboprop aircraft. Comair intends to convert to an all-jet fleet.

Comair introduced the Canadair jet to the United States in 1993 and currently flies 50 of the aircraft.

Comair, which recently announced great quarterly earnings, had a great week. The stock gained 5% on the week to end at $26. Though the stock was sluggish at the beginning of the year, this is one of our Foolish Feeder Four, and we have high hopes for all four the remainder of the year. (The other carriers that make up the Foolish Feeder Four are ATLANTIC COAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %>, ATLANTIC SOUTHEAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASAI)") else Response.Write("(Nasdaq: ASAI)") end if %> and Mesaba.

Amtran's CEO Abruptly Departs

AMTRAN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTR)") else Response.Write("(Nasdaq: AMTR)") end if %>, the parent of American Trans Air, saw its stock drop 10.5% on Thursday after the unexpected resignation of Stanley L. Pace as president and chief executive officer.

Amtran stock opened at $9.50, and closed at $8.50 by the end of trading Thursday. The stock was our Goat of the Week, as it lost 9% on the week to close at $8 3/4. However, let us not forget that, in a large part due to Mr. Pace's turnaround efforts, the stock is up 25% on the year.

Pace had been with the company about nine months.

The company provided no details about why Pace resigned, although it is speculated that he left because he had accomplished what he wanted to do. Pace was formerly a consultant with Bain and Company, and I think it may just signal that the man was happy with what he had done -- which was a dramatic turnaround, and felt it was best to leave and go tackle another project. Then again... we never know in this business do we?

After three consecutive quarterly losses, Amtran posted a $3.2 million profit for the first quarter of 1997. Pace said earlier this month that the company could hit record earnings this year, barring any economic downturns or jumps in fuel prices.

Those improved results didn't come easily. They are the result of major changes at ATA, including a flip-flop in the balance of charter flights vs. regularly scheduled service. In 1996, about 40% of ATA's business was in charter flights and the remainder in scheduled service.

ATA reduced scheduled service departures by 50% in 1996, and the company's total business now is about 60% charter and 40% regularly scheduled. ATA dominates the charter flight market with a 50% share.

New Analyst Coverage for Continental, United, Southwest.

SBC Warburg began coverage of CONTINENTAL AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI/B)") else Response.Write("(NYSE: CAI/B)") end if %> this past week with an "add" rating. The brokerage firm said the company's appeal is "its revenue-growth potential, cash-flow generation and hidden assets." [TMF Wings' note: this has got to be one of the strangest things I have ever read in an analyst comment. I mean -- okay -- so spill the beans -- what are they?"]

SBC Warburg estimates Continental will earn $4.57 a share in 1997 and $5.08 a share in 1998.

UAL is Comfortable with Estimates

After posting record profits for last year and early this year, United Airlines parent UAL Corp. said Friday that it is comfortable with analysts' second-quarter estimates of $2.69 a share fully distributed.

At a media briefing Chief Financial Officer Douglas Hacker said the company is also comfortable with analysts' 1997 estimates of $9.21 a share fully distributed.

SWA Will Probably Not Beat Last Year's Quarterly Numbers

Always amazes me in this age of instantaneous quotes and high-speed information transmittal how news can sometimes travel....slowly? At the press conference after the recent SOUTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> Annual Meeting, CEO Herb Kelleher said openly that the company doubted it would surpass second quarter EPS figures for 1996 because of the change in the ticket tax implementation. This was on May 15. Meanwhile the stock continued to gain. On Thursday, Bloomberg reported basically the same news. Result? The stock dropped 3.3% to close at $25 7/8. Who says the Financial Press does not carry clout? For the week the stock was down 6% to close at $25 3/4.

Just another one of those strange ways of Wall Street.

BTW -- for all you Southwest fans, there was a good article on the airline and their movements in the Northeast in the Washington Post this past week. You can access the article by going to the Washington Post website, http://search.washingtonpost.com/wp-srv/WPlate/
1997-05/30/060L-053097-idx.html

Wall Street Journal tells Readers What YOU Already Knew

For those of you who want the real story on how the DELTA AIR LINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> Board of Directors did not renew Ron Allen's contract because of his arrogant and abrasive management style, there was a front page story on the subject in this past Friday's Wall Street Journal. But hey, if you are a faithful reader of TMF Wings' you already knew this news weeks ago.

Delta ended the week down 2% to close at $93 3/4.

Business Unusual; Midwest Express Gets Good Press

And finally, MIDWEST EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEH)") else Response.Write("(NYSE: MEH)") end if %>, which had shares split this week 3 for 2, was the subject of a pretty flattering piece on the CNN program Business Unusual on Saturday. CNN did a pretty good job of trying to explain why Midwest Express succeeds not because of what they don't spend, but because of what they do spend. For those not familiar with the airline, they began as the in-house airline for Kimberly Clark and was spun off by the company as an independent entity. (That was one thing the report did get wrong--it indicated that K/C still owned them.)

Yes -- just picture this the next time you are squeezed onto one of those flying pencils -- you know -- an MD-80. And you are in the middle. Then you are not fed. Then you have no leg room.

Now, if you were on Midwest Express, you would have freshly baked chocolate chip cookies to munch on as you settled into your leather 2x2 seat. (Yes, one class--all First). Stretching your legs, you could read the complimentary paper that the airline provides and think about that complimentary champagne that would soon be coming down the aisle. And, dear readers, if that is not enough to get you to move to where the airline flies -- yes, you not only get fed on top of all this -- but you get fed REALLY well. Can we say lobster -- for example?

Not only that, but as you can imagine, the passengers of Midwest Express are rabid fans. The investors? Counting their profits with both fists.

The airline continues to rack up profits because it has continued to do what it does well -- it has not strayed from its business plan. Result? The stock is up a nice healthy 32% on the year. Not bad Foolish investors--not bad.

Problems? Obviously if the economy takes a dive and business travel drops, then the higher priced fares of Midwest Express might take a dive. Or, if the airline gets greedy and strays from its niche, then the equations would start to unravel.

But as long as they don't do those two things, hey, the line forms to the right to see if you can convince them to fly to your hometown.

Weekly Performance Numbers

Weekly Performance, Rank by Percent Change over Previous Week

         Closing Price   Closing Price    Percent
Symbol     05/16/97        05/23/97       Change
TWA        7  1/2         8 11/16          16%
SKYW      13  1/8        15  1/8           15%
MAIR      13  5/16       14  5/8           10%
VNGD       1 14/25        1 20/29           8%
AAIR       5              5  3/8            8%
HA         3  7/8         4  1/8            6%
ABF       36  1/4        38  1/4            6%
COMR      24  3/4        26                 5%
RENO       7  7/16        7  3/4            4%
CEA       28  5/8        29  5/8            3%
ACAI      15             15  1/2            3%
ATLS      28             28  3/4            3%
ASAI      25  1/2        26  1/8            2%
AMR       99  1/8        99  3/8            0%
CAIB      35  1/8        35                 0%
AWA       15  1/2        15  3/8           -1%
FDX       52  7/8        52  3/8           -1%
BAB      118  7/8       117  5/8           -1%
U         35  1/8        34  3/4           -1%
UAL       79  1/8        78  1/8           -1%
ALK       25  1/4        24  7/8           -1%
WLDA       7  5/8         7  1/2           -2%
DAL       95  3/8        93  3/4           -2%
FRNT       3  9/16        3  1/2           -2%
VJET       7              6  7/8           -2%
MEH       32  5/12       31  3/4           -2%
NWAC      42  1/4        41  3/8           -2%
AIRT       4  5/8         4  1/2           -3%
KLM       30  3/8        29  3/8           -3%
PAA        8  3/16        7  7/8           -4%
MESA       5  1/4         5                -5%
LUV       27  1/4        25  3/4           -6%
TOWR       3  5/16        3  1/8           -6%
WPAC       6  1/8         5  3/4           -6%
JAPNY      9  1/2         8  3/4           -8%
AMTR       9  5/8         8  3/4           -9%

E-Mail Delivery

Yes, it is true. You too can have e-mail delivery of the TMF Wings' Weekly Airline Update to your own e-mail box. In fact, we had a record number of your requests to be added to the rolls this past week. Yahoo! (A not-so-subtle plug for our partners in Financial Folly and poster of our industry updates).

Just send a note to [email protected] and say something original like, "Holly, could you please add me to the list!"

Query to All

We have had comments from a few readers that they have problems with the e-mail version. They report that the last part of many updates have text-wrapping problems. We have not been able to duplicate these problems, but wonder if any other readers have also had problems reading the updates. Please drop me a note if this is the case. We are looking at new methods of sending the updates now, and should be changing over in the next month or so. Hopefully these changes will take care of these problems.

Weekly Wrap-Up

A special hello to the unusually large number of groups who were added this week to our subscription list--most of whom may want to remain anonymous--ahem. But I do want to welcome the students of Brian Bell, professor at Embry-Riddle Aeronautical University, Anchorage, Alaska, Elmendorf Air Force Base Campus. Welcome!

That's it for this week folks--I'm off to the Founder's Plaza observation point out at DFW to check out da planes and catch some rays. What else would a confirmed airline Financial Fanatic do on an absolutely gorgeous blue-skied day? As I like to remind you -- numbers are just one part of it all. It's those intangibles that we cannot forget.

Just ask Midwest Express -- works for them!

Have a good week everyone!

Holly Hegeman
TMF [email protected]

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