 Weekly Airline Archive
Airline
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This Week in Airlines
by Holly Hegeman (TMF
Wings)
A special note! Due to some necessary reorganization of our area, we will no longer have a special "page" for the airline update on AOL or the Fool website. However, I am still your host for this area, and I will continue with my weekly report. Starting next week, please look for industry update reports on the message boards (in the Industry & Market Analysis folder) on either AOL or the web.
Dallas, TX (July 13, 1997) -- Ah, Foolish readers, the calm before the storm. Our last weekend before the tumult begins. That time of year when airline executives all across America pace to and fro, relentlessly grilling their CFO's --"Hey, WHAT THE HECK is GOING on?" they question, their voices rising in an accusative tone. Meanwhile the CFO, with green eye-shade on head, looks down at the plush carpeted CEO's office floor, (mentally noting that it is nothing like the threadbare stuff in his office that was in need of replacement long ago), and hangs his head in shame.
The conference call is about to begin, the analysts are beating down the doors, and those pesky employee groups just want MORE MONEY. And those demanding passengers just want LOWER FARES. And the CEO? Well, the CEO just wants MORE STOCK OPTIONS.
Finally the CFO raises his head, looks woefully at the CEO, and utters, in almost hushed tones the two most devastating words he could utter...."lower yields." Then, quickly he bolts from the inner sanctum of the executive suite leaving the CEO to sputter and pace and swear -- just before he then runs over to call his personal accountant to check the status of his stock options.
Yes, folks, let's get ready to RUUMBBLE! This next week it is time for the Motley Flyers to start reporting second quarter earnings!
TMF Wings' Market Report
But this week, we have lots of industry things to talk about, and the constant upward gyration of this market that has gone bonkers is really not as important as our industry stuff. Suffice it to say, the economic indicators that came out this past week tended to support the existing signs that inflation is under control. And as all good readers know, this would tend to translate into a good week -- and overall that was the case, as the Dow Jones Industrial Average ended the week up 26.01 for the week, closing at 7921.82 AND the Nasdaq composite index broke through the 1500 mark, establishing an all-time high at 1503. This was the seventh straight record-setting session for the tech-heavy Nasdaq.
But, as is now more the case than not, it was another volatile one, as the Dow Jones Industrials shot up, dropped down, went back up -- well, you get the picture. The Dow actually set a new record high on Tuesday, but the 7921.82 close on Friday was about 40 points lower.
Besides, the gist of the airline overview article in the Wall Street Journal this week talked about ...guess what? How airlines just might NOT have such a great second quarter after all. Hey, you folks knew this a long time ago--old news for you.
The biggest movers in our little part of the Wall Street world? No doubt about it, the High Flyer and the Goat of the Week tell the story. High Flyer AIRTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAIR)") else Response.Write("(Nasdaq: AAIR)") end if %> posted a whopping 24% gain on the week, closing at $6 1/2 on Friday -- even though it lost a bit of ground on Friday -- on news of the impending "merger" (and no, TMF Wings does not think this collaboration classifies as a "merger") with VALUJET AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %>. ValuJet ended the week as second banana to AirTran, closing up 8% to end the week at $7 9/16.
The Goat of the Week? None other than our volatile cargo friends, ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %>. The stock dropped a hefty 35% on the week, ending the week at $21 11/16, down from $33 1/8 last Friday. This one was a bit of a shocker, although, as we have warned in the past, this stock can be, and has been volatile. Something to remember--the CEO of Atlas owns about two-thirds of the outstanding shares of stock. This means that even though there are roughly 24 million shares outstanding, there is really only an 8 million share float. Translation? This is much more of a "small cap" than the numbers indicate on first blush. The company admitted to analysts that the costs associated with those five leased Fedex Maintenance Hogs (747-200's) are so horrendous that they will not meet analyst expectations again this quarter. And maybe not next quarter either. Plop, plop fizz fizz.....and down goes the stock.
In a strange little twist of fate AirTran is still our High Flyer for the Year, as the stock has now posted a 126% gain, and Atlas is now indisputably the Goat of the Year, posting a 55% loss since the beginning of the year.
AirTran and ValuJet Tie the Knot.
Well, not really. Actually, as I see it, they have just decided to start living together. And as we all know, there is always usually one partner in any arrangement that comes out the better and one that comes out for the worst. My bet? AirTran should not have done this.
On Thursday, both airlines announced a "merger". ValuJet will give up its identity and its name and both companies will then operate under a new holding company entitled AirTran Holdings Inc. But hey, isn't one of the main reasons to merge the ability to gain economies of scale? Well, dear readers, that is not the case here. ValuJet and AirTran will continue to operate under separate operating certificates. They will in effect continue as separate companies.
What about maintenance? The press release talked about ValuJet being able to take advantage of Airtran's facilities. Well, AirTran is an all 737 carrier and ValuJet is primarily a DC-9 carrier. So -- now what?
And, then there is the issue of gates at Orlando, AirTran's home. Guess which carrier dominates Orlando? You guessed it. DELTA AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %>. And we all know what Delta thinks of ValuJet. Think this could this pose a problem?
And finally, for the last part of this incestuous airline soap opera, this also essentially makes COMAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COMR)") else Response.Write("(NASDAQ: COMR)") end if %>, which just announced a code-sharing arrangement with AirTran, code-sharing partners with ValuJet. (Delta owns 20% of COMAIR).
Whew. Aside from all this, obviously there was one main reason for this merger. It enables ValuJet to finally shed its name and image. Something they should have done a long time ago. The Critter should have been retired this time last year.
Secondly, the reason for the separate business set-up, I think is obvious. Potential liability that is still out there in terms of the ValuJet crash.
As for the balance, as I said, nope, this ain't no merger. Just more like living together if you ask me.
China--The New Hot IPO Airline Market?
Bored with following the likes of ValuJet and WESTERN PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %>? Looking for even more chills and thrills?
Well maybe you should go East Foolish readers, go East.
As you may have noticed, we follow CHINA EASTERN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEA)") else Response.Write("(NYSE: CEA)") end if %> in our weekly stock reports. This stock had its IPO earlier this year and had a fairly good run until late, when the stock has slacked off a bit. On the year, however, China Eastern is still up 36%.
But CEA was just the first of a number of China-based aviation IPOs that are on the horizon. Two weeks ago, HAINAN AIRLINES came to market, trading on the Shanghai Stock Exchange. The interesting thing about this IPO is that American financier George Soros owns 25% of the airline. (Actually American Aviation Investment, an investment fund partially controlled by Soros, owns the interest in the airline according to a company prospectus.)
The IPO for Hainan was for 71 million Chinese B-shares at $0.47 per share. (B-shares are a class of Chinese shares that can be purchased by foreigners.) The stock was one of the most actively traded last week on the exchange, and closed at $0.53 on volume of 1.5 million shares on Friday.
However, while the market for expanding domestic airline service in China would seem to be tremendous, Deutsche Morgan Grenfell said in a June research report that China's aviation sector was facing challenges, including low consumer affordability, a highly competitive and fragmented market structure, and high leverage.
However, Guangzhou-based CHINA SOUTHERN AIRLINES is expected to raise HK$5 billion-HK$6 billion through a dual listing in Hong Kong and New York later in 1997, according to market sources.
China National Aviation Corp. (CNAC), the airline group controlled by China's Civil Aviation Administration which is expected to seek a listing in the third quarter, is likely to be a more eyecatching issue, analysts said.
They said strong parental backing and better earnings prospects made CNAC an attractive investment.
Last year CNAC bought a 36% controlling stake in Hong Kong Dragon Airlines from Swire Pacific, Ltd., Cathay Pacific Airways, Ltd, and Citic Pacific Ltd.
We can't get NO..........satisfaction! Mick.... sing it!
I think it must be something they all drink -- or eat. Or maybe it is the heat. Whatever the reason, the past week or so has seen pilots at a number of airlines making headlines in one way or another. At NORTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NWAC)") else Response.Write("(Nasdaq: NWAC)") end if %>, the Air Line Pilots Association, (ALPA) representing the pilots of Northwest Airlines, has turned up the heat and officially requested federal mediation in contract talks with management. The ALPA claims there has been little to no movement in their talks with management since the ALPA and Northwest management exchanged contract openers in August of last year. The pilot contract became amendable on October 31, 1996.
The Northwest MEC voted unanimously on June 26 to seek mediation and simultaneously approved the formation of the Strike Preparedness Committee (SPC).
Northwest ended this week down 4%, closing at $35 1/4.
Continental
Those guys with the golden tails, the pilots at CONTINENTAL AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI/B)") else Response.Write("(NYSE: CAI/B)") end if %>, were also making noise this week. Continental Airlines pilots staged the first of four planned airport pickets this past Wednesday, saying the company has not responded to pilot demands for higher pay during negotiations.
About 20 members of the Independent Association of Continental Pilots picketed at Newark International Airport, saying the carrier is ``First in Customer Satisfaction, First in Corporate Profitability, Last in Pilot Respect.'' [Why is is that I hear Aretha Franklin suddenly singing.....R-E-S-P-E-C-T....never mind.]
I must say, I was a little surprised that the pilots did this so soon. I mean, the protests come after only about three months of contract negotiations. The deadline to renew the current pilots' contract expired July 1.
Sorry guys, but I have to agree with management on this one. I mean, if you are out there NOW, that does not bode well, in my estimation. Don't you think you should concentrate your efforts internally? I think it is a bit premature for the external efforts. Just one Foolish opinion. Sends a message I don't think you want to send so soon. Besides, I have news for you--the public is NOT in your corner. [I know, that is a cruel thought, but nonetheless true.]
The union has set an Oct. 1 deadline to complete negotiations on the contract. Until then, pilots will take their pickets to Honolulu next week, followed by Guam, Cleveland and finally Houston on Aug. 4.
Continental closed down 1% this week at $34 5/8.
TWA
Last week, an arbitrator gave the pilots' union at TRANS WORLD AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> a favorable ruling in a complex wage dispute that had gone to arbitration.
The issue dates back to a 1995 grievance over the way St. Louis-based TWA was calculating pilots' monthly flying time. In April of this year, an arbitrator ruled on the grievance in favor of the pilots, and instructed TWA to calculate monthly hours differently.
TWA, saying it was "very precisely" following the arbitrator's ruling, responded by altering the way pilots bid for their routes and schedules. Last month, the Air Line Pilots Association, which represents TWA's 3,000 pilots, filed suit against the carrier. The suit claimed that the procedural changes TWA implemented -- which effectively trimmed some pilots' pay - contravened the pilots' contract.
After the court rejected the suit, the pilots and TWA agreed in late June to resolve the matter through arbitration.
In a recent ruling, the arbitration board concluded that TWA didn't properly implement the board's earlier opinion, and said the changes TWA had put in place were improper.
A TWA spokesman said the carrier hasn't yet determined what the financial effect of the ruling will be, but said the airline intends to follow the ruling's instructions.
TWA, TWA. We anxiously await your earnings this month. The stock closed down 8% on the week, ending the week at $6 9/16.
Speaking of....How do YOU Define Overtime?
And speaking of hours, an update on our story we did a few weeks ago concerning the APA/AMERICAN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> situation. Here is the deal. Now, if you remember we said there was no signed contract YET. Well, that is true. While the terms of the agreement stipulated that the contract would go into effect with the ratification of the union membership, no final contract has been signed and posted. Reason? Well, see....there is this little matter of the overtime issue. Seems that the actual contract that was voted on by the members of the APA had one very important number missing in one very important paragraph. Yep, 'tis true. Now, whose fault this is...who knows.
The problem is that now American sees it one way and yep, as you probably could have guessed, the pilots see it another. Then there is APA -- which is caught up in its own world of political intrigue right now.
So, in the meantime, American says it will seek mediation if necessary, and the APA has advised members to file a formal grievance if they feel the company has not adhered to the policy it should in terms of hours and scheduling.
This one will just never stop. It is a perpetual dogfight.
American ended this week down 4%, closing at $92 5/8.
US Airways
And lastly, we have the pilots at US AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U.)") else Response.Write("(NYSE: U.)") end if %>
US Airways pilots conducted informational picketing of their own in Charlotte and Pittsburgh the week before last to express their support for 64 pilots who lost their jobs on July 1.
The company announced the week before that it plans to lay off an additional 42 pilots this fall as it continues to implement downsizing plans announced earlier this year.
These 42 pilot positions will be in addition to the 103 job cuts that were previously announced, said US Airways spokesman Rick Weintraub.
Personally I'm still waiting to receive my copy of the "Stephen Wolf Definitive Plan for Growing an Airline Through Strangulation". Anyone have an extra copy you can send my way?
Hey, but we cannot -- from an investor standpoint -- argue with the stock performance this year, as we have discussed. The airline has gained 52% YTD. That is what can be so strange about how the stock market values and views this industry. But then again, that is the start of another LONG discussion and there is not enough room for it this week.
US Airways' stock was down 3% on the week, closing at $35 7/16.
Weekly Airline Stock Performance
Price at Close Price at Close Percent
7/3/97 7/11/97 Change
AAIR 5 1/4 6 1/2 24%
VJET 7 7 9/16 8%
KLM 34 1/8 35 13/16 5%
COMR 26 1/2 27 5/8 4%
ACAI 16 16 5/8 4%
RENO 8 5/8 8 7/8 3%
MESA 5 1/2 5 5/8 2%
BAB 115 11/16 117 7/16 2%
ABF 43 3/8 44 1%
HA 4 7/8 4 7/8 0%
KTTY 16 16 0%
LUV 27 27 0%
MAIR 14 1/2 14 1/2 0%
TOWR 3 1/8 3 1/8 0%
ASAI 27 3/8 27 1/4 0%
ALK 26 1/4 26 1/8 0%
CAIB 34 13/16 34 5/8 -1%
AIRT 4 7/8 4 13/16 -1%
JAPNY 9 1/4 9 1/8 -1%
AMTR 7 3/4 7 5/8 -2%
FDX 59 1/8 58 -2%
CEA 25 3/4 25 1/4 -2%
UAL 74 1/16 72 5/16 -2%
U 36 7/16 35 7/16 -3%
WPAC 6 3/16 6 -3%
AMR 96 1/4 92 5/8 -4%
NWAC 36 3/4 35 1/4 -4%
AWA 14 13/16 14 3/16 -4%
DAL 87 1/4 83 1/2 -4%
PAA 7 7/8 7 1/2 -5%
SKYW 17 5/8 16 1/2 -6%
MEH 27 3/4 25 13/16 -7%
TWA 7 1/8 6 9/16 -8%
FRNT 3 15/16 3 5/8 -8%
VNGD 1 64/79 1 14/25 -14%
WLDA 8 1/8 6 1/8 -25%
ATLS 33 1/8 21 11/16 -35%
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Have a GREAT week everyone and see you next week with the first earnings reports!
Holly Hegeman
TMF [email protected]
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