DAL

Are Any Rumored Buyouts Worth Betting On?

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Buyouts and private-equity acquisitions can provide powerful stock moves and often act as the catalyst to drive stock prices to intrinsic value. In the portfolio of our Best Ideas Newsletter, we had held shares of Collective Brands. We liked the company’s valuation, relatively small size, and its attractiveness to other companies (among other things). And while we’d never own a stock solely on speculation of M&A activity, a buyout turned out to be the catalyst for our call on Collective Brands to work out for members. Shares proceeded to appreciate over 35% on our cost basis! In recent months, we’ve heard rumors of cash-heavy companies and private equity funds interested in several different deals. Let’s take a look at a few higher-profile names. … Read more

Delta’s Second Quarter Results Reflect Airline Industry’s Struggles

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Delta (DAL) reported poor second-quarter results Wednesday that revealed the major carrier’s continued battle with high jet fuel costs. Total operating revenue expanded 12% thanks to double-digit enhancement in yield (pricing), but operating income plummeted roughly 44% from the same period a year ago as it faced a fuel bill that was more than $1 billion higher. The company plans to cut its December quarter capacity (seats) by as much as 4%-5% on a year-over-year basis, an extra percentage point greater than it originally planned. We view this as necessary given the global economic environment and general weakness in load factor (capacity utilization) – which fell 1.3 percentage points during the period. We believe Delta is one of the better-positioned … Read more

United Continental and US Airways Troubled by Fuel Costs

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United Continental (UAL) reported a second-quarter net profit of roughly $1.49 per share Thursday (net income fell 12%), excluding special items, with passenger revenue advancing over 10% compared to the same period a year ago – unit passenger revenue improved 9% from the prior year period. The airline continues to face the burden of rising fuel costs, as second-quarter fuel expense increased a whopping 45% on a year-over-year basis. Unit costs, excluding special items advanced over 11%, driving lower profits from the prior-year period. We view United Continental’s liquidity position as adequate, with $8.6 billion in unrestricted cash, cash equivalents and short-term investments on hand as of the end of the second quarter. We’re also quite pleased with the carrier’s continued … Read more

Yield Outlook Deteriorates for Airline Stocks

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280098-yield-outlook-deteriorates-for-airline-stocks As we had outlined in our industry primer for airlines, the yield (pricing) environment for the group is treacherous and remains under perpetual pressure. The International Air Transport Association [IATA] released its July 2011 Airline Business Confidence Survey. Importantly, the IATA commented on the outlook for yields, which we reproduce below: While both passenger and cargo transport businesses saw improving yield performance during the second quarter of 2011, the trend is flattening. With demand-supply conditions weakening and concerns that markets may not bear further fare/rate rises, prospects for yields over the year ahead look flat. With over 80% of respondents reporting increased input costs during Q2, clearly high fuel costs have … Read more

What Does $150 Oil Mean for Airline Stocks? New 52-week Lows.

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277933-what-does-150-oil-mean-for-airline-stocks-and-the-airline-etf-expect-new-52-week-lows In “Get Ready for $150 Oil,” Barron’s predicts an oil shock will occur in spring 2012, with the black commodity reaching a record average monthly price of $150 per barrel, with spikes to $165 and $170 along the way. If this prognostication proves correct, airlines are in for a world of hurt. Before we get started on just how painful this shock could be, we invite airline stock speculators to take a read of our industry primer on the airline industry.  Jet fuel prices generally represent the largest component of an airline’s cost structure, and we estimate that for every $1 increase in the price of crude oil, it costs the global airline industry about $1.5 to $1.7 billion more. … Read more

Analyst Note: Hedge Positions of the Major Network Airlines

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We wanted to provide our subscribers with a brief snapshot of the 2012 hedge positions of the major airlines, should there be an oil price shock in spring 2012 along the lines of what Barron’s outlined in its cover story over the weekend.  United Continental (UAL) United Continental has only hedged 5% of its expected fuel needs for 2012 (Source: UAL’s 1Q 2011 10-Q). AMR Corp. (AMR) We don’t believe AMR has any material hedges for expected fuel consumption in 2012 (Source: AMR’s 1Q Earnings Release). US Airways (LCC) We believe US Airways to be completely unhedged for an oil price shock in 2012 (Source: LCC’s 1Q 10-Q). Delta (DAL) We do not believe Delta has a material hedge position in 2012 … Read more

AMR’s Big Order to Pressure Cash Flow, Boeing in Precarious Position

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277628-amrs-big-order-to-pressure-cash-flow-boeing-in-precarious-position Shortly after we released our analysis of the fleets of the largest domestic carriers, The Wall Street Journal reported that AMR Corp. (AMR) is interested in ordering as many as 250 planes from either Boeing (BA) or Airbus (EADSY.PK). Our analysis, the summary graph of which we provide below, indicated that AMR is roughly on par with Delta (DAL) for having the oldest fleet (read fuel-inefficient) among the Big 4 domestic majors, so we view this move as inevitable. (Click chart to expand) The Wall Street Journal also indicated that the order value could be as high as $15 billion (comprising about 250 planes), and we suspect the new aircraft being evaluated will … Read more

Ageing Fleets: Which Airline Has the Highest Costs?

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/273990-aging-fleets-which-airline-has-the-highest-costs  With jet fuel once again on the rise and the economic environment becoming even more uncertain, it’s informative for airline stock speculators to know which carriers have the oldest fleets. The age (and model) of an aircraft could have large implications on fuel efficiency and ultimately the airline’s cost structure, which becomes absolutely paramount under poor economic conditions. Let’s evaluate the fleets of the Big Four legacy carriers in the U.S. US Airways (LCC) As of the end of last year, US Airways was flying nearly 60 Boeing 737 Classics and 10 legacy 767s that were on average about 21 years old. These Classics and legacy 767s are roughly 15%-20% … Read more

Troubles Loom for Aviation Stocks

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/273564-troubles-loom-for-aviation-stocks As many followers of airline equities know, rising jet fuel prices and concerns about the global economy can translate into some fairly poor performance for airline shares. Today, perhaps unsurprisingly, the International Air Transport Association (IATA) cut its profit forecast for the airline industry by more than half to just $4 billion in 2011, (down from the $8.6 billion it had estimated in March). For perspective, the industry earned $18 billion last year. This equates to roughly a 0.7% net margin and raises the probability of yet another year of airline losses. The major causes of this revision are well-known and have been in the headlines for weeks — natural … Read more

Is AMR’s Equity Practically Worthless?

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/270933-is-amrs-equity-practically-worthless As outlined in “Why Airline Stocks Are Not Long-Term Investments,” pegging a fair value on an airline’s equity is a nearly impossible task due to the tremendous operating leverage inherent to their business models and the fact that key valuation drivers such as unit revenue and unit cost are largely out of their control. That said, let’s take a look at what AMR’s equity investors have to overcome to recognize any value in their holdings. AMR’s pension obligations are staggering: ~$24 per share. Unlike peers that passed along their pension obligations to the Pension Benefit Guaranty Corporation via Chapter 11 reorganization (United Continental (UAL), Delta (DAL), etc.), AMR still retains … Read more