Stoxx // BTW LUVs //
I have a question. Let's say LUV has 20% of the domestic market (don't hold me to the percentages) and they try to increase their system by 10% or a 2% increase in market share. The legacies controlling 65% of the domestic market compete for that 2%. It's only 2%/65% of their domestic system, but 10% of LUV's. Does that matter?
Being an airline professor, you do realize that prasm can drop without fares dropping, don't you? And some of the prasm weakness is in that category. Some isn't. We just came through some real weakness in economic activity. So, economic activity in the 2H is in question. Should it be?
// reflecting Brent forecast of $66 and $82 respectively //
That means they have the right estimates as long as you adjust it as oil changes from their assumptions.
Brent at $82 ... wonder what the frackers will do?
// 35% drop in two months with good profits and oil coming down, incredible!!! //
I don't want to sound like a Geico commercial, but that is what airline stocks do.
Already down big, filled a gap from last October, and nearing its target from the breakdown ... getting into buyback heaven.
// The reality is oil at 60 //
Oil down is real as you say ... it's real money. The article can single out AAL, but it is really a snapshot in time. AAL just finished the labor contracts ... others (at least LUV and DAL) still have labor contracts coming up (and higher costs) ... after the res system is done, AAL has synergies to look forward to.
// nada for Doug Parker being smarter //
I've found it sort of amusing watching the subtle jabs between Parker and Anderson ... both extremely good. Parker certainly was the first to preach capacity discipline back in early-mid 2009 and between the end of 2009 and end of 2010 the whole industry caught on. And Parker is doing it now and we have Anderson cutting after Labor Day (others will be in line). Notch one for Parker (oligopoly leader). Anderson likes to talk about operating profits and Parker pre-tax profits ... for various reasons ... that's a little jab. Now Anderson talks about free cash flow of $20 billion between 2015-2017 ... he knows Parker if fleet building at AAL and the subsequent capex ... I could see Anderson with his tongue in cheek wondering what Parker was thinking. All amusing.
They say don't consider taxes when it is a time to sell, but I've been wondering about hedge fund selling for quite awhile. Treatment of "carried interest" as long term cap gains has been an issue, and every year there is a threat to change the tax treatment of carried interest, but soon it might be more than a threat. That being the case it would probably be an incentive to hedge funds, and others paid with carried interest that they sell assets with long term outsized gains. There are probably quite a few out there in the financial world that are wondering how they'll be treated tax wise in the near future. Why wait for an extra 15-20% increase in an assets appreciation if you are going to have taxes increase 15-20%? It certainly can create volatility if that is going on.
Changing the treatment of carried interest would normally be a legislative area, but the executive branch could do it ... just change an IRS ruling.
Just one more thing to add to the pile.
unc ... I was just talking about their cash and investments "balance sheet"... unrestricted $9 billion at the end ... $9.9 billion total and a 1.1 billion revolving credit as of Q1 ... more to come in Q2.
But understand you are throwing out items from a cash flow statement going forward. They do have plans for their cash. Regardless, they said they are going to carry more cash than necessary during integration.
Figuring out where to buy can be tough. On the one hand, even though there is negative press/issues, the economy and/or industry will resolve those over time, and fundamentally, the airlines are making good money regardless. That said, there is a gap just above $40 that could be filled, and technically the breakdown has a target value in the $39s ... some comments have placed it lower, but I think that is pushing it.
One thing that appears to be changing is that the transport index is starting to move up and its MACD has turned ... could make it hard for the airlines to move counter to that. Especially if the index is reading the economy as strengthening. That solves a lot of problems.
Nothing is easy.
unc ... at the analyst webcast last month, AAL gave a much higher number for their unrestricted cash than you are thinking. Actually, I think the number was closer to $9 billion, but would have to go back and look ... anyway, not near $4 billion. Thanks for the rating parameters ... they're in good shape.
// restricted Cash pile required for the credit rating //
unc ... how much unrestricted cash do they have? And can you explain where your credit rating statement is coming from?
iahphx ... I'm doing this by memory but isn't most of LUV's capacity in 2016 going to be international? If so, their 2015 domestic increase will in essence be spread over 2 years making it more aligned with gdp growth. And for that matter the same could happen with their 2016 capacity. As well, we will have to see if LUV does tweak down some capacity plans ... maybe, maybe not.
Although all capacity is capacity, LUV is only increasing departures 1% in 2015 with the remaining capacity being additional seats on planes and increased stage length.
Has anyone actually calculated what the cost of competing with Spirit out of Dallas to Las Vegas is? What would be the cost for AAL to run 4 more flights to LAS and charge "0" for a quarter and what would the EPS impact be? Obviously, they wouldn't compete like that, but it gives you what might be the worst case scenario.
Has anyone figure what would be the cost to the whole industry if they decided to compete with Spirit's whole network per year? That's not going to happen, but Spirit may want to consider staying in its niche.
// RASM won't decline if the seats are filled. //
Adding seats by themselves will drop prasm, total revenue will be the same though.
Adding seats and lowering some fares and filling the seats will lower prasm, but increase total revenues.
From a total revenue standpoint it can be neutral to positive, but be negative for prasm.
Sometimes I get the feeling people think decreasing prasm is a decrease in total revenue (which it could be in dire conditions, but not now). Do people really think that?
// they have 2 unique opportunities now: 1) Love Field restrictions ending; 2) an int'l terminal that IAH built for them. //
Yes, but the Wright Adm was dismantled over time. LUV probably felt entitled to traffic in the previous dismantled pieces of Wright ... and in the past they were able to get it. I think AAL is saying with this last dismantling, we don't see this the traffic you think you deserve as your assumed right. We are going to compete and match fares. Romo, LUV's CFO, is going to have to refigure the metrics. LUV is trying to paint this as an innocent move (within an oligopoly) ... other carriers could jump on them in markets they are not watching.
There has been some technical damage here, and things need to reverse quickly for things to settle down. Having said that a H&S pattern developed and there are gaps around the target of the H&S. Even LUV could head for the $35 area, DAL to $40 ... this downside action has been building for some time, and it seems down is where the industry is headed. Fundamentally, these prices are low if oil stays below $80 (Brent) and synergies are realized ... but sometimes fundamentals don't matter ... then they do matter.
For 2016, the words I heard were margins "above" 2014 and "thinner" than 2015 (remembered the word) .... yes, between 2014 margins and 2015 margins with some color.
And who knows, GDP could pick up and/or someone might scale back. DAL announced some capacity reduction later this year, didn't they (maybe that was international) ... their growth internationally raised some eyebrows earlier in the year ... they're making some adjustment. 2016 capacity growth by LUV is international as opposed to domestic, if I caught the drift. It's still capacity though.
// baked in the cake //
That's the question, and supposedly the reason for the low valuations is the capacity fear, so maybe it is baked in as you say ... I could make a case for the stock going either way ... or staying range bound. Not much help here.
For the time being, (and the margin projection can change) ... paraphrasing ... margins higher than 2014 and "slightly" (if that was the word) off 2015's margins. Anyway, for the time being, margins look closer to 2015 margins. Slightly off 2015 margins still gives some good earnings. And moving the res changeover up will put the synergies closer.
// LUV is the great disruptor right now ... //
Yes LUV is, but this capacity was in the works for a long time. Sometimes it is hard to "unplan" and you end up in not quite the favorable conditions you wanted. The industry will work through it.
Having said that, in the webcast, I think, AAL disrupted LUV's CFO whose figures probably went into that capacity planning when AAL said in a matter of fact tone after the others commented about capacity discipline, "AAL is going to match." Romo, LUV's CFO, who is generally articulate, and was when she presented LUV's capacity growth in her first comment, seem to stumble around searching for words after AAL's words of determination that they were going to match ... and continue to match. Both are competitors ... it should be interesting.
LUV's labor groups coming up for contracts should listen to the webcast. If I can paraphrase Romo, "umm our pilots, umm, umm are very, ummm nice. They are the highest paid in the industry. Ummm, we should, ummm, all like them umm." I could feel her calculating labor casm costs under a new contract she doesn't want them to get.
How about the regional banks, unc ... saw you over there on the board (RF).
Goodyear (GT) looks like it is breaking out of an inverted H&S which should take it to the $36-39 range ... has the earnings to do it too.