more US Air woes.....

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Consumers type in a city pair and instantly get offers from 6 or more airlines with each of them offering several flights at different prices. This makes it nearly impossible for one or two airlines to raise fares.

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Just a quick note on this, especially given the horrid weather in IAH the past week. I really think consumers need to educate themselves more on the tickets they're buying. Hotwire, Priceline, Orbitz, etc offer super low fares for a reason. Those tickets are MASSIVELY restricted. For example, if you buy certain tickets from Hotwire and your flight cancels due to weather, well, you're stuck. If you read the fine print, the fare is restricted to the point where the airline will NOT re-book you on a later flight without purchasing another ticket. Buy a ticket from Priceline, get the airport early, and want to take an earlier flight? Sure, that'll be $100 for the change fee. Right now some of the fares are so low everyone is flying, but they expect full fare service at wholesale prices. I had a guy come unglued on me the other day because I couldn't let him use his Northwest ticket on Continental (damn I hate codeshare agreements) so he could get to IAH on an earlier flight. Pulled up his res, and he had paid about $79 on Hotwire.

IMO, flyover hit the nail on the head with the legacies' major problem: debt. They spent so much money expanding and buying aircraft to service that route, that they are now swimming in debt that they can't service. That's the main reason that US Air and United are circling the drain. It's not the costs that are dragging them down (well, fuel probably has a little to do with it), it's the debt they incurred from questionable business practices up to a decade ago.
 
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......it's not the costs that are dragging them down (well, fuel probably has a little to do with it), it's the debt they incurred from questionable business practices up to a decade ago.

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On the whole the airline industry has never been even close to profitable. But within the industry those airlines that have been consistently profitable always did it primarily by having a cost advantage. Going forward it should be more of the same. If you can't compete on cost you might as well get out of the business or be driven out.
 
So, I was bored and decided to go through some annual reports from 2003. Okay, so I was REALLY bored. This is what I came up with as far as cost per seat mile go.....

US Air ---- 11.36c
Delta ---- 10.48c
Continental ---- 8.73c

Kinda big difference there in the majors as far as who's doing well and who isn't. While Continental may not be raking in the dough, they are doing a tad better than the other two. Now what about revenue?

US Air ---- 10.75c
Delta ---- 9.17c
Continental ---- 9.36c

Anyone that can do basic math can see that US Air and Delta just ain't cutting it in the break even department, while Continental actually made a tiny bit. Now let's check the LCCs' costs.

SWA ---- 7.60c
JetBlue ---- 6.08c

Oh the advantages in costs of a single type fleet. I still have no idea HOW JetBlue comes up with a 6.08 CASM. I have a feeling either that doesn't show the loans they will eventually have to pay to Airbus or there's some Enron numbers going on. How about their revenues?

SWA ---- 8.27c
JetBlue ---- 7.32c

Both managed to bring in more than the seats costs, and SWA edged JetBlue by a margin of maybe 1/2 cent. How about those RJs?

Independence Air ---- 21.8c
ExpressJet ---- 13.4c
Mesa ---- 12.3c

Wow. Looks like those RJs are a bit expensive to operate. Mesa's numbers are probably a bit skewed since they don't break down their CASM between RJs and B1900s. Then again when you pay your pilots in peanuts, your costs are gonna be rock bottom..... Revenues?

Independence Air ---- 11.2c
ExpressJet ---- N/A
Mesa ---- 13.4c

Yep. FlyI is taking a beating there. Their revenue is actually MORE per seat than anyone but Mesa, but the costs are so high it doesn't really matter. I was suprised at Mesa's revenue numbers. I was expecting them to be lower, but who's to say JO hasn't hit the books with his "magic touch." ExpressJet is a weird beast, at least for now. The current contract with Continental is that CAL mainline buys EVERY seat on XJT. It's a win-win situation since if the plane goes out totally empty (hey, there was a CLE flight Friday booked to TWO), XJT still makes money. Expect this to change next year or the year after when the contract with Continental gets re-negotiated.
 
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SWA ---- 7.60c
JetBlue ---- 6.08c

How about their revenues?

SWA ---- 8.27c
JetBlue ---- 7.32c

Both managed to bring in more than the seats costs, and SWA edged JetBlue by a margin of maybe 1/2 cent. How about those RJs?

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First of all kell, great post. But from your numbers, it looks like Jetblue has a higher revenue margin to me, though - 1.24 vs. .67

jetBlue has some lower costs for various reasons, mostly size. They only maintain two facilities right now. Southwest has many more bases. Also, jetBlue got a sweet financing deal from Airbus with LOW LOW rates.
 
And those sweetheart deals on the leases start getting a lot less sweet very rapidly. We'll see how long JetBlue remains Wall Street's darling after they start paying much more on those leases.
 
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And those sweetheart deals on the leases start getting a lot less sweet very rapidly. We'll see how long JetBlue remains Wall Street's darling after they start paying much more on those leases.

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I'm curious what your source is on this. This was a hot rumor (still is) at my former legacy airline. Our union financial analysts said it was not accurate and that JetBlue was paying industry standard lease rates and maintenance costs.
 
I saw something from Mike Boyd (analyst) that talked about maintenance and lease "holidays". I'll try and dig it up when I get a chance and/or hold interest! (just being honest)
 
When I interviewed at jetBlue (at least one of the times I interviewed) I had a chance to sit down with the CFO. I asked him about the Airbus deal. He would not give out numbers, but he said it was very favorable with a relatively quick payoff at low interest rates.
 
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And those sweetheart deals on the leases start getting a lot less sweet very rapidly. We'll see how long JetBlue remains Wall Street's darling after they start paying much more on those leases.

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I'm curious what your source is on this. This was a hot rumor (still is) at my former legacy airline. Our union financial analysts said it was not accurate and that JetBlue was paying industry standard lease rates and maintenance costs.

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I read an article on JetBlue this weekend and they debunked this rumor. They got a deal (when compared to Boeing) on the A320s, but they have been paying on them on delivery day 1.
 
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When I interviewed at jetBlue (at least one of the times I interviewed) I had a chance to sit down with the CFO. I asked him about the Airbus deal. He would not give out numbers, but he said it was very favorable with a relatively quick payoff at low interest rates.

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Well that may well be. Airbus and Boeing have been fighting for this market and especially in the 737/320 fight I expect both to give good deals. I'm sure AirTran did quite well with Boeing on the 37s. Nobody ever discloses the true cost of these deals because of all the discounting.

But at some legacy carriers this has devolved to a "JetBlue is paying nothing for the airplanes for the first (fill in the blank) years and maintenance is nothing and boy when those chickens come home to roost they'll be in real trouble and then things will be OK for us" kind of prayer.
 
Arrrgh, I'm drawing a blank here. I remember going through the management discussion of their financial statements, and looking at the projected aircraft rent and seeing it go from virtually nothing to a big number. It was a LONG time ago, about a year ago, that I saw that, and I so don't want to dig that up now.

Believe me, I didn't pull it out of my butt. Trust me on this one, okay?
 
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Arrrgh, I'm drawing a blank here. I remember going through the management discussion of their financial statements, and looking at the projected aircraft rent and seeing it go from virtually nothing to a big number. It was a LONG time ago, about a year ago, that I saw that, and I so don't want to dig that up now.

Believe me, I didn't pull it out of my butt. Trust me on this one, okay?

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Could that be because their fleet is rapidly growing? It's no big deal, but as I said I've personally heard some accounting types debunk this "rumor". Having said that I think JetBlue has a steep climb ahead of them. That northeast market is the holy grail and whether it is SWA or bankrupt/reorganized legacies or more new entrants, the competition will be stiff.
 
It very well could be due to the growth of the fleet. I don't recall exactly the specifics.

What I was struck by was that in their first few years of operation, the leases were practically nil and they were projected to grow very rapidly. Now, that may have been due to market conditions. With the complaints filed with the WTO alleging that Airbus is using below market prices and leases to gain business, it wouldn't surprise me if that was just the way Airbus got JetBlue's business.

Nevertheless, if you've got increasing fixed costs, and increasing operating costs such as fuel (who'd have thunk we'd say that fuel at $47 a barrel was cheap) and then you add in the costs of operating a multiple aircraft fleet, it is not an easy hurdle to overcome. And their labor won't stay cheap forever, union or not.
 
According to JetBlue's 2003 annual report, they own 29 A320s and lease 24. The leases are due to expire between 2009 and 2013, and the 29 owned a/c are "subject to secured debt financing." I guess that means they plan on using the equity in those aircraft to secure financing on the 100 ERJs they ordered.
Here's their long term debt payment:

2004 $102
2005 $103
2006 $99
2007 $98
2008 $98
After $934

Those are in millions of dollars. This is quite possibly one of the most unhelpful annual reports I've ever looked at. Most of them have their long term liabilities broken down on the balance sheet. Not this one. This is what you get:

Long Term Debt --- $1,011,610,000

Now is that financing on a/c, financing for building HQ, financing for the new training center in MCO, financing ground equipment, or all of the above? They have $570,695,000 cash on hand according to the assets, and their flight equipment is valued at $1,220,272,000.
 
I hate to say this, as this will certainly effect me and my compadres, but At this point the best thing long term could be liquidation. This gradual slash and burn concept isnt working and really there is no clear plan that will work to turn things around.
 
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This gradual slash and burn concept isnt working and really there is no clear plan that will work to turn things around.

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I think we'll see routes and gates sold off before total liquidation sets in. Just ask Pan Am how well that works......
 
Haha routes and gates are being sold off...it's called Mid Atlantic Airlines, Piedmont Airlines, Allegheny Airlines, Chataqua Airlines, and oh yeah...Mesa Airlines.

US Airways is very smart with their Express carrier and in fact plans on drastically altering their routes in February to handle the slower time after the holidays. This includes a something like a 25% productivity increase by the pilots and parking (yes parking) 25 airplanes from mainline while our schedules increase about that much also.

Anyone that's been to Philly should know the gates aren't worth anything anyway...it's Philly...
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