World Says: "you fail to mention how much revenue UA has lost. costs had to come down not only to match the reduced revenue UA has coming in but also because they were way out of line w/ the rest of the industry as of 9/11. I have every confidence in Washington to make sure DL doesn't end up on the scrap heap that UA is on. "
I fail to mention it because it is of lesser importance than unit revenue, which I did mention. You can bring in all the revenue in the world and say you're growing the airline all you want, but if your unit revenue is not covering your unit costs, it doesn't matter if you're growing the airline with 10 new airplanes per month- you're still losing money. But you'll make it up in volume, right? And before you ask, UAL unit revenue per ASM is climbing faster than the industry average- DAL's is declining (see below). All the more reason cost cutting at DAL is so important- it has to make up for the hole it's in now plus cover declining unit revenue, assuming that trend continues plus cover the hole in their transformation plan that jet fuel is making (see below in the small print).
From DAL 10Q: "Although revenue passenger miles (“RPMsâ€), or traffic, rose 12% in the March 2005 quarter compared to the corresponding period in 2004, passenger revenue increased only 3% due to an 8% decrease in passenger mile yield on a year-over-year basis."
Unfortunately, it may take more than Washington help DAL out. Let's say Washington gives the airline industry timely help and pension obligations can be spread out over a larger time frame. If you noticed on DAL's 10Q filing, their EBITDAR levels have been raised per the GE/AMEX renegotiated deal, and the airline has about 510M due on principle (i.e. cash!) this year alone. That could put DAL in a very unfortunate position of burning up cash for the rest of the year (see quote from my post 2 above this one from DAL's 10Q), and then having to pay off significant debt while trying to meet these new, higher EBITDAR restrictions. It may not be possible. This is similar to a scenario that put UAL in bankruptcy almost 3 years ago. Hey, don't get me wrong. I don't want DAL to enter bankruptcy or anyone else for that matter. I'd rather deal with struggling competitors than ones that use the bankruptcy process to straighten themselves out!
World says: "Funny thing is that DL JUST began it's restructuring process and is expected to eliminate $2.5B of costs in the rest of 2005 while GROWING their airline. WOW! what a concept. "
You can see the above about "growing" the airline. It's a great concept if you can make money doing it. UAL cannot grow in bankruptcy for a variety of reasons, and will probably grow upon exit, if we do exit. And actually, DAL management says they'll have everything in place to cut 2.7B in costs by September of 2005 (not 2.5B). Like I feel about UAL's future cost cutting (or any company for that matter), I'll believe it when it shows up on the bottom line.
World says: DL is still very fragile because of their pension issues but they are shooting for the high road.....As for profits from either UA or DL, we know (at least I hope you do) that those can come and go based on the objective of management.
DAL is still very fragile for MANY reasons, not just the pension issue- here's a few of them below. I'm assuming that everyone's pension problems (except UAL's) will be solved to some degree legislatively. But the pension issue is the least of their problems, I think. From DAL's 10Q:
At March 31, 2005, we were in compliance with our financial covenants. However, there is significant uncertainty whether we will be in compliance with all of these covenants in the near-term or in future periods due to:
• the volatility of fuel prices, which remain at historically high levels. Crude oil is a component of jet fuel. Crude oil prices are volatile and may increase or decrease significantly. Our business plan assumes that the average annual jet fuel price per gallon in 2005 will be approximately $1.22 (with each 1¢ increase in the average annual jet fuel price per gallon increasing our liquidity needs by approximately $25 million per year, unless we are successful in offsetting some or all of this increase through fare increases or additional cost reduction initiatives). During the March 2005 quarter, our average jet fuel price per gallon was $1.42. The forward curve for crude oil currently implies substantially higher fuel prices for the remainder of 2005 than our business plan assumes. We have no hedges or contractual arrangements in place that would reduce our jet fuel costs below market prices.
• the expiration of our current Visa/MasterCard processing contract in August 2005 and the likelihood that our renewal or replacement processing contract will require a significant cash holdback to cover the processor’s exposure for tickets sold, but not yet flown. Our Visa/MasterCard processing contract is important to our business because a substantial number of tickets that we sell are purchased using Visa or MasterCard credit cards.
• the potential that other assumptions underlying our business plan may be incorrect in any material adverse respect. Many of these assumptions are not within our control, such as passenger mile yield, actions by competitors, pension funding obligations, interest rates, the achievement of all of the approximately $5 billion of targeted benefits (compared to 2002) of our transformation plan, and our access to financing.
Actually if your remember correctly, UAL also tried to "shoot for the high road" in the first year of bankruptcy in an attempt to save the pensions as well. You can see what that got us- a year behind where we should be.
World says: "sorry to be the bearer of bad news but you can say you read it here first.
You're the bearer of a lot of "news" alright. Like the news that we haven't been able to cut any costs other than labor costs, for example? Or the news that UAL is destined for incredible pain (yet no specifics as to exactly when or exactly how)? It's kind of like getting your news from Inside Edition instead of CNN.
No airline is going to make money at $55 bucks a barrel (except maybe SWA with their very fortunate hedges) with the way our little oligopoly is pricing its product today. Everyone's hoping that the music will stop, one guy won't have a chair, they'll be a sudden cut in supply, and then everyone can raise prices because a passenger really won't have much of a choice until supply catches up with demand, which could take many, many months. Barring anything unusual (hull loss, terrorist attack, sudden economic downturn, sudden spike in oil, etc.) it looks like UAL will have a chair to sit in. Will Delta (or Continental or Northwest or AMR?) if the music stops for them? I guess we'll see.
I fail to mention it because it is of lesser importance than unit revenue, which I did mention. You can bring in all the revenue in the world and say you're growing the airline all you want, but if your unit revenue is not covering your unit costs, it doesn't matter if you're growing the airline with 10 new airplanes per month- you're still losing money. But you'll make it up in volume, right? And before you ask, UAL unit revenue per ASM is climbing faster than the industry average- DAL's is declining (see below). All the more reason cost cutting at DAL is so important- it has to make up for the hole it's in now plus cover declining unit revenue, assuming that trend continues plus cover the hole in their transformation plan that jet fuel is making (see below in the small print).
From DAL 10Q: "Although revenue passenger miles (“RPMsâ€), or traffic, rose 12% in the March 2005 quarter compared to the corresponding period in 2004, passenger revenue increased only 3% due to an 8% decrease in passenger mile yield on a year-over-year basis."
Unfortunately, it may take more than Washington help DAL out. Let's say Washington gives the airline industry timely help and pension obligations can be spread out over a larger time frame. If you noticed on DAL's 10Q filing, their EBITDAR levels have been raised per the GE/AMEX renegotiated deal, and the airline has about 510M due on principle (i.e. cash!) this year alone. That could put DAL in a very unfortunate position of burning up cash for the rest of the year (see quote from my post 2 above this one from DAL's 10Q), and then having to pay off significant debt while trying to meet these new, higher EBITDAR restrictions. It may not be possible. This is similar to a scenario that put UAL in bankruptcy almost 3 years ago. Hey, don't get me wrong. I don't want DAL to enter bankruptcy or anyone else for that matter. I'd rather deal with struggling competitors than ones that use the bankruptcy process to straighten themselves out!
World says: "Funny thing is that DL JUST began it's restructuring process and is expected to eliminate $2.5B of costs in the rest of 2005 while GROWING their airline. WOW! what a concept. "
You can see the above about "growing" the airline. It's a great concept if you can make money doing it. UAL cannot grow in bankruptcy for a variety of reasons, and will probably grow upon exit, if we do exit. And actually, DAL management says they'll have everything in place to cut 2.7B in costs by September of 2005 (not 2.5B). Like I feel about UAL's future cost cutting (or any company for that matter), I'll believe it when it shows up on the bottom line.
World says: DL is still very fragile because of their pension issues but they are shooting for the high road.....As for profits from either UA or DL, we know (at least I hope you do) that those can come and go based on the objective of management.
DAL is still very fragile for MANY reasons, not just the pension issue- here's a few of them below. I'm assuming that everyone's pension problems (except UAL's) will be solved to some degree legislatively. But the pension issue is the least of their problems, I think. From DAL's 10Q:
At March 31, 2005, we were in compliance with our financial covenants. However, there is significant uncertainty whether we will be in compliance with all of these covenants in the near-term or in future periods due to:
• the volatility of fuel prices, which remain at historically high levels. Crude oil is a component of jet fuel. Crude oil prices are volatile and may increase or decrease significantly. Our business plan assumes that the average annual jet fuel price per gallon in 2005 will be approximately $1.22 (with each 1¢ increase in the average annual jet fuel price per gallon increasing our liquidity needs by approximately $25 million per year, unless we are successful in offsetting some or all of this increase through fare increases or additional cost reduction initiatives). During the March 2005 quarter, our average jet fuel price per gallon was $1.42. The forward curve for crude oil currently implies substantially higher fuel prices for the remainder of 2005 than our business plan assumes. We have no hedges or contractual arrangements in place that would reduce our jet fuel costs below market prices.
• the expiration of our current Visa/MasterCard processing contract in August 2005 and the likelihood that our renewal or replacement processing contract will require a significant cash holdback to cover the processor’s exposure for tickets sold, but not yet flown. Our Visa/MasterCard processing contract is important to our business because a substantial number of tickets that we sell are purchased using Visa or MasterCard credit cards.
• the potential that other assumptions underlying our business plan may be incorrect in any material adverse respect. Many of these assumptions are not within our control, such as passenger mile yield, actions by competitors, pension funding obligations, interest rates, the achievement of all of the approximately $5 billion of targeted benefits (compared to 2002) of our transformation plan, and our access to financing.
Actually if your remember correctly, UAL also tried to "shoot for the high road" in the first year of bankruptcy in an attempt to save the pensions as well. You can see what that got us- a year behind where we should be.
World says: "sorry to be the bearer of bad news but you can say you read it here first.
You're the bearer of a lot of "news" alright. Like the news that we haven't been able to cut any costs other than labor costs, for example? Or the news that UAL is destined for incredible pain (yet no specifics as to exactly when or exactly how)? It's kind of like getting your news from Inside Edition instead of CNN.
No airline is going to make money at $55 bucks a barrel (except maybe SWA with their very fortunate hedges) with the way our little oligopoly is pricing its product today. Everyone's hoping that the music will stop, one guy won't have a chair, they'll be a sudden cut in supply, and then everyone can raise prices because a passenger really won't have much of a choice until supply catches up with demand, which could take many, many months. Barring anything unusual (hull loss, terrorist attack, sudden economic downturn, sudden spike in oil, etc.) it looks like UAL will have a chair to sit in. Will Delta (or Continental or Northwest or AMR?) if the music stops for them? I guess we'll see.
