Delta reports record profit for Q4

[WorldTraveler]

So other carriers forced themselves into business arrangements that are now hurting their financial results?
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DL is indeed reducing capacity - because they recognize that doing so is necessary in order to match capacity to the prices that must be charged.
That in part comes because DL has the flexibility to reduce capacity where it needs to, in part driven because it has finished the merger integration process with NW.
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But regardless of the reason, we will see in about 6 weeks the difference in profitability at the various carriers based on their capacity strategies. With fuel rising, there is no way any carrier can afford to be flying capacity for any length of time beyond when it becomes apparent that it doesn't make sense to keep it.
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While carriers do not report yield change on a monthly basis, mathematically DL's yield is indeed increasing faster than the LF changes that form the other "half" of RASM increases and faster than other carriers.
And the carriers that have the best financial results will be able to pick from the best opportunities in the industry when consolidation begins - and it is indeed certainly coming.

 

[BoeingBoy]

So other carriers forced themselves into business arrangements that are now hurting their financial results?

A little dramatic? Forced is strong to say the least. For US, the min fleet/block hour language was negotiated into the transition agreement to prevent the company from shifting planes or block hours from one side to the other during the transition. Nobody expected that the TA language would be necessary, much less controlling, 7.5 years later. UA/CO had a choice - merge and be "forced" to work out a combined fleet plan without bankruptcy leverage, or not merge. I guess you would call deciding to merge "forced". DL was lucky - it and NW out of bankruptcy before UA and able to get the merger process behind it while it's ongoing at UA. You can call it "strategic vision" but even a blind squirrel finds a nut now and then.

While carriers do not report yield change on a monthly basis, mathematically DL's yield is indeed increasing faster than the LF changes that form the other "half" of RASM increases and faster than other carriers.

I guess it's time for airline statistics 101 refresher training. Revenue is the other half of RASM, not LF. As I said, revenue should be up year over year given the fare increases last year and this year for part of Feb. If you take the statistics as a whole, DL had RASM performance about the same as US. The difference is that US increased capacity because of aircraft orders placed in 2005 and the transition agreement, while DL had completed it's merger and had no restraints on capacity reduction.

Jim

 

[WorldTraveler]

Jim,
how about you work REAL hard not to turn this into one of your usual pi78ing matches and instead discuss the issues as issues and leave the personal accusations and mud-slinging for some other part of your life? You can do it.
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I perfectly understand that RASM is composed of how well you fill the plane (LF) and the revenue you get for each seat (yield). If you reduce capacity, you have a good chance of improving yield. But remember that reducing capacity also results in decreased costs. It doesn't make sense to be flying half full airplane any place in the world at these kinds of fuel prices, esp. during the winter to/from Europe where airlines could lose money with 80% LFs because fares have to be discounted so much.
Your excuse about why US increased capacity doesn't explain why US chose to increase capacity on its TATL system in Feb. There might be a good reason - but I haven't heard it. Neither 321s or 733s serve Europe.
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It doesn't really matter the reason that US has for increasing capacity while replacing older aircraft. I have no doubt that the 321s can be flown for a lower CASM so it does make sense to do the upgrade. But if they simple do a one for one swap of aircraft, they are certainly going to watch RASM go down in the face of higher fuel prices because fares are not going to increase at the rate they need to given the increase in fuel prices while also adding capacity.
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The option is to replace the 733s with 321s BUT THEN reduce the number of flights.
Now of course you don't want to hear what DL is doing but DL is replacing DC9s with M90s and they specifically said they will keep capacity flat but will reduce the number of flights because M90s are lower CASM but larger. They will not operate the number of flights they did with the D9s because increasing capacity through larger gauge will force down RASM.
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Luck is when you do something and the chances of it repeating are slim.
Doing something right means KNOWING how to get the results you need to get and knowing the timing when it needs to be done. Remember "you gotta know when to hold 'em and know when to fold 'em"
While you don't want to hear it, DL has been running its business very well since it emerged from BK and we will see even further divergence of DL from the rest of the pack during this year.
UA has done a very good job - but they have not addressed merger integration for labor... they still are operating way more capacity than their system can face, and they have the largest overlap with AA which has gained a little breathing room. Given that AA isn't going to reduce capacity until it gains some sense of closure with its labor situation, it makes it harder and harder on UA to justify pulling its own capacity.
US is making good short-term decisions... they just have not and cannot address their long term strategic needs.

 

[BoeingBoy]

Jim,
how about you work REAL hard not to turn this into one of your usual pi78ing matches and instead discuss the issues as issues and leave the personal accusations and mud-slinging for some other part of your life? You can do it.

What's the matter...don't like your mistakes pointed out?

Your excuse about why US increased capacity doesn't explain why US chose to increase capacity on its TATL system in Feb.

There is a reason for fluctuations over the winter season, but I'll leave it for you to figure out - the Whole Truth and all that...

But if they simple do a one for one swap of aircraft

Why is it so hard for you to understand that US has no choice but to do a 1 for 1 swap given the TA language that's still in effect 7.5 years after it was negotiated?

they are certainly going to watch RASM go down in the face of higher fuel prices because fares are not going to increase at the rate they need to given the increase in fuel prices while also adding capacity.

So now your tying RASM to changes in CASM? Somehow you take US increasing RASM and increasing capacity in Jan/Feb as if it didn't happen. What part of "RASM and capacity can both increase" or "RASM and capacity can both decrease" and everything in between don't you understand?

The option is to replace the 733s with 321s BUT THEN reduce the number of flights.

What part of US being unable to reduce airframes or block hours don't you get?

Jim

 

[WorldTraveler]

It's about being able to discuss something in a civil manner. You or anyone can challenge me regarding anything you want. But turning it into a pushing match tells me way more about you than me. The fact that you use the same style with other people in conversations that I am not a part of shows that you need to learn how to have cordial discussions, even where you don't agree.
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Winter or not, there is no basis for adjusting TATL capacity in the face of a European economic crisis and high fuel prices. Since US doesn't provide the level of details behind their regional data that other carriers provide (do you wonder why), it basically takes waiting for DOT data to come out to figure out how well US did.
But when they increase capacity in regions where no one else thinks it makes sense to do so, then it is mighty hard to listen to their arguments about the revenue deficit they have compared ot other carriers. Of course the option is for US to admit they don't have a network capable of supporting the type of transatlantic system that can be operated year round to all destinations - and then there would be justification for why their employees need to make less than their peers at other airlines. Flying airplanes as empty as US flew in Feb makes no economic justification. Period.
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Again, if US signed an agreement that requires them to do a one for one swap, then they have to live with the consequences of that. I am not saying they should break their contract.
You are the one that wants to justify why US increased capacity and why their RASM growth trailed other carriers, esp. DL who cut capacity - and did it the most on TATL flights where they specifically noted they obtained significant increases in LF and yield. Other carriers including DL did not tie themselves to agreements that require them to increase capacity where it isn't justified to do so and other carriers are able to gain the financial benefits from having that flexibility. It's that simple.

 

[BoeingBoy]

It's about being able to discuss something in a civil manner.

Like when you offered to take your crayons and draw me a picture???

Winter or not, there is no basis for adjusting TATL capacity in the face of a European economic crisis and high fuel prices.

Wrong. US does heavy maintenance on the planes used for TA service during the winter. With a relatively small fleet of such planes, a monthly ebb and flow of capacity is normal - an A333 comes out of heavy and a 767 goes in, capacity increases. The A333 goes in to maintenance and a 767 comes out, capacity decreases. One airplane may be in heavy maintenance for 6-8 weeks, another for only 2-3 weeks. I suppose that US could just park some of the TA fleet in the winter - paying for the planes with no return - or fly them domestically and lose money with more domestic capacity than needed, but why?

Again, if US signed an agreement that requires them to do a one for one swap, then they have to live with the consequences of that.

The agreement doesn't call for a one to one swap. Prior capacity reductions resulted in the fleets being at minimum and west block hours also being at minimum, so no further capacity reduction is possible. Given the airplanes being delivered, there really is no option to decrease capacity - getting A321's and A332's while retiring 733's isn't a zero sum game. Likewise on the express side where the number of planes operated by various carriers are governed by contracts. To the extent possible, US has been up-sizing the express fleet, but with the number of planes set by contract that also means an increase in capacity. Unfortunately, some of those contracts are a result of short-term decisions to keep the doors open in BK II as opposed to decisions of what would be best long-term - the long-term doesn't matter if US can't keep operating for the short-term.

Jim

 

[WorldTraveler]

I don't enjoy saying stuff like the crayon comment but sometimes all of us need a 2X4 up the side of the head every now and then. You have argued points of minutae and twisted my comments around enough times that it is obvious more than once you want to argue and find a reason to be right more than you are interested in having a conversation. As such, you shouldn't be surprised when you get called out for that type of tactic. I don't have any doubts about your passion for the airline industry or the time you have invested to learn what you know. Treat other people who have different opinions with the same respect you want shown to you.
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That said and moving on, I suppose your argument about swapping 767s out and 333s in for maintenance might make some sense... but is not possible to recognize that Feb is probably the MOST DEAD MONTH for TATL traffic ... can the schedules for maintenance not be set up such that 333s don't need to fly routes in Feb that they don't need to... I still have not heard a good reason why US should be flying 55% LFs in Feb.
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I don't have US' schedules memorized but did they not start several new routes CLT-Europe last summer... not sure if there is anything that remained operating through the winter that didn't operate the year before, but if so, perhaps that is why capacity is up.
And it still remains that US really did not NEED to be adding capacity on the Atlantic over the winter... and having the lowest LF for the industry doesn't help US' financials.
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Your last sentence of your post perfectly sums up what I have been saying.... US is not necessarily running their business w/ the best long term objectives in mind because they are focused on the short-term. If so, then they shouldn't be surprised if they underperform the industry on financial performance and they shouldn't blame their network compared to others as the reason for their underperformance. US could be operating its own network to produce better profitability if they weren't trying to move from one less than ideal situation to another. It also explains why alot of people who understand how US operates can't realistically believe that AMR's creditors are going to entrust a company that has assets worth far more than US' to US mgmt when US hasn't figured out how to manage its business for the best long-term profitability - both now and in the future. Continuing to make short-term focused decisions doesn't cut it at the same time they are arguing for why they (or others) are arguing they should be given the chance to pick up some of the industry's best assets.

 

[BoeingBoy]

Your last sentence of your post perfectly sums up what I have been saying.... US is not necessarily running their business w/ the best long term objectives in mind because they are focused on the short-term.

And you chastize me for spin....

Note that I said that in BK II US made decisions necessary to keep operating. Yet you somehow twist that to mean at the present US is making only short-term decisions...

Sure, US could take delivery of A332's and park them. They could put them on GSO-CLT and run 30% LF's instead of over 50% LF's in TA service. I don't keep up with DL schedules, but does the mighty DL park airplanes for the winter when travel demand is down?

The airline industry is a seasonal industry. Summer is the longest high LF period, with major holidays, spring break, etc thrown in during the year. Does DL park a significant portion of it's fleet every winter just because traffic declines? An airplane sitting produces no revenue. An airplane flying, as long as it produces enough revenue to cover the DOC, is a break even proposition. If it produces more revenue it's a positive to operate it.

Jim

 

[WorldTraveler]

ok...so it is MORE fair to say that US' is operating less efficiently today because of decisions it had to make in BK - but that they are not necessarily making the same decisions again today.
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If the issue is that US is taking delivery of new aircraft at less than ideal times of the year, then that is a viable explanation for adding service to Europe... but the impact is still the same... for whatever reason, US is flying half full aircraft to Europe - which does affect profitability. Presumably, this is a one time event so the problem should not be there in future years.
But it still says that not every carrier is having to operate less efficiently, regardless of the reason... when US says it wants to be compared to the big 3 but is forced to live with decisions that are limiting it, then the impact will be real.
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and yes DL does operate a significantly smaller winter int'l schedule than it does in the summer, esp. to Europe. For the past several years, they have been able to push overhauls and mods to the winter so they have had no excess of airplanes overall... but DL has also said that it wants to get rid of the huge seasonality swings that are part of its European business - which is precisely why they decided they would leave alot of markets like Kiev, Budapest, Berlin which have strong summer performance but are dogs for the rest of the year. They have decided it isn't worth it to keep assets around all year if they can only be profitably used for a few months per year. Japan-Hawaii and Guam have strong winter seasonal performance which does provide some offset to the downturn to/from Europe.... but there is only so much that can be offset.
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I understand that US is a smaller airline and doesn't have the flexibility of larger airlines which have alot of redundancy in their systems.... but that is also an argument for why larger carriers have the potential to outperform smaller airlines that compete in the same space as the megacarriers.

 

[tom barry]

Pardon me....WT, but changing the subject just for a brief second, I see that JET-A is $ 3.30 a gallon today.

NOT GOOD, for an outfit flying virtually every jet A/C !

 

[WorldTraveler]

Yes, you are right, Tom, that fuel prices are soaring and you can look at airline schedules around the world to realize that as fuel prices go up, demand goes down, and capacity has to be removed from the airline system some how.
Thus, it comes down to the carriers that have the best financials who are best able to control their future and make moves that are in their best interests.... that is why so many of the small and medium size carriers in Europe are either shutting down or face very uncertain futures; US bankruptcy laws have allowed the US carriers that have successfully emerged to manage their costs while the big Euro carriers have alot more resources at their disposal. There will be a number of failures in the global airline industry and US carriers will not be exempt.
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Virtually all of the largest carriers in the world operate very complex and diverse fleets - including UA in the US and AF, BA, and LH in Europe. Operating small fleets of aircraft is not efficient but operating fairly large fleets of multiple fleet types has not been shown to produce the increased costs that many say mixed fleets produce, esp. when each of the fleet types have favorable economics.... in DL vs UA, the only real added complexity comes with having 330s as an additional widebody type yet the 330 is a very cost effective airplane and DL is able to use it in markets where its economics best work. DL is getting rid of the older DC9s but also the CRJs at contract carriers and the pace of those replacements as well as replacements for the M80 fleet will probably accelerate if DL does move forward w/ acquiring the FL 717s - even though DL says for now they have no plans to get rid of the M80s and can easily cover the costs of operating the M80s through appropriate fares.
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We will see in a couple weeks how well the industry is doing - but you can count on significant cuts in capacity throughout the industry this year - esp. after the summer is over. Those carriers that have the strongest financials will be the ones that will be able to acquire markets from other carriers either through internal growth or external mergers and acquisitions.
The strongest get stronger and the weakest die off... that's the reality of the business world.

 

[tom barry]

WT, this question.

(Hypothetically), from 4/12 to 12/31/12, Jet-A goes from $3.30 to $4.00.
During the above period, do you feel that its an advantageous time to be in BK, or not ? (ie: AA)

 

[WorldTraveler]

WT, this question.

(Hypothetically), from 4/12 to 12/31/12, Jet-A goes from $3.30 to $4.00.
During the above period, do you feel that its an advantageous time to be in BK, or not ? (ie: AA)

a simple look at airline history will show you that the most dangerous place to be in an airline downturn - which is what happens w/ high fuel prices - is in BK.
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Look back before 2001 (since all four network airlines that filed after 9/11 successfully restructured) and you will see that fuel price spikes led to airline failures - and those in BK were often the first to go.
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In BK, airlines have the opportunity to restructure but they do not get a PASS on paying their bills. Specific to fuel, right now there is no more than 5% difference in what carriers are reporting for fuel costs... if anything, BK has historically removed the ability to hedge fuel. AA fought hard to try to keep the right to hedge but their most recent quarterly report shows they have about 20% of their fuel hedged compared with 35% a year ago.
FWIW, DL is reporting the lowest estimated fuel prices; they changed the way they hedged but are not saying what they are doing or how much fuel they are actually hedging.
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The other major part of AA's restructuring that must happen for AA to emerge is to improve their revenue... I have been sounding the alarm for about 2 years that AA's RASM growth (the revenue it generates for every seat mile it flies) has fallen to below average for the industry. BK does not fix revenue problems - if anything, there is a short-term hit to revenue as other airlines move more aggressively into your markets (and that is exactly what is happening to AA) and as corporate customers who can get the same price choose to sign contracts with companies not in BK.... it has happened before and it is happening again with AA. Further, more and more analysts are doubting AA's claims that they can grow their revenue as they say they will as part of their turnaround plan. Creditors are very loathe to allow companies to grow or venture into new revenue while in BK, esp. in the midst of industry downturns - because there is more risk than just running the network you know. So, AA's growth plan and revenue improvements, even if they eventually come, will not help them in their turnaround. You can find links to some of those articles elsewhere on this site.
Another FWIW, DL is generating the highest RASM growth among the network airlines and near the top of the industry for all carriers - and they say they expect it to continue.
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The real advantage to AA in BK is to be able to cut labor costs and modify contracts - such as airplane leases... but AA was at a disadvantage to their peers before BK and likely will only end up w/ costs in those areas on par with its peers, not better.

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Other carriers are outperforming AA on revenue, growing their revenue base in new markets, buying fuel at levels comparable to or better than AA, and already have labor costs and aircraft costs as good as or better than AA.... so there is no evidence that AA is any better off in BK and based on history probably alot more vulnerable.
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If AA continues to post losses, there is a point at which the creditors say the business cannot be turned around and either entertain proposals to buy the company or move for it to be liquidated.
Creditors will not allow any company to continue to lose money and destroy their chances of recovery.

 

[tom barry]

Might be a Good Time for.."2 gun CRANDALL to saddle-up " "If he were-a-fixin'-to" !!!!!!!!!!!

 

[WorldTraveler]

Might be a Good Time for.."2 gun CRANDALL to saddle-up " "If he were-a-fixin'-to" !!!!!!!!!!!

There are many types of leaders.... Crandall was a builder who succeeded because he had a strong foundation on which to build. It is doubtful that his skill set would work for where AA is now.
AA needs a very special kind of leader. I don't know who it would be but AA's problems run very deep and have existed for a very long time.
My heart breaks as bad as yours when we watch a legend like AA slowly implode - but the airline industry is littered with examples of companies that were unable to recognize and correct their problems.
We will simply have to watch what plays out over the next several months but there is no doubt this will go down as a brutal year for the global airline industry and the US industry will not be exempt.