Morningstar thumbs down on LCC

[gso-crew]

Waving the Red Flag on Three Companies
Monday April 3, 7:00 am ET

Below are three companies we highlighted as Red Flags in recent past editions of StockInvestor. Though these stocks could very well bounce, none will make for good long-term investments, in our opinion. We simply think there are companies in the market that offer far better risk/reward propositions today.


US Airways (NYSE:LCC - News)
Rating: 1 Star
Economic Moat: None
Risk: Speculative
Stewardship Grade: B
From our Analyst Report: "Let's get one thing straight: Newlywed US Airways is not a low-cost carrier, no matter what its ticker suggests. Despite its newfound financial stability and some favorable near-term industry trends, US Airways cannot escape its poor business fundamentals. Considering the airline industry's history of value destruction and Morningstar's long-term, intrinsic value investing philosophy, we spend what may be inordinate time and effort evaluating the outlook for these businesses. What reason do we have to believe that the future will be different than the past? None. Near-term fluctuations in such factors as fuel costs, passenger demand, and fares will always make for plentiful speculative opportunity, but the industry's underlying fundamentals indicate extraordinarily slim operating profits in the long run."

 

[autofixer]

Shoulda' got rid of the USAIR Albatross.

 

[Benz M-100]

I notice the writer has a philosophy against this industry in general anyway. As for his specific comments on US, keep in mind the saying about opinions being like (fill in your own anatomical part)...everybody has one.

I'm not wildly optimistic, but I'm far more confident in the future than I have been in a VERY long time, naysayers notwithstanding.

 

[whlinder]

Over long periods of time this industry has always struggled to be profitable. It isn't like this is some profound new research, or that the analyst is biased against the industry. It is just the facts.

 

[flyin2low]

Over long periods of time this industry has always struggled to be profitable. It isn't like this is some profound new research, or that the analyst is biased against the industry. It is just the facts.

Morningstar is correct. What proof do we have that LCC has changed its ways. It's the same ole S//T over and over again. When is the 'cleansing' going to begin? Do we have to wait until 2009 when the generous financing runs out and no new business plan is formulated?

 

[TheNewLowFare]

From our Analyst Report: "Let's get one thing straight: Newlywed US Airways is not a low-cost carrier, no matter what its ticker suggests.

Ah....he's wrong. I just worked JFK LAS flight and had a discussion with a lady who booked a 9 day advance notice roundtrip fare. She told me she paid $289 for it from JFK ONT on HP via LAS while JetBlue was $549 roundtrip (non-stop). $289 is dirt cheap for a roundtrip "RED EYE" ticket.
Maybe he travels from a city where we don't have competition or maybe he just wants a story. Analysts have been proven wrong in the past.

 

[US1YFARE]

sounds to me that the writer is also complaining about what many of us have said repeatedly:

define yourself...(i.e., poor business fundamentals). This carrier cannot continue to charge the fares it is charging and offer very little in the way of service amenities in FC.

And, FA's like the two I had recently on a flight, please be assured that not all of your passengers are paying low, low fares. On that flight, the captain came out and asked what they were serving for breakfast (2 plus hour flight) and the FA's laughed loudly and said, with the fares these people are paying, they are lucky to get the snack basket. My fare was nearly $800 so I did not feel LUCKY to get the snack basket, I felt insulted--particularly after their remarks. The captain looked a bit mortified because he knew that everyone overheard what the two FA's thought was hysterical. Meanwhile, those two ate more out of the snack basket than any of the pax in FC.

 

[LCC_#1]

How can I have faith in what Morningstar has to say if they don't realize that US Airways IS under new ownership AND management?

And why should I really CARE what Morningstar says? This etrade company speaks from the past just like the negative boobs that lurk these boards.

I would have more faith in what these know-it-alls have to say if they would actually speak the truth and that is that OIL PRICES will continue to bring airline stocks down.

Morningstar has about much credibility with me as Stephen Wolf.

 

[BoeingBoy]

Ah....he's wrong. I just worked JFK LAS flight and had a discussion with a lady who booked a 9 day advance notice roundtrip fare. She told me she paid $289 for it from JFK ONT on HP via LAS while JetBlue was $549 roundtrip (non-stop). $289 is dirt cheap for a roundtrip "RED EYE" ticket.

Nope, you're just confusing selling cheap tickets with being a LCC. When the CASM is close to 12 cents, we're not a low cost carrier.

When we have that CASM and sell tickets for under 6 cents a mile, while B6 with a CASM of under 7 cents charges almost 11 cents per mile, you can call us many things - dumb is one of the first to come to mind - but low cost carrier isn't one of them.

Hopefully, DP will get a handle on the costs on the East side and we will become a low cost carrier. But he's got a ways to go .....

Jim

 

[john john]

Jim do you think LCC CASM is so high because they are skew results because of short hauls and small planes?And if LCC had big planes on short hauls would the CASM be profitable?

 

[BoeingBoy]

john john,

It's really a combination of factors, and to some degree depends on who you compare against.

WN has shorter average stage lengths but lower CASM than East mainline. Adjusting for stage length just make the comparison worse. On the other hand, West has longer average stage length than East, which is one of the factors that give West a pretty competitive CASM with WN.

The stage length data for US Express isn't published, so I'm merely guessing that the system average stage length is probably pretty close to WN - showing that RJ's, with their built in higher CASM have a big effect. And we (thanks to East) have a higher percentage of ASM's produced by Express than anyone (largely due to a limited international presence and few widebodies compared to other legacies).

There are many factors to our (and legacie's in general) higher CASM. Unfortunately, we (East) generally fall on the worst end of the legacies on most of them, which means we (East) are at a greater disadvantage to the true LCC's. Traditional banked hub/spoke system, relatively short average stage length, mixed fleet, large RJ presence, etc.

Changing any of those factors would lower CASM. DP's job is to change most or all of them if we want to truly become this "hybrid carrier". Just merging a pretty low cost HP with a pretty high cost US won't automatically make it happen.

Jim

 

[jimntx]

Ah....he's wrong. I just worked JFK LAS flight and had a discussion with a lady who booked a 9 day advance notice roundtrip fare. She told me she paid $289 for it from JFK ONT on HP via LAS while JetBlue was $549 roundtrip (non-stop). $289 is dirt cheap for a roundtrip "RED EYE" ticket.
Maybe he travels from a city where we don't have competition or maybe he just wants a story. Analysts have been proven wrong in the past.

Now, you should take that revelation on ticket prices to your company accountants and ask them if LCC can make a profit on that $289 r-t transcon fare. My first guess on the anwer would be NO.

As BoeingBoy stated, selling the cheapest ticket does not a low cost carrier make. The ticket is on the other side of the equation.

(Ticket price x no. of tickets sold) should be equal to or greater than the cost to transport those fannies from Point A to Point B. All of us in the "legacy" category are struggling with this particular equation now. (Yes, I know that is an oversimplification, but deal with it. )

 

[john john]

Thanks Jim as always RIGNT ON!

 

[ClueByFour]

I notice the writer has a philosophy against this industry in general anyway.

Very few industries have collectively lost more money than they have ever made. The airline industry is probably the largest and most egregious example.

 

[Travels2mch]

Just curious if you got the upgrade? Assuming that you did, I for one would have "Gently" mentioned that I found the comment offensive and depending on the response I may well have written to the Sandcastle.

[

I don't know if I would have even mentioned anything to them.....but I guarantee I would have walked off that aircraft with their names and be emailing the sandcastle the minute I hit an internet connection. That to me is a totally inappropriate and offensive comment. And BTW, I know 2 US F/A's that were fired for making derogatory comments overheard by customers....one of them was a friend of mine.