AMR (American Airlines)
Overview : Atrocious results for yet another quarter raise questions about what Carty has up his sleeve, and more importantly how long before he implements it. Operating margin improved marginally over Q1 but is still at an absolutely horrendous -20%, the worst among the majors by a long way. Year-on-year CASM continues to increase, which is not good and points to the need for more cost savings. Load factor remains anorexic at just 71.4% with a breakeven of 86.4%. AMR was the only major to announce an actual DECREASE in RASM from Q1 to Q2 which is a very troubling sign. Cash position remains very strong, but continues to be depleted by this poor operational performance.
Outlook : Unless there is a major change to AMR's revenue model or cost structure, this airline will go nowhere really fast. I'd give them till Q3 before I start seriously worrying, but if there isn't a DRASTIC improvement by Q4 its time to hit the panic button.
Q2 Grade : D-
CAL (Continental Airlines)
Overview : Its a pity that Continental is mired in so much debt, because from an operational standpoint they are the absolute cream of the crop. Q2 numbers remained solid, with negligible variation in most major categories, except for a nice solid reduction in CASM. Operating margin is finally positive, albeit barely by a nose, but is a welcome step in the right direction. Load factor was a good, but not great 74.6% on a breakeven of 76.9%. Liquidity is sufficient with a target float of $1.2b, but debt is fast reaching levels of serious concern.
Outlook : The operational side of the house is a textbook case on how to run an airline well, but the books are in a mess thanks to the debt. The pilot contract will likely add a fair chunk to the CASM, meaning that this quarter's positive spread may be a one-time deal for now. As long as the operational side stays solid, they will continue to motor along albeit slightly bruised.
Q2 Grade : B
DAL (Delta Air Lines)
Overview : DAL's operating numbers were the most pleasant surprise of Q2. Whatever secret ingredient they add to the water on Virginia Avenue, they need to keep doing that 'cos its working bigtime. Healthy increase in RASM was accompanied by a nice chunk of CASM reduction. Load factors were up by 5 points to a strong 73.4% on a breakeven of 75.8%. Operational margin improved almost 9 points to just around -3%. Liquidity is comfortably strong and debt is very manageable.
Outlook : DAL is the first of the majors to redefine their target revenue model away from yield and it seems to have worked for now. With a little fine tuning and marketing, there is no reason to doubt the eventual success of this model, possibly even as soon as Q3. If Fred Reid can continue to maintain this pace of improvement, DAL will be poised to become the dominant carrier in the near future.
Q2 Grade : A
NWAC (Northwest Airlines)
Overview : Solid is the best way to describe NWAC's Q2 performance. Small but steady improvements in every major area contributed to a satisfactory overall performance. Interestingly, NWAC was able to show an IMPROVEMENT in BOTH yield AND load factor from Q1 to Q2. Operating spread came oh-so-close to positive territory, but wound up just short at -1.4%. Cash position is a monstrously strong $2.8b, giving them either a war chest for a shopping spree or a savings account for a rainy day.
Outlook : If I had to pick one airline that is perfectly poised today, it would be NWAC. The combination of stong operational performance, coupled with cash in hand as well as the prospect of further operational streamlining as the fleet renewal program continues gives them an enviable position. Ironically, their moves in early Q3 last year gave them the perfect headstart over the competition when 9/11 came along and they were able to capitalize on that. Richard Anderson has the patience to wait for the right time before making any moves with his cash, whether that may be through acquisition or growth or simply a buffer.
Q2 Grade : A
U (US Airways)
Overview : David Siegel delivered some very healthy improvements in his first quarter on the job. CASM is down and RASM is up, which shows a healthy focus on fundamentals. Load factor jumped almost 7 points over Q1 to 75.1%, but breakeven remains an impossible 87.8%. Operating margin also improved 8 points, but isn't yet out of danger at -10.5%. Cash position is poor, but not a major concern because of the ATSB approval.
Outlook : Siegel turned CAL around with his operational genius and seems to have started on the right foot here as well. Yields continue to outstrip everyone else, meaning that a focus on higher load factors coupled with CASM control is the path to recovery. If the unions play ball and the ATSB guarantees produce no pitfalls, we just might see another miracle. I'm more optimistic now than I was 6 months ago, so let's wait and see.
Q2 Grade : B
UAL (United Airlines)
Overview : Baby steps in the right direction helped UAL slightly in Q2, but there is still an uphill climb to recovery. Yield showed surprising improvement to 11.36, as did load factor to 74.4%. However, breakeven is still out of reach at 87%. Operating margins improved slightly, but still runs almost -13%. CASM was down fractionally over Q1, but is still higher year-on-year. The once proud cash position has been eroded to the point of almost vulnerability, and debt is also beginning to mount.
Outlook : Rono Dutta continues to focus on the traditional yield-driven revenue model rather than adopt the changes made by DAL and NWAC. The jury is out on whether this will work in the long run or not, but in the short term the focus must be on CASM reductions. So far its been too little, and I hope for UAL's sake that it doesn't get too late.
Q2 Grade : B-
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada