worldtraveler
Posts: 3417
Joined: Tue Aug 05, 2003 6:18 am

Legacy Airlines Are Hot Again

Thu Oct 26, 2006 10:36 pm

Legacy Airlines Hot Again
By STAN CHOE AP Business Writer
© 2006 The Associated Press
NEW YORK — The nation's legacy airlines, previously cast aside by some investors, are suddenly hot again.
So far this earnings season, it's been the old-line hub carriers churning out strong profit reports and topping analysts' expectations. Low-cost competitors, meanwhile, have fallen short of Wall Street forecasts or announced scaled-back growth plans.
It's a stark turnaround from a year ago, when the list of network carriers in, entering or exiting Chapter 11 bankruptcy protection included Delta Air Lines, Northwest Airlines, United Airlines' parent and US Airways. The old-line carriers were seeking to cut costs and restructure to better compete with the upstart low-cost carriers.
More here:
http://www.chron.com/disp/story.mpl/ap/fn/4286737.html
 
richierich
Posts: 3282
Joined: Sat Nov 04, 2000 5:49 am

RE: Legacy Airlines Are Hot Again

Fri Oct 27, 2006 2:27 am

Interesting... the pendulum is definitely swinging, but it hasn't "swung" yet....
None shall pass!!!!
 
n844aa
Posts: 1266
Joined: Fri Jul 18, 2003 10:38 am

RE: Legacy Airlines Are Hot Again

Fri Oct 27, 2006 2:36 am

Quoting WorldTraveler (Thread starter):
The nation's legacy airlines, previously cast aside by some investors, are suddenly hot again.
So far this earnings season, it's been the old-line hub carriers churning out strong profit reports and topping analysts' expectations. Low-cost competitors, meanwhile, have fallen short of Wall Street forecasts or announced scaled-back growth plans.

Even if we accept this as generally true, I think the problem here is that it looks like we're nearing the end of a boomin business cycle. At this point (at least based on the few decades since deregulation) it seems like the legacies should be racking up billions of dollars in profits in order to make it through the coming slowdown. Instead, they're ekeing out relatively narrow profits on less-than-stellar margins.

Now, that said, I think there's reason to think that this partcular cycle might be different. The majority of the legacies have been able to pare costs either in or out of bankruptcy, and there haven't been any fat labor contracts given away in the law few years. At the moment, fuel costs look manageable, and may even improve significantly over the next year or two. And none of the legacies have recently placed big orders for jets that are due in the next couple of years. So it would seem their current business models are more sustainable than those that existed at the height of previous business cycles.

What all this means, I have no idea, other than that I won't be putting any of my money into the airline industry anytime soon -- though I sure wish I had left money in AMR after I bought it at $11 a couple years ago.  

[Edited 2006-10-26 19:41:00]
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune
 
worldtraveler
Posts: 3417
Joined: Tue Aug 05, 2003 6:18 am

RE: Legacy Airlines Are Hot Again

Fri Oct 27, 2006 8:58 am

what will determine survival is exactly what was the achilles heel for the legacies in the last downturn - high costs and debt service.

legacies are now reporting costs within 10-20% of the LFCs; DL is within 10% of several LFCs and lower than the new USAirways which bills itself as an LCC.

Also, it is the LFCs that have hundreds of planes on order - that will be what sinks them as they continue to have to buy new airplanes as the market continues to soften. FL and B6 already are adjusting for the inevitable but there is a limit to which Boeing and Airbus will allow those carriers to defer deliveries w/o penalties. You can sell planes if the economy in other countries is doing well but if its a global problem, you're SOL.
 
n844aa
Posts: 1266
Joined: Fri Jul 18, 2003 10:38 am

RE: Legacy Airlines Are Hot Again

Sat Oct 28, 2006 12:30 am

Quoting WorldTraveler (Reply 3):
what will determine survival is exactly what was the achilles heel for the legacies in the last downturn - high costs and debt service.

Are you saying that the LCCs are now potentially subject to the same reasons the legacies suffered in the downturn of previous business cycles? If so, that seems right, but I just want to understand what you're saying.
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune