Financial trouble ahead for the big US carriers - again
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Maybe it's less of an issue for the domestic flights, but as a passenger, I've never touched a US carrier (nor BA) ever since my first experience of them, despite the option (and cheaper at that) being present.
On international routes I currently do go for quality over price.
Maybe it's my naivety, being young I've never experienced a recession before, but I do like to think I'll still keep choosing quality over price. At the end of the day *some* at least (I agree I'm in the minority but maybe there are more like-minded individuals than you at first think) do regard air travel as a journey and not simply another means of public transport.
(I'd rather spend less of my cash elsewhere than crimp on my air travel preference - i's just not fair on the quality employers otherwise.)
On international routes I currently do go for quality over price.
Maybe it's my naivety, being young I've never experienced a recession before, but I do like to think I'll still keep choosing quality over price. At the end of the day *some* at least (I agree I'm in the minority but maybe there are more like-minded individuals than you at first think) do regard air travel as a journey and not simply another means of public transport.
(I'd rather spend less of my cash elsewhere than crimp on my air travel preference - i's just not fair on the quality employers otherwise.)
Buttonpusher
There's a little more to the "losses" other than operational, it's spin at it's finest.
Behind the Delta-NW Mega Loss
Posted by: Justin Bachman on April 23
Delta Air Lines and Northwest made a bit of a financial splash on Apr. 23, reporting a combined loss of $10.5 billion. This red ink wasn’t, however, an operating number. It was primarily a paper exercise in which Delta took a $6.1 billion goodwill impairment charge due to a decline in its market cap. Northwest did the same to the tune of $3.9 billion. Aside from all the non-cash charges, Delta lost $274 million and Northwest lost $191 million. Like rivals, both saw high fuel costs decimate their financial performance. Passenger revenue grew at each airline, up 10% to $4 billion at Delta, and 6.2% higher at Northwest, to $2.6 billion.
When Delta left bankruptcy reorganization a year ago, it put $12 billion of goodwill on its books, and had a market cap of $9.4 billion. (At the time, Delta had recently been presented a takeover offer by a rival, so the market value wasn’t totally out of whack.) Without mangling the accounting rules too much, goodwill impairment relates to the difference between book value and fair value for all the intangible assets a company owns. “A key assumption in that valuation was the price of fuel of $70 per barrel,” Delta said in its earnings statement. Oil settled Wednesday just above $118. Companies have to assess their goodwill at least once per year.
“This change in economic conditions combined with the recent merger announcement created a triggering event for accounting purposes, requiring us to update the valuation of our stand-alone business plan using current assumptions regarding fuel price and the economic environment,” Delta president and CFO Ed Bastian said on a conference call with analysts. As Delta’s stock has tumbled from almost $22 a share to $6 since resuming NYSE trading on May 3, the airline has a market capitalization of $1.9 billion, down from $3.7 billion at the start of 2008. Northwest’s market cap has plunged from $3 billion to $1.7 billion so far this year.
These two airlines are not special in their current difficulties. United lost $537 million in the first quarter based on fuel spending, and American parent AMR Corp. came in with a $328 million loss. United’s market cap has deteriorated by $2 billion so far this year, to $1.7 billion. United parent UAL Corp. does its yearly goodwill impairment assessment on Oct. 1, and one surmises that without a substantial improvement in industry fundamentals, a robust charge is likely there. US Airways is also expected to show a loss when it reports results on Apr. 24. In a memo to employees Wednesday, Delta’s Bastian wrote that the company expects others in the industry to have similar goodwill adjustments.
Delta and Northwest are, of course, the very same airlines hoping to win regulatory approval for their proposed combination. Such charges certainly supply further evidence of the industry’s horrific state and need for quick relief to cope with the raging oil beast. Their $10.5 billion in red ink made the first Associated Press headlines on the story wrapping the two airlines’ results. The timing of the charges was the first reporter’s question posed to Northwest officials on their conference call. CEO Doug Steenland said companies have “no discretion” about when to report goodwill impairment charges. “There are clearly laid out standards for how one looks at when an impairment is necessary,” he said. Delta “would be taking the charge regardless of the merger,” spokeswoman Betsy Talton says.
True enough. Moreover, these are two companies who recently reported a very material event, their merger intention, and need to have spotless balance sheets before the regulatory reviews commence. “You want to go into this with an absolutely clean balance sheet,” says Ray Neidl, an analyst with Calyon Securities.
All well and good. But the vast majority of the general public makes no distinction between a net loss that includes paper-based impairments and the net loss that was caused by soaring energy costs. In the real world, it all gets lumped into a very large figure: $10.5 billion. This is the kind of number blasted on Web sites and cable television. (The number was also in the lead of the AP, Reuters and New York Times stories on Wednesday.) It is a persuasive amount, one that can help sway the average Joe or Jane who may not care to read into the finer print. A $10.5 billion loss reeks of dire finances, the last gasp of a dying enterprise. Their combination must happen, as soon as possible, right? In this case, it looks as if Delta and Northwest found silver linings in multi-billion dollar losses.
Behind the Delta-NW Mega Loss
Posted by: Justin Bachman on April 23
Delta Air Lines and Northwest made a bit of a financial splash on Apr. 23, reporting a combined loss of $10.5 billion. This red ink wasn’t, however, an operating number. It was primarily a paper exercise in which Delta took a $6.1 billion goodwill impairment charge due to a decline in its market cap. Northwest did the same to the tune of $3.9 billion. Aside from all the non-cash charges, Delta lost $274 million and Northwest lost $191 million. Like rivals, both saw high fuel costs decimate their financial performance. Passenger revenue grew at each airline, up 10% to $4 billion at Delta, and 6.2% higher at Northwest, to $2.6 billion.
When Delta left bankruptcy reorganization a year ago, it put $12 billion of goodwill on its books, and had a market cap of $9.4 billion. (At the time, Delta had recently been presented a takeover offer by a rival, so the market value wasn’t totally out of whack.) Without mangling the accounting rules too much, goodwill impairment relates to the difference between book value and fair value for all the intangible assets a company owns. “A key assumption in that valuation was the price of fuel of $70 per barrel,” Delta said in its earnings statement. Oil settled Wednesday just above $118. Companies have to assess their goodwill at least once per year.
“This change in economic conditions combined with the recent merger announcement created a triggering event for accounting purposes, requiring us to update the valuation of our stand-alone business plan using current assumptions regarding fuel price and the economic environment,” Delta president and CFO Ed Bastian said on a conference call with analysts. As Delta’s stock has tumbled from almost $22 a share to $6 since resuming NYSE trading on May 3, the airline has a market capitalization of $1.9 billion, down from $3.7 billion at the start of 2008. Northwest’s market cap has plunged from $3 billion to $1.7 billion so far this year.
These two airlines are not special in their current difficulties. United lost $537 million in the first quarter based on fuel spending, and American parent AMR Corp. came in with a $328 million loss. United’s market cap has deteriorated by $2 billion so far this year, to $1.7 billion. United parent UAL Corp. does its yearly goodwill impairment assessment on Oct. 1, and one surmises that without a substantial improvement in industry fundamentals, a robust charge is likely there. US Airways is also expected to show a loss when it reports results on Apr. 24. In a memo to employees Wednesday, Delta’s Bastian wrote that the company expects others in the industry to have similar goodwill adjustments.
Delta and Northwest are, of course, the very same airlines hoping to win regulatory approval for their proposed combination. Such charges certainly supply further evidence of the industry’s horrific state and need for quick relief to cope with the raging oil beast. Their $10.5 billion in red ink made the first Associated Press headlines on the story wrapping the two airlines’ results. The timing of the charges was the first reporter’s question posed to Northwest officials on their conference call. CEO Doug Steenland said companies have “no discretion” about when to report goodwill impairment charges. “There are clearly laid out standards for how one looks at when an impairment is necessary,” he said. Delta “would be taking the charge regardless of the merger,” spokeswoman Betsy Talton says.
True enough. Moreover, these are two companies who recently reported a very material event, their merger intention, and need to have spotless balance sheets before the regulatory reviews commence. “You want to go into this with an absolutely clean balance sheet,” says Ray Neidl, an analyst with Calyon Securities.
All well and good. But the vast majority of the general public makes no distinction between a net loss that includes paper-based impairments and the net loss that was caused by soaring energy costs. In the real world, it all gets lumped into a very large figure: $10.5 billion. This is the kind of number blasted on Web sites and cable television. (The number was also in the lead of the AP, Reuters and New York Times stories on Wednesday.) It is a persuasive amount, one that can help sway the average Joe or Jane who may not care to read into the finer print. A $10.5 billion loss reeks of dire finances, the last gasp of a dying enterprise. Their combination must happen, as soon as possible, right? In this case, it looks as if Delta and Northwest found silver linings in multi-billion dollar losses.
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But
That 10.5 Billion is laughable on its face to anyone with an HP20. BOTH airlines had a combined Gross of 3 Billion this first quarter. The loss isn't real money, if it was, it would take 30 years if then to retire that debt (sic). What are the assets? the Credit Line? Cap can change with my aunties slippers, the merger (Read: consolidation) gives DAL and NWA AGILITY in every important room (save Fuel). As loads decrease in the next year (~40%) look for Oil to plummet 30-40% along with them. In the long term, Big is good.
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I still don't get it. LH just posted €188M (about $300M) operating profit for the first quarter. And it's not like their fleet was only made up of super-efficient new jets. They are operating quite a few B744, A34x to the East Coast where an A33x would easily do the job. And on short haul, they are still operating a substantial number of B737 classics and Avros.
And I don't have the impression that the other European majors are starving, despite fierce competiotion from thriving LoCos on short and medium haul.
Don't tell me the labor costs are lower this side of the pond...
And I don't have the impression that the other European majors are starving, despite fierce competiotion from thriving LoCos on short and medium haul.
Don't tell me the labor costs are lower this side of the pond...
Paxing All Over The World
primarily a paper exercise in which Delta took a $6.1 billion goodwill impairment charge due to a decline in its market cap
Trash du Blanc
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I still don't get it. LH just posted €188M (about $300M) operating profit for the first quarter. And it's not like their fleet was only made up of super-efficient new jets. They are operating quite a few B744, A34x to the East Coast where an A33x would easily do the job. And on short haul, they are still operating a substantial number of B737 classics and Avros.
And I don't have the impression that the other European majors are starving, despite fierce competiotion from thriving LoCos on short and medium haul.
Don't tell me the labor costs are lower this side of the pond...
And I don't have the impression that the other European majors are starving, despite fierce competiotion from thriving LoCos on short and medium haul.
Don't tell me the labor costs are lower this side of the pond...
Found a Northwest flight, through MEM and AMS, $2800 one way in business class.
Took care of the issue in Paris, crashed and burned for ~30 hours in the hotel, then hopped home. Air France this time - through DTW - this time $4000.
Thing is, NWA could have charged $4000 too - I would have paid it.....
Union Goon
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The problem is that airlines are hostages to the lowest fares.
If they raise ticket prices by 10 dollars, 10 measly dollars, if no on else goes along with it, then the flight doesn't even make it onto the first couple of pages of the internet ticket services (where most of the tickets are booked) Its like the flight doesn't even exist, and loads fall to zero.
Cheers
Wino
If they raise ticket prices by 10 dollars, 10 measly dollars, if no on else goes along with it, then the flight doesn't even make it onto the first couple of pages of the internet ticket services (where most of the tickets are booked) Its like the flight doesn't even exist, and loads fall to zero.
Cheers
Wino
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Wino
Astute point. The Market will adjust. Aviation for some reason known to all but not generally discussed, has excellent technology in flight ops and neanderthal thinking in the Front office. Most markets are not only agile enough to react to conditions, but also exhibit some vision and proactively spank the audience into novel thinking and usage. In Aviation, Fuel prices need to be punitive forever before a decision can be made, and only then the carrier wants to fire and hire several dozen managers before a tentative call will be gingerly employed. Labor Relations, commodity flow, marketing and ops are what, 50 years behind the times? I wear a Rolex, the Ceo wears a Sundial.
(What part of "stop the Bleeding" do you not "get").
(What part of "stop the Bleeding" do you not "get").
