Delta Air Lines

PEOPLExpress business model remains murky as it finally moves closer to launch

The somewhat-hyped acquisition by start-up PEOPLExpress of charter carrier XTRA Airways may accelerate the carrier’s long overdue market entry, but it will do little to improve PEOPLExpress’ odds of survival in a US market place that now revolves around three distinct business models – ultra low-cost, hybrid and full-service network carriers.

PEOPLExpress’ declaration that it would retain the XTRA brand and its charter services only clouds its already murky business plan, which should give rational, would-be investors pause as the carrier has done little to crystallise its vision other than buying a smaller carrier in order to obtain an operating certificate after overestimating the time and effort entailed in gaining approval from the US FAA.

Delta finally dehubs Memphis after years of pruning unprofitable flights

After years of scaling back its Memphis hub, Delta Air Lines has officially declared Memphis is losing that status in late 2013. The airport’s fate has been sealed as Delta has been steadily cutting service from Memphis – from a peak of 300 daily departures during 2000 to roughly 93 daily flights. Once the de-hubbing its complete Delta’s departures from Memphis will decrease a further 35% to 60 daily departures.

Delta’s reasoning in closing Memphis rests on the significant reduction in 50-seat jets it is undertaking to reduce its small jet fleet to roughly 125 shells from a peak of more than 500 five years ago. The carrier determined it is unprofitable to operate those aircraft in Memphis where the amount of local originating traffic is somewhat sparse.

Even though the official de-hubbing of Memphis comes as no shock to the airport, which has been courting other airlines, political backlash has ensued against Delta. Tennessee politicians are accusing the carrier of making false promises when it merged with Northwest in 2008 when the company assured service from Memphis would not diminish. As American and US Airways work through the requisite approval processes for their merger, the decision by Delta to de-hub Memphis will only create additional pressure on those carriers to pledge no hubs within their respective combined networks will lose their respective status.

Southwest continues de-hubbing Atlanta as ROIC targets start to look murky

Southwest Airlines continues to refine the combined operations it has with AirTran in Atlanta as part of its overall strategy to put less emphasis on Atlanta as a connection point and more focus on creating a rolling schedule in the market that is more reflective of its other top focus cities.

All of the efforts that are designed to reach fruition in Nov-2013 are being undertaken to improve the overall performance of Atlanta in the combined AirTran-Southwest network as the integration of the two carriers continues.

But in the short-term Southwest is battling some revenue weakness as unit revenues during 1Q2013 increased just roughly 2% and fell 4% to 5% during Apr-2013. Some of the weakness in Apr-2013 resulted from the timing of the Easter holiday and system slowdowns triggered by budget cuts in the US. Moving forward, Southwest believes it should post unit revenue improvements during the last two months of 2Q2013, with the momentum continuing throughout the rest of the year.

Alaska Air Group faces tough 2Q2013 as competitive capacity hurts yields. Cost crunch looms

Alaska Air Group is warning that it faces a challenging 2Q2013 as the maturing of new transcontinental routes and competitive capacity pressures in its markets to the state of Alaska are creating pressure on yields even as demand remains strong.

Some of the steps Alaska has taken to rationalise its capacity between the US mainland and Hawaii as a means to improve its performance in those markets is being diluted by several carriers making a push into the state of Alaska during the summer high season in the northern hemisphere.

Even though the carrier is spooling up new markets and facing increased competition in some of its mature markets, Alaska for the moment is sticking to its higher than industry average capacity growth for 2013 of 7.5%. However, the carrier is not completely wedded to its current expected capacity growth, and is evaluating the possibility of adjusting its supply targets during autumn 2013.

Delta Air Lines aims to usher in lasting business model change with new shareholder rewards

Delta Air Lines’ scheme to return USD1 billion to shareholders during the next three years is the latest example of how the carrier is widening the competitive distance as its merger with Northwest Airlines is essentially done and dusted. The airline unveiled its plans for shareholder returns after months of prodding by investors that have watched Delta pare down its debt, keep capital spending costs in line and generate solid free cash flow.

At the same time the carrier has set new debt reduction targets, it hopes all its efforts to get its financial house in order will lay the groundwork to achieve investment grade status, something Delta admits it will not attain anytime in the near future.

Through its latest moves Delta is also attempting to prove that the newfound stability in the US airline business has staying power after a decade of bankruptcies and economic turmoil have forced airlines to undergo a major reset.

Gol shows some signs of financial improvement despite posting a 1Q2013 loss

Brazil’s second largest carrier Gol recorded mixed fortunes during 1Q2013 as its overall losses widened year-over-year but yields and unit revenues improved at what appears to be at the expense of load factor. After recording annual losses for the last two years Gol is hoping an aggressive capacity reduction in the Brazilian domestic market place and a significant reduction in its workforce will help the carrier slowly improve its fortunes.

But Gol faces challenges in achieving its turnaround as company management believes it is uncertain that Brazil will record 2.5% GDP growth in 2013 while inflation is rising. The carrier feels positive about its position heading into the slow season in South America, but the timing of a full recovery for the carrier seems far from uncertain.