US airlines take USD80 million hit on volcano; Porter files preliminary prospectus for IPO
US airline stocks were down quite heavily on Friday, as the wider market fell in response to news of a civil lawsuit against Goldman Sachs. Airline stocks were also hit by the Icelandic volcanic eruption, which is playing havoc with trans-Atlantic scheduling.
- US airline stocks experienced heavy losses on Friday due to a civil lawsuit against Goldman Sachs and the impact of the Icelandic volcanic eruption.
- The eruption has caused significant disruption to trans-Atlantic scheduling and has resulted in an estimated loss of USD80 million in revenue for the US airline industry.
- The losses extend beyond trans-Atlantic passengers, as each international passenger journey generates additional domestic enplanements, resulting in a loss of over 90,000 enplanements and 73,000 domestic one-way passenger trips.
- Despite the small percentage of overall passenger trips, the revenue loss of nearly USD80 million over a short period highlights the impact of global events on the aviation industry.
- US carriers such as Delta, US Air, American, Continental, and United, which have significant trans-Atlantic operations, saw their stocks fall between 3-4%.
- Porter Airlines, Canada's third-largest scheduled carrier, filed a preliminary prospectus for an initial public offering (IPO) and intends to use the proceeds for working capital and potential aircraft acquisitions.
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The first four days of the eruption, the worst aviation disruption for US carriers since 9/11, has cost the US airline industry USD80 million in lost revenue, according to Boyd Group International. The analysis was based on known and expected cancellations to Sunday, 18-Apr-2010 and does not represent ancillary losses due to aircraft and crews out of rotation, and passenger re-routing expense. It does, however, include measurable losses in secondary domestic passenger traffic that is generated directly by international service.
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"The financial hit for US airlines goes well beyond the passengers lost on the trans-Atlantic," noted Boyd Group International Vice President Tim Sieber pointing out that, on average, each international passenger journey generates approximately 1.4 additional domestic enplanements. "It extends into the domestic market as well, because international passengers also generate significant domestic enplanements.
"Passengers to and from abroad don't all live and work at US international gateway cities. That passenger flying from Munich to Atlanta also makes domestic trips within the US, immediately or even days after he enters the US. With these volcano-related international cancellations, our data indicate a loss of more than 90,000 enplanements at airports across America in just the first four days subsequent to start of the Iceland eruptions." At current connection-to-passenger ratios, these enplanements represent approximately 73,000 actual domestic one-way passenger trips.
In terms of actual passengers, US carriers saw a loss of well over 200,000 passengers during the first four days of the event alone. This is a very small percentage of the over 540 million passenger trips carried by US carriers annually. "But it still represents a loss of revenue of nearly USD80 million over a short period - and it's due to an event thousands of miles away in the North Atlantic," Sieber added.
These data again underscore that no communities are immune from events in the global economy. According to Boyd Group International's Airports USA enplanement forecasts, over 27% of all US passenger enplanements will be directly or indirectly the result of international passenger demand by 2014.
Delta, US Air, American, Continental and United (all with significant trans-Atlantic operations) fell between 3-4% on Friday. Reductions for Southwest and the other largely domestic focused LCCs were more muted, though AirTran fell 4.2%.
Porter files preliminary prospectus for IPO
Canada's Porter Airlines filed its preliminary prospectus in preparation for an initial public offering, but said no existing Porter shareholder was planning to sell shares during the IPO process. Porter intends to use the net proceeds of the proposed offering for working capital and other general corporate purposes, including potential acquisition of aircraft beyond its current 18-aircraft Bombardier Q400 fleet. It is expected two more aircraft this month.
The prospectus was not available at press time, according to the airline, which said it takes a business day to be posted on www.sedar.com The underwriting syndicate is led by RBC Capital Markets Inc and also includes National Bank Financial Inc, BMO Nesbitt Burns Inc, CIBC World Markets Inc, TD Securities Inc, GMP Securities LP, Credit Suisse Securities (Canada) Inc, Raymond James Ltd and Versant Partners Inc.
Porter Airlines is Canada's third largest scheduled carrier, based at Billy Bishop Toronto City Airport. In 2009, Porter stated it achieved an industry-leading break-even load factor of 49.3% relative to other North American publicly traded airline companies. The airline currently serves Toronto, Ottawa, Montreal, Quebec City, Halifax, St. John's, Thunder Bay, Sudbury, New York (Newark), Chicago (Midway), Boston (Logan), and has seasonal flights to Mt Tremblant, Que and Myrtle Beach, SC. Moncton service begins on 25-Jun-2010.
North & South America selected airlines daily share price movements (% change): 16-Apr-2010
Source: Centre for Asia Pacific Aviation & Yahoo! Finance