Adventures in the Airline Sector: A Friday Wrapup

Delta reports strong earnings, while Continental's slip. Plus, a look at labor difficulties.
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Delta Posts Strong Earnings, Modifies Boeing 777 Order

As anticipated,

Delta Air Lines

(DAL) - Get Report

reported strong earnings yesterday, and in our humble estimation, only

Southwest Airlines

(LUV) - Get Report

may come close to topping Delta's performance.

Atlanta-based Delta posted earnings of $216 million, or $1.42 a share, beating expectations of $1.29 a share.

However, as readers know, we focus on particular operational statistics, and in Delta's case, we pretty much liked what we saw. Loads were up 1.2 points, revenue per available seat mile was up 1%, and cost per available seat mile was up 0.8%.

Still, yields did drop a smidge. Delta faced fare pressure in its business travel out of Atlanta. There are two reasons for that. First,

AirTran

(AAIR)

ran significant fare sales out of Atlanta for most of March and started additional service to Boston, Newark and Philadelphia. Second, there was considerable fare pressure on Delta's trans-Atlantic and Pacific routes in the most recent quarter.

Looking ahead, Delta CFO Warren Jenson said the carrier's bookings and fare mix will be solid in North America, which is good, as this represents the bulk of Delta's market. He sees weakening loads and fare pressure on the trans-Atlantic sectors, a stronger Latin America and continued weakness in the Pacific, especially with the added fare pressure and capacity pressure that

Continental

(CAI.A)

is bringing to several Asian markets.

Delta also announced that it would defer delivery of some

Boeing

(BA) - Get Report

777 aircraft because of continued labor strains related to 777 work rules. Instead, Delta will negotiate for delivery of 4 767-ERs.

According to our sources, Delta management opened negotiations with its pilots with an offer that topped

AMR's

(AMR)

American Airlines

777 pay rate. The intent was to offer the best pay package in the industry. The union responded with an offer that was more than $100 more per hour, along with additional work rule demands. Jenson said yesterday if the airline were to agree to the package that the union had proposed, their costs of flying the 777 would double.

Bottom line? The airline decided that rather than put itself in a confrontational situation with the pilots over aircraft that the union had said would then be parked if no agreement were reached, the airline opted for the alternative aircraft.

Smart move.

And our message to the Delta pilots? Smell the roses. This is not the Ron Allen management team anymore.

Continental Airlines Yields Slip, but Not as Much as Expected

Continental Airlines also announced earnings yesterday after the closing bell, and the airline reported that first-quarter profit fell 3.7%. That was the bad news. The good news was that this was less than analysts had expected. The company was expected to earn 93 cents a share, but posted $1.03 a share. The airline recorded an 11% increase in operating revenue, but also posted an 11% increase in operating expenses. (All that explosive growth costs money.) As a result, net income rose just 3.7% over the year-ago period.

On the operational side, loads were up 2.56 points, yield was down 3.4%, RASM was up 0.3%, and CASM was up 0.8%.

Considering the rate at which Continental is growing, these are good numbers. But as you can see, with the 3.4% drop in yield, there is considerable discounting going on here in terms of fares.

In related news, Continental announced an additional $500 million stock buyback commitment and also said that it is changing its ticker symbol. Effective May 4, the most commonly traded "B" shares of Continental will be traded under the ticker symbol CAL, as opposed to CAI.B.

Judge in Dallas Essentially Orders American Pilots Union Out of Business

Talk about dough. How about $45.5 million?

That is the amount that Judge Joe Kendall told American Airlines pilots union yesterday it had to pony up in damages, resulting from the pilots' refusal to return to work in February. At issue specifically was how much the airline had suffered in terms of damages after the pilots refused to return to work, violating the judge's temporary restraining order commanding them to return to work.

In testimony, the airline estimated that it had suffered losses of approximately $50 million after the TRO was issued and before the vast majority of pilots returned to work. Experts for the

Allied Pilots Association

had estimated the airline's losses at between $1.5 million and $4.7 million.

The APA, which filed a financial statement in February showing that the union had total assets of $38 million, had already put $10 million up as a kind of "down payment" against the eventual total. Judge Kendall ordered them to put up another $10 million next week and to work out a payment schedule on the balance.

The APA is expected to appeal the decision.

Our comment? When a judge tells you to return to work, we think it is probably a good idea.

US Airways-American Deal

Remember, our sources on Wednesday

told us that stock price was key in any deal for

US Airways

(U) - Get Report

and American Airlines. It appears that this one will be hanging around for a while. No new news today.

We suggest just hanging this one on the back peg of the "In Progress" rack.

Holly Hegeman, based in Dallas, pilots the Wing Tips and Traveling With Wings columns for TheStreet.com. At time of publication, Hegeman held no positions in stocks discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

hhegeman@planebusiness.com.