Airlines Abuzz With Earnings and Merger Speculation

US Airways issues another earnings warning, and AirTran writes a comeback story.
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Ah, it's Friday, and we're here to bombard you with some notable news on airline stocks. And for your added reading pleasure this weekend, we'll finish up our second-quarter look at the sector's diamonds in the rough. So, be sure and read us when you get back from the beach. Or, heck, why wait? Just drag that telephone line out there to the beach chair tomorrow and have at it. You, the laptop, your favorite beverage and Wing Tips -- sounds like a perfect way to spend at least five minutes in the sun. The rest of the time is up to you.

US Airways Drops Yet Another Shoe

US Airways

(U)

announced Wednesday that the airline will not meet analysts' expectations for the remainder of the year. Splat. Yes, this is the second earnings warning the airline has issued in the past month or so.

Reasons the airline has given for the coming shortfall? If you are a longtime Wing Tips reader, you should not be surprised one bit: falling yields, fare pressure and "intense competition involving the Dulles operation."

Tell us something we didn't forecast months ago, and we'll be impressed.

And just a possible related note of interest. We understand

AMR

unit

(AMR)

American Airlines'

agreement regarding the

Reno

merger -- which has been sent to the

Allied Pilots Association's

board of directors for a vote -- doesn't just cover the specific merger situation. The agreement also addresses how the airline and the pilots' union will handle other future mergers or acquisition activity.

The APA board is expected to vote on the proposed agreement in the next three weeks.

Meanwhile, the US Airways pilots are meeting this month on the issue of increasing the number of regional jets the airline or its regional partners can fly. In addition, they are also considering the request from the company to allow domestic codesharing on 72-seat ATRs.

American Eagle

, the commuter arm of AMR, flies ATRs.

Ah, we love it when plots thicken -- kind of like tapioca.

AirTran Posts Strong Numbers

For those of you who wander over to our Web

site, you may be aware that when a stock is in such a dismal state that we consider the airline in potential financial trouble, we put the stock on PlaneBusiness Titanic Watch. The track record of our picks has been excellent. Unfortunately, we can't say the same for the outcome of several airlines that have held this dubious honor.

However,

AirTran

(AAIR)

has defied the norm, kicking and screaming, becoming the first airline stock that we have ever removed from the Titanic Watch. The airline posted earnings Wednesday, and we liked them. A lot. The airline seems to have finally figured out that if it sells tickets at $29, it's not going to accomplish anything.

Rather, the airline seems finally to have taken a page from the

Frontier Airlines

(FRNT)

manual on how to strategically go up one-on-one against a big boy, and not only survive, but prosper. In Frontier's case, it's up against

UAL's

(UAL) - Get Report

United Airlines

in Denver. In AirTran's case, it's up against Delta's

(DAL) - Get Report

massive presence in Atlanta.

But, as we mentioned here in our

review of the Delta conference call last quarter, Delta admitted that AirTran was beginning to siphon off some of its high-yield business on select routes.

A look at AirTran's results for the quarter indicates that this strategy is picking up steam. On one hand, the airline increased its revenue per available seat mile, or unit revenue, by some 20%. (This confirms that it is no longer obsessed with selling cheap seats.) It also posted a very hefty 13% increase in its yield figure for the quarter. (That confirms those business-class passengers it's enticing away from Big Boy Delta.)

The airline also increased its cost per available seat mile by 14% to 8.5 cents a mile, up from 7.5 cents a mile for the same period last year. Ordinarily, we would not be very happy about this, but given the rest of the news, we'll let this ride until we see what they do next quarter.

Trading in the stock has been fast and furious all week, and this stock could pick up more steam over the next few months.

TWA-IAM Vote to be Announced Next Week

Remember what we have said

here before. The vote on the proposed tentative agreement with the

International Association of Machinists

is the timer for any and all merger and/or acquisition activity involving

TWA

(TWA)

. We should know the results of the vote next week. We're predicting that the tentative agreement will pass, but it's going to be close. Very close. We understand that voting has been heavily against the proposal in New York, but we think it has enough support overall that the airline will likely announce that the deal has been ratified.

In regard to a possible

America West

(AWA)

-TWA merger, we understand that additional information has been shared between the two airlines of late. In addition, we have been told by more than one source that America West's brain trust is in the midst of a nine-day management strategy session in connection with a possible deal.

The pressure for AWA to do something was also just turned up a notch as we understand United Airlines has asked the Phoenix airport board for a whole lot of new gate space.

We expect to see movement on a possible AWA/TWA deal in the next month or so. We'll be surprised if we don't. Then again, as we have seen already this year, things can be on track and at the last minute, someone flips the switch on the track.

Pay a Visit

If you happen to be in Minneapolis next week, stop by and say hello. I will be speaking at the 31st Annual

National Business Travel Association's

annual convention Tuesday and Wednesday. Unfortunately, the press release issued this morning by the organization touts me as being from

CNBC's TheStreet.com

. Great. Well,

you

know where I am really from, and that's all that counts.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned 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.