Earnings Surprises Are in the Air - TheStreet

Earnings Surprises Are in the Air

Plus, calling US Airways and Round Three in the skies over Canada.
Author:
Publish date:

Don't you just love earnings weeks? We do. When that alarm clock goes off in the morning, you just never know what you will see in the next email of a news release or hear on the next conference call. Or, in the case of

US Airways

(U) - Get Report

Wednesday, what we didn't get to hear on a conference call.

Because we need to run off this afternoon and catch a flight to the old environs for

Southwest Airlines'

(LUV) - Get Report

Media Day tomorrow, look for a review of results from

AMR's

(AMR)

American Airlines

later this week. But here are some tidbits

not

included in the news releases from the earnings released this morning -- plus, a follow-up to the situation north of the border.

Short and sweet take on the major results we've heard so far:

UAL's

(UAL) - Get Report

United Airlines

did very well, all things considered. (Remember that UAL did

not

have its estimates reduced during the quarter.) Net income for the airline fell 12% to $456 million, or $3.75 a share, which was pretty much in line with analysts' estimates of $3.76. In the company conference call, Chairman and CEO Jim Goodwin pointed out that July and August were very strong months for the airline. United was hit harder by the effects of Hurricane Floyd than by underlying fundamental issues as the airline did not suffer anywhere near the level of revenue per available seat mile and yield deterioration that we have seen at most of the other major airlines that have reported. In fact, the airline posted gains in both yield and RASM, although cost per available seat mile was also up 3.3%.

TWA

(TWA)

? Same story, second verse. Or would that be fourth verse? The airline lost money: $36.2 million, or 61 cents a share, to be exact. The consensus here had been for the airline to post a loss of around 51 cents a share. Reasons here were twofold: One, high-yield business travelers deserted the airline like the proverbial rats fleeing the sinking ship as fears mounted this summer that labor issues would lead to a strike at the airline. And those passengers have apparently not been in any hurry to return. Second, fuel costs were up, as they were everywhere. Costs were up 32% in the case of TWA, year over year, and when asked on the airline's conference call about the airline's fuel hedging in place going forward, TWA CFO Mike Palumbo kind of hedged. Absent any hard and fast data, we get the impression the airline is not that well hedged going forward.

US Airways posted results much worse than expected -- although we were not that surprised. However, we

were

surprised when we were denied access to the company's conference call for no apparent reason. After being grilled, we were informed by the conference-call operator that "the call was full." When we asked if we could listen to the media call, in the same manner as we listen to both analyst and media calls for other airlines, we were told: "I cannot give you that information."

Needless to say, we don't believe "the call was full."

Contrary to

SEC

Chairman Arthur Levitt's

views, apparently US Airways thinks it is a good thing to restrict information and access to important financial information to both shareholders and the public. If the airline did not want us to listen to its analyst call, it could have at least given us the media call information.

The airline reported a loss of $85 million, or $1.19 a share. Analysts were expecting the airline to report a loss of about 35 cents a share.

Just a few updated notes on the proposed United/

Lufthansa

bid to bail out

Air Canada

(ACNAF)

. After a more in-depth look at the proposal, we have a couple of comments to add to

Tuesday's column.

First, looking at the deal from strictly a financial standpoint of bolstering the strong and letting the weak die, the deal makes sense. However, one part of the deal that we weren't aware of before is the part that would have Air Canada setting up a separate low-fare carrier, based out of Hamilton, Ontario. We have some problems with this idea. We are not big fans of big airlines operating low-fare "carriers within a carrier." So that part of the proposal we take issue with.

WestJet

(WJA:Toronto), the highly successful low-fare carrier based in western Canada, also took issue with the concept, saying in a statement Wednesday that this would essentially lock up all major and smaller carrier service under one airline.

We agree. This is not such a hot idea.

As for

Canadian Airlines'

(CA:Toronto) take on the proposed Air Canada bailout plan by United Airlines and Lufthansa, the airline has been short to the point of terse. Canadian issued a brief statement saying that until it had received a formal offer from Air Canada, there was little to discuss. (In a separate announcement after the United/Lufthansa offer, Air Canada said it would offer $92 million for Canadian Airlines.)

As for American Airlines' opinion, the folks in Fort Worth don't sound enthusiastic about the United/Lufthansa plans that could let Air Canada avoid a bid by American and

Onex

. American said Tuesday that the new proposal ignores American's veto power of any sale of Canadian Airlines, and the airline predicted the deal will fail because of "insurmountable contingencies."

This one is far from over.

Holly Hegeman, based in Barrington, R.I., 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.