Good Earnings and Not-So-Great Expectations

Plus, Delta responds to concerns of the corporate travel community, and UPS sets plans to go public.
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If you're confused by this week's airline earnings, have no fear: You're not the only one. More than one reader has written to suggest that meeting analysts' expectations has become irrelevant.

Then again,


(LUV) - Get Report

missed expectations by a mere penny, sending the stock sliding 7%. So, in some cases, the size of the missed number really





reader wrote: "I read the press release and it says the airline posted record earnings, but then the stock slides because the buzz is that expenses were too high. But the stock also 'beat' expectations. What's the deal?"

This morning, another reader asked, "How come when Southwest posts such overall strong earnings, the stock drops 7% on the news? Other airlines are posting revenue figures much lower than last year, but their stocks have not moved."

Yes, this has undoubtedly been one of the more confusing earnings periods to sort out for the airline sector. And the barrage of sometimes confusing press releases and conference calls continues today, as we are right smack in the middle of the heaviest day of earnings so far this quarter.

Basically, we need to remember that analysts lowered their expectations at least once this quarter for


major airline stocks. So, what we see happening in some cases, as we did with

Continental Airlines

(CAL) - Get Report

, is that while the airline posted revenue much lower than the year-ago period, it technically beat the Street because analysts had already reduced earnings expectations earlier in the quarter. And in case you didn't notice, shares of Continental had a great day Monday as a result.

So, yes, many airlines have posted higher-than-expected numbers, but most of these "expected" numbers had already been lowered considerably. And if you look at the group of airlines that have reported so far, we see generally lower revenues, down-to-flat yields, higher capacity and higher expenses.

But no, it is not a big turnaround for the airlines, as you might think if you read the headlines from all those enterprising airline PR departments.

We'll review the earnings reports from all the major airlines Friday. But in the meantime, the overriding trends are clear: Revenue per available seat mile and yields are under pressure, and expenses at some airlines are really on the rise.

We haven't had much opportunity to listen to as many conference calls as we usually do this quarter, as we are involved with the

National Business Travel Association's

annual convention in Minneapolis. But in another way, the timing is perfect. Why? Because if you want to know a reason why airline RASM and yields are down, this group of individuals holds the key.

When we spoke to an NBTA group in Oregon last April, we were struck then by the anger and frustration expressed by corporate travel managers toward the airlines. Even then, we thought the airlines had best understand that the demand curve in terms of higher business fares might have finally snapped.

Two weeks ago, Sam Buttrick, analyst at


, echoed the same basic sentiment. In one of his research notes, Buttrick said the airlines seemed to be willing to blame computer problems, weather, labor issues or any number of natural and man-made forces for declining yields and RASM.

But he then added that perhaps it was time the airlines came clean and out of denial. Perhaps it was time they acknowledged that more people are flying, but fewer people are paying high-yield fares.

Flying a Friendlier Web

This morning,

Delta Air Lines

(DAL) - Get Report

announced a breakthrough deal at the NBTA convention for the corporate travel community. Delta announced an upgrade of its


Web site so that by the end of 1999, corporations with Delta sales agreements will have three new options. First, corporations that permit travelers to book over the SkyLinks Web site will be able to receive their negotiated discounts. Second, those same corporate travelers will have access to all Delta Web fares, ensuring corporate availability of these specially discounted fares. Third and perhaps most important, corporate travel managers will be able to receive detailed information on what reservations have been booked through SkyLinks.

The airline is also going to begin to offer incentives later this year, after the system is up and running, to corporate travel managers who utilize the Web for the reservations process.

Delta was the only airline to respond to a recent NBTA request to all major airlines about changes needed to alleviate online booking problems. Corporate travel managers haven't been happy with being shut out of Internet specials, online booking advantages and related issues. Smart move on Delta's part. At least one major airline seems to understand that this group carries serious clout when it comes to high-yield profits.

UPS to Go Public

Well, it's about time we get to buy into those big brown beasts.

United Parcel Service

announced this morning that the company will offer at least a 10% stake in the company in an upcoming IPO. The company is seeking an



UPS plans to use the IPO's net proceeds to fund a cash tender offer to all current shareowners. The company expects to launch the tender offer several months after the IPO. UPS anticipates its public offering will be completed by the end of 1999.

Morgan Stanley Dean Witter


Tanner & Co.

are acting as financial advisers to UPS in connection with this transaction. Morgan Stanley Dean Witter has been selected as the IPO's lead manager.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for At time of publication, Hegeman had no positions in any of the securities mentioned. 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 While she cannot provide investment advice or recommendations, she welcomes your feedback at