TWA's Losses Don't Tell the Whole Story

The airline's yield and revenue ratios are on the upswing. Also, a run through the rest of the majors.
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Sandwiched between the anticipated earnings shortfalls of both

US Airways

(U) - Get Report




American Airlines

on Wednesday, there was a pleasant surprise.




recorded a loss on the quarter, it was less than anticipated, and more importantly, TWA posted some of the strongest ratios among major airlines.

Now, if the airline could just come to terms with the


on a new contract, investors could break out the champagne.

For the first quarter, TWA bested consensus estimates by roughly 3 cents, posting a loss of 62 cents a share, compared with Wall Street forecasts for a 65-cent loss. We would have been much happier to see TWA post a profit and not a loss. But for an airline that is desperately trying to reinvent itself (and incurring the resulting costs associated with this effort), TWA managed to show remarkable signs of improvement.

Digging into the numbers, TWA posted gains in both yield and revenue growth per available seat mile, or RASM, this quarter while many other majors were doing the opposite. The airline posted a 1.4% increase in yield and a remarkable 2.8% increase in RASM. The airline also saw an increase in loads and a 1% reduction in the cost per available seat mile, or CASM.

Given those improving operational stats, why isn't the stock doing better? In short: union talks.

Despite a new, comprehensive and significantly enhanced offer from TWA, IAM has yet to come back to the airline with a counterproposal. The union, which controls a majority of workers at the airline, continues to talk the talk, but as of late, not walk the walk. The airline says it will meet with the IAM with or without a federal mediator present.

TWA must agree with the IAM on a contract that recognizes the changes in the airline, and which eliminates certain oppressive work rules and conditions. Until this is accomplished, we don't see the stock moving much.

WingTips Earnings Winners and Losers

All the major airlines have now reported, so here is our quick-and-dirty thumbnail analysis of all ten.


: Earnings were horrible, due to the pilot work action in February. They say Latin America is getting better, although transatlantic is soft. (


(DAL) - Get Report



(UAL) - Get Report

both concur on this.) My concern with American right now is a mad dash to merge, align or cohabitate. American CEO Don Carty may be taking on a bit much in the next couple of months.

Stock outlook: AMR stock continues to get a favorable bounce from investors betting on a selloff of at least some of


, owned by


(TSG) - Get Report

, which is 82% owned by AMR.

As to a US Airways/American deal in the works, we understand that the price of AMR stock is going to have to drop before the deal is done.

We may have a Catch-22 here.

US Airways

: Rather dismal quarter. Weather and the cutover to their new SABRE IT system were the reasons. Now we get to see the real fun begin as the competitive wars at


swing into full gear this quarter.

Stock outlook: We continue to look for fare pressure this quarter. We think there will be continued pressure on the stock as a result.



: The company reported good numbers again this quarter, impressive considering its explosive growth. However, we could see, with the dropoff in yield, that they are giving away fares. Lots of discounting going on.

Stock Outlook: We selected them as our short-term major pick in the beginning of the year, and are happy with their performance so far. We still think they are reasonably cheap.


(LUV) - Get Report

: Excellent earnings this quarter. The airline continues to post good numbers, and the new markets it has entered seem to be performing well.

Stock Outlook: We see nothing on the horizon to slow this one down any time soon. But, oh, is the stock expensive! Then again, it is always expensive.


: As we anticipated, Delta posted the best overall earnings for the big boys due to less Pacific exposure and increased internal "found money" initiatives. This found money should slow down toward the end of this year, but money generated by their acquisition of

Atlantic Southeast

should start coming in by then. That acquisition will provide a nice positive kick.

Stock Outlook: We still like the stock, but it has become a bit top-heavy after its substantial move since the beginning of the year. Yes, Delta was our big boy pick in January.

Alaska Airlines

(ALK) - Get Report

: We were disappointed in earnings for ALK this quarter.

Stock Outlook: We'd be hesitant on this one right now. A bit pricey, and we did not like its cost situation for this quarter.

America West


: Earnings were OK, but there is so much going on concerning this airline that we would be hesitant to jump in here.

Stock Outlook: We are just not sure about this one. Still way too much potential merger or acquisition news out there. The stock can be rather volatile, but hard to predict the moves.

United Airlines

: Overall, operationally, we think that United has the best combination of products of any major airline, an extensive regional feeder network, a lower-cost shuttle product, long-haul international, big fortress hubs in Denver and Chicago. But earnings were so-so and costs were up this quarter. Very unusual for the airline which usually leads the majors in terms of lowest unit cost.

Stock Outlook: I like the stock longer-term. But we could see some pressure this quarter from: 1) continued Pacific softness 2) Dulles expansion activities and 3) transatlantic pricing pressure.

Northwest Airlines


: Classic turnaround play. Seems to have hit bottom and is moving up. Earnings were as expected.

Stock Outlook: This one, along with its regional partner


, have made nice gains in the last two weeks or so. The stocks of both should continue to do well this quarter.

Holly Hegeman, based in Dallas, pilots the Wing Tips and Traveling With Wings columns for At time of publication, Hegeman was long Southwest Airlines, 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 While she cannot provide investment advice or recommendations, she welcomes your feedback at