Robert Herbst

Airlines: Some Costs They Can't - And Shouldn't - Cut

Ben,

For the most part, what you appear to want is just what is occurring now. i.e., pilot wages unadjusted for inflation are "free market" albeit a ~20 year low hourly pay rate.

The -problem- I attempted to show is a future one. Because the compensation/benefits for the (pilot) profession has deteriorated so much, there is simply no incentive to encourage the type of individual you will want/need and expect to be responsible for what is required to be the pilot of a commercial jet liner.

Currently some of the largest airlines have a majority of their pilots well into their 50's. While I don’t have the data to prove it, I have no doubt the average age of the pilots for most of the legacy carriers has never been as high as it is. Most major/legacy airline pilots of today are too old to just leave and start a new career. To make-up for lost compensation and pensions, more and more pilots are starting side businesses which, is also adding to the fatigue issue.

TODAY, pilot experience for the major/legacy airlines is not an issue. Airline cutbacks caused by the recession forced the furloughs of thousands of airline pilots, many of which are now flying for the smaller regional carriers. In addition, two years ago the mandatory retirement age was increased from 60 to 65. Three years from now those age 65 mandatory retirements will create thousands of pilot vacancies every year for at least the next decade plus.

In the past, well trained military pilots use to fill a high percentage of airline jobs. Retired military pilots are no longer going to the airlines when they can earn so much more in other professions. Because the pilot profession use to have desirable benefits, it attracted the very brightest and most responsible individuals.

This -story- is all about the safety of the future. As the relatively old but very experienced pilots of today retire, what type of qualifications do you -expect- from those who replace them? Flying a jetliner and having the responsibility for hundreds of lives is not as simple as many want to believe.

Robert Herbst
AirlineFinancials.com

=====================

On Nov 01 01:42 PM Ben Simonton wrote:

> Sounds like a stupid question to me. I would like a free market to
> determine how much they are paid, not some opinion held by one or
> more persons. What happened to the free market capitalism that made
> us the most prosperous nation in the world. We are fast losing it
> with these kind of questions.

Airlines: Some Costs They Can't - And Shouldn't - Cut

<IMG class=authors_reply src="static.seekingalpha.co..."> FYI- In order to have less story and more focus on numbers, the article above was edited down from my original story.

If you want the full story which includes more detail on what pilots/employees do? You can read it on the instablog.

seekingalpha.com/insta...

To t-bird-
Lots of wild stories about the airline industry. Factually since 1950 there have only been two time periods where the airlines have lost a lot of money.

(considers US based airlines)
1990-1993 the industry lost $12.8 billion
2001-2005 the industry lost $35.1 billion
1950-2008 the industry has a cumulative net loss of approximately $14 billion.

From 1950 through the 1978 deregulation there were no airline failures with small losses in only 3 years (1961-$38M // 1970 -$201M // 1975 -$84M)

Since the 1978 airline industry deregulation there have been over 200 airline failures in just the United States.

(data source: ATA)

Robert Herbst
AirlineFinancials.com

=======================

On Nov 01 08:37 AM Zenilvana wrote:

> Does the auto pilot at modern day airplanes have anything to do with
> the lower wages? Everything seems automatic. Are they just sitting
> there talking to either passengers or crews, except taking off and
> landing? Sometimes some falls asleep out of sheer boring. I may be
> the least qualified person to ask these questions. I just wonder.
> And then, why do airline executives command so much high compensation
> in contrast, of which question is also beyond reach of my concern.

Airlines: Some Costs They Can't - And Shouldn't - Cut

If you go to the link below- Chart 49 will show the annual change in pilot counts since year 2002.

Charts 62-64 will provide the wage percentage change of passenger fares for pilots, flight attendants and management.

www.airlinefinancials....

Robert Herbst
(author of article above)

On Oct 31 01:39 PM The Geoffster wrote:

> Too many pilots maybe?

Jet Blue: Value Buy and Oil Hedge

"CASM" (cost per available seat mile) includes fuel expense. Fuel is an operating expense. The amount is provided in the operating items.

LT Debt is clearly identified in the balance sheet and further described/detailed in the "LT Debt" specifics. (LT Debt is not "Goodwill" and/or intangibles.).

Robert Herbst
AirlineFinancials.com

Jet Blue: Value Buy and Oil Hedge

Mr. Huneycutt,

Respectfully I dispute some of your conclusions from the article above:

"LT Debt"-- Y/E 2008 was ~$2.9 billion as reported in the SEC 10K filing. As a ratio to operating revenue this is not only the highest in the industry (largest 10 airlines) but using this ratio, is nearly twice what any other airline carries. As a percentage of assets, JBLU's LT Debt is at or above the rest of the industry.

"Unrestricted cash" = $571 million. As a ratio to operating revenue, this is about average for the industry and was -propped up- by the infusion of $300 million from Lufthansa which, IMO, was their headway into "Open Skies II".

"CASM" (unit costs) -- Your article states it as 5.94 cents. It is actually 9.87 cents. (source: SEC 10K)

"Industry losses over history" -- While it's true "Net" profits are minimal. Since 1950 and a decade before the first commercial jets, there have been only 2 -relatively- short-term time periods of industry losses;
- 1990-1993 had a net loss of $12.8 billion.
- 2001-2005 had a net loss of $35.1 billion.
- In the last 59 years, 41 had net profits.
- In the last 59 years, 49 had positive operating income.

We (apparently) agree fares need to go up in order to make this very valuable industry stable and as safe as it needs to be.

Robert Herbst
AirlineFinancials.com
(disclosure: Myself and my family hold no equity position in JBLU at this time)

How Did Airlines Do in 2008?

In order to recognize the different methods airlines used to account for fuel hedging derivatives Q1-Q3, I am making the following are updates to the data table above:

Year 2008 estimates - (in millions)

Delta .. Revenue = $34,860 Net loss = ($462)

United .. Net loss = ($1,470)

Continental .. Net loss = ($409)

Southwest .. Net profit = $314

US Airways .. Net loss = ($805)


Total 2008 Revenue (estimate) = $121,099
Total 2008 Net loss (estimate) = ($3,972)

----------------------...

Q4 2008 updated estimates (in millions)

Delta .. Net loss = ($299)

United .. Net loss = ($530)

Continental .. Net loss = ($181)

Southwest .. Net profit = $16

Total Q4 Net loss (estimate) = ($1,370)


Regards

Robert Herbst
AirlineFinancials.com

The Airlines' Recent Death Defying Actions

For some clarification-

Perhaps you are reading more into the short article and cash projections than what is written?

I am in no way -suggesting- any stock long or short. I frequently trade (not invest) in airline stocks. At the time I submitted this article I held a long position in AMR and disclosed this per the editor's disclosure requirement.

As for other applicable metrics for the airlines noted above. There are many. My website provides very detailed current and historical data far beyond what could be included in a short article here.

Specific to the comments above regarding Long-Term Debt/Capital leases the following is derived from the recent 2nd quarter (6/30/2008) SEC filings.

..... LT Debt .. (Debt ratio of Op Rev) .. ( Debt ratio of assets)
(in billions) (revenue is 4 x 2nd quarter)

AA ..... $6.926 ....... (31.6%) ....... (26.7%)
UAL .... $7.190 ....... (39.3%) ........ (33.7%)
DAL .... $8.338 ....... (47.9%) ........ (30.2%)
CAL..... $5.323 ....... (39.4%) ........ (38.5%)
NWA ... $6.849 ....... (50.9%) ........ (32.8%)
SWA ... $2.590 ....... (22.6%) ........ (11.1%)
USAir .. $3.205 ....... (32.6%) ........ (39.7%)
JBLU ... $2.936 ....... (85.4%) ........ (45.4%)

Please draw your own conclusions regarding debt/equity value as it relates to the projected cash positions.

Regards,

Bob Herbst
AirlineFinancials.com