Grumpy
09-11-2008, 11:30 AM
Continental Airlines says it expects average fares to be a lot higher after it shrinks its capacity.
Here's how the carrier put it in a Thursday morning investor update:
For the month of September, the Company estimates its mainline domestic capacity will be down approximately 9%. Based on this reduced capacity, the Company is comfortable with its expectation that it will trade mainline domestic load factor (estimated to be down 1 to 2 points yoy [year over year] for September) for substantially higher mainline domestic yields."Yield" refers to the revenues per passenger per mile flown.
Airline analyst Jamie Baker of JP Morgan saw the Continental update as some very good news:
Airline analyst Jamie Baker of JP Morgan saw the Continental update as some very good news:
More bookings on significantly less capacity is simply a drawn-out way of expressing "pricing power." While we are often dismissive of bookings commentary, CAL's language appears (to us) an effort to assuage largely misplaced investor fears that demand is poised to crater.
Other points from its update:
• It sees yield increases in all its geographical regions. Domestic bookings over the next six weeks are 4 percentage points ahead of last year, Latin American bookings are up 2 points, trans-Atlantic is flat and the Pacific is down about two points.
• It expects to have cash, equivalents and short-term investments at about $2.8 billion on Sept. 30, compared to about $3.0 billion a year earlier.
However, Continental now is classifying all student loan-related auction rate securities as long-term investments -- and I don't know how much money is involved. On Dec. 31, 2007, the carrier had $387 million in those securities, and classifed them then as $285 million in short-term investments and $102 million in restricted cash.
• It expects the $15 fee for the first checked bag, a fee it announced Sept. 5, will be worth more than $100 million a year from increased revenues and reduced expenses (it costs money to handle and carry bags).
• It has contributed $102 million, the minimum required, to its pension funds this year. "Given the current market conditions, the Company does not plan to make additional contributions this year."
• It expects special charges for airplanes, employee espenses and the like from its capacity and workforce cutbacks, but it can't estimate them yet.
• It expects an average fuel cost of $3.84 in the third quarter and $3.31 in the fourth quarter. That would suggest a third quarter fuel bill of around $1.5 billion, up more than $600 million from a year earlier.
But Q4 fuel expenses, because of the dropping price and decreased usage because of capacity cuts, would be less than $200 million, to around $1.14 billion.
Here's how the carrier put it in a Thursday morning investor update:
For the month of September, the Company estimates its mainline domestic capacity will be down approximately 9%. Based on this reduced capacity, the Company is comfortable with its expectation that it will trade mainline domestic load factor (estimated to be down 1 to 2 points yoy [year over year] for September) for substantially higher mainline domestic yields."Yield" refers to the revenues per passenger per mile flown.
Airline analyst Jamie Baker of JP Morgan saw the Continental update as some very good news:
Airline analyst Jamie Baker of JP Morgan saw the Continental update as some very good news:
More bookings on significantly less capacity is simply a drawn-out way of expressing "pricing power." While we are often dismissive of bookings commentary, CAL's language appears (to us) an effort to assuage largely misplaced investor fears that demand is poised to crater.
Other points from its update:
• It sees yield increases in all its geographical regions. Domestic bookings over the next six weeks are 4 percentage points ahead of last year, Latin American bookings are up 2 points, trans-Atlantic is flat and the Pacific is down about two points.
• It expects to have cash, equivalents and short-term investments at about $2.8 billion on Sept. 30, compared to about $3.0 billion a year earlier.
However, Continental now is classifying all student loan-related auction rate securities as long-term investments -- and I don't know how much money is involved. On Dec. 31, 2007, the carrier had $387 million in those securities, and classifed them then as $285 million in short-term investments and $102 million in restricted cash.
• It expects the $15 fee for the first checked bag, a fee it announced Sept. 5, will be worth more than $100 million a year from increased revenues and reduced expenses (it costs money to handle and carry bags).
• It has contributed $102 million, the minimum required, to its pension funds this year. "Given the current market conditions, the Company does not plan to make additional contributions this year."
• It expects special charges for airplanes, employee espenses and the like from its capacity and workforce cutbacks, but it can't estimate them yet.
• It expects an average fuel cost of $3.84 in the third quarter and $3.31 in the fourth quarter. That would suggest a third quarter fuel bill of around $1.5 billion, up more than $600 million from a year earlier.
But Q4 fuel expenses, because of the dropping price and decreased usage because of capacity cuts, would be less than $200 million, to around $1.14 billion.