Please click on the link for a short audio brief and accompanying slides, which are all new, for our detailed thoughts on a potential AMR/LCC merger and what it means for the sector. Our slides touch on deal math, short and long term impacts to the stocks, and discuss other factors that might often be overlooked by investors. There is a lot of information out there about this topic and we do our best to consolidate it in this audio brief. We are also publishing a pro forma merger model – contact your salesperson for more information.
Four small reasons a merger feels more likely. Over the holiday period (and in the weeks leading up to the holidays) a few things happened that give us more conviction that a merger between AMR and LCC should occur. (1) APA approved a transition agreement, presumably with the input of other creditors, on how to proceed if a merger is announced, (2) the aggregate market caps of network airline stocks increased 30% over the last six weeks, giving LCC more dry powder to execute a merger with less dilution to its own equity holders (and this could also signal a re-rating of the airline industry as investors anticipate a merger). (3) APA outside counsel sent a strongly worded missive to AMR pilots on behalf of union leadership strongly cautioning against a strategy of opposing a merger, and (4) AAMRQ and AMR unsecured bonds have rallied hard, implying improved recovery scenarios.
At our recent 5th annual Global Transport Conference, we heard 47 companies, 7 shippers, and 26 industry contacts present their thoughts on the current state of the transportation industry. In this note, we highlight our top takeaways and discuss each in greater detail. Overall we think freight feels ok, but generally a little worse than we expected to hear. Domestic vols are generally “boring” but continue to grow modestly (best in SE and worst in MW), while international continues to feel muted.
According to published schedule data AMR appears likely to reduce its system-wide capacity by 2.0% y/y over the next three months (Feb-Apr), an incremental 40bp lower than last week’s reading covering the same time period. Reductions were driven by domestic and transatlantic routes. Latin and Pacific capacity were unchanged, although we did observe several schedule changes in Latin.
According to published schedule data, AMR appears likely to reduce its system-wide capacity by 1.7% y/y over the next three months (Feb-Apr), a rate that is in line with last week’s schedule covering the same time period. While overall capacity was unchanged, there were changes domestically and on the transatlantic (Note we classify Puerto Rico and parts of the Caribbean as domestic, consistent with the DoT). Latin and Pacific capacity remained unchanged.
According to published schedule data, AMR appears likely to reduce its system-wide capacity by 1.7% y/y over the next three months (Feb-Apr), an incremental 30 bp cut from last week’s schedule covering the same time period. The majority of this week’s cuts appear to be coming from AMR’s mainline operation, specifically in the domestic U.S. and in India. We did not observe any material changes in AMR’s Latin or transatlantic markets. AMR’s schedule changes are still quite modest, in our opinion. For comparison, DAL is cutting system capacity by 6.6% y/y and UAL is cutting by 3.1% y/y (but LCC is up 1.4% y/y).
In this Friday Flyer we discuss our thoughts on a potential “fat tax,” Airbus and Boeing annual orders, commentary from Air France/KLM, SAVE’s secondary offering, LUV’s 4Q11 earnings and the financial benefits from its “Evolve” project, and much more.
In this Friday Flyer we discuss DAL and LCC’s reported interest in acquiring AMR. We also discuss traffic results from the week and update SAVE’s EPS estimates, we discuss our thoughts on the PBGC’s comments to AMR, DAL’s domestic fare increase, AMR pilot retirements, and much more.
According to published schedule data AMR appears likely to reduce its system-wide capacity by 2.0% y/y over the next three months (Jan-Mar), an incremental 12 bp cut from last week’s schedule covering the same time period. The majority of this week’s cuts appear to be coming from AMR’s mainline operation.
In this Friday Flyer we update estimates for ALK and LCC following investor updates from the companies. We also discuss Virgin America’s recent earnings release, ETS and the financial impact to airlines, how the ISM release will impact PRASM growth, IAG’s traffic results, Air India’s possible inclusion in the Star Alliance, and much more.