We expect United Continental Holdings (UCH) to grow pro forma consolidated PRASM by 7.1% y/y, the best among network carriers. We expect this to be driven by revenue synergies (of which we believe UCH will achieve at least $250 million in 2011 depending on the timing of labor contracts) and opportunities from antitrust immunity (ATI) in the Atlantic and Pacific. We view UCH’s revenue managers as the best in the industry based largely on the willingness to take inventory risk (we believe this is occurring again).
Like JetBlue, Southwest attempts to differentiate itself by offering a bundled product to price-conscious consumers, most notably two free checked bags. We do not expect a reversal of this policy anytime soon. Since the industry’s widespread adoption of bag fees, Southwest has significantly outperformed on PRASM, and the company says it is gaining market share because of its lack of fees. However we calculate Southwest is leaving over $1.0 billion of annual high-margin revenue on the table, equating to $0.53 in lost EPS in 2011 alone.
JetBlue has never reported a calendar year of negative ASM growth, and we believe JetBlue will grow if there is even the slightest reason to do so. This will likely result in a consistently higher earnings multiple relative to peers as investors tend to pay more for growth airlines. However, we believe growth will be a net negative for JetBlue’s stock price due to yield dilution as the company engages in price wars to gain market share, takes on a heavier debt burden from new aircraft, and manages the unease of investors who yearn for capacity discipline.
Hawaiian is likely to increase capacity by at least 16% y/y in 2011, mainly driven by new service from Honolulu to Tokyo (Haneda) and Seoul (Incheon). Though the two new Asian destinations are probably in the best long-term interests of Hawaiian as it diversifies its network, we believe these new routes will serve as a drag on operating margins during the ramp up period even with initial demand on both routes currently exceeding internal expectations. In addition to pricing dilution, 2011 is likely to be a challenging year for Hawaiian on non-fuel costs due to growth-related expenses. As a result, we expect erosion of operating margins and lower EPS for Hawaiian in 2011 compared to 2010.
We believe shares of DAL are undervalued based on a very high likelihood that the company will lower its net debt burden by $7 billion over a three-year period through 2012. Though changes in fuel prices could decrease (or increase) the ultimate amount of debt that Delta will eliminate, we believe management will remain thematically committed to this strategy as a top priority with the ultimate goal of an investment grade credit rating. As a result, we believe Delta’s earnings multiple, which is depressed relative to historical levels, will expand.
We believe AMR has issues that many would-be investors struggle to accept, most importantly significant financial underperformance in both earnings and cash flow during what was one of the most lucrative years in the history of airlines. Last year, AMR lost $470 million in net income, used $721 million in free cash, did not secure new labor agreements with its three disgruntled unions, and underperformed on year-over-year PRASM growth. We forecast another difficult year in 2011.
We believe airlines generally have three major stakeholders ” customers, labor, and investors. Most airlines do well to satisfy two of these groups (and a few airlines satisfy none). We believe Alaska Air Group is the only airline we cover that has consistently delivered results for all three groups over the past two years, and we see no near-term reasons why this would change.
This 76-page report analyzes the responses from nearly 150 traffic managers that filled out our first-quarter survey during January and early February. Within the report, we discuss in detail: pricing, volume, service and capacity trends across all modes of freight transportation. The report looks at inventory restocking trends and how shippers’ expectations for volume growth over the next year have improved modestly from last quarter. Looking forward, shippers expect the greatest increases in Rail and TL pricing, and the greatest increase in intermodal volumes given rising fuel costs. Our survey also points to improved Express/parcel pricing for UPS and FedEx.
This 65-page report analyzes the responses from nearly 150 traffic managers that filled out our fourth-quarter survey during October and early November. Within the report, we discuss in detail: pricing, volume, service and capacity trends across all modes of freight transportation. The report looks at inventory restocking trends and how shippers’ expectations for volume growth over the next year have slowed for the second straight quarter into slowing inventory restocking trends. Our survey also reveals expectations for intermodal volumes to grow fastest among all major freight modes over the next year. Lastly, rail, ocean and global airfreight pricing seem strongest among the freight modes we track.
This 75-page report analyzes the responses from nearly 150 traffic managers that filled out our third-quarter survey during July and early August. Within the report, we discuss in detail: pricing, volume, service and capacity trends across all modes of freight transportation. The report looks at inventory restocking trends and how they are currently driving reported freight volumes to feel much stronger than the broader economy. Our report also reveals a clear dichotomy between TL capacity and pricing compared with LTL. Moreover, our survey points to accelerating rail, truckload and intermodal pricing expectations from shippers, but decelerating expectations for express/parcel, international heavy airfreight and international ocean rate increases.