TOMORROWS TRANSPORTATION NEWS TODAY!
Barron’s says it’s going to be another good day for airlines, as a number of analysts had good things to say about stocks across the sector.
Where we were: Airlines have struggled this year, but Spirit Airlines (SAVE) upbeat fourth-quarter forecast sent shares soaring Tuesday.
Alaska Air Group would be an ideal buyer and operator of Embraer’s new E2 regional jet, the Brazilian jet maker’s top airplane salesman said.
Embraer Commercial Aircraft’s vice president of marketing, rodrigo Silva e Souza, made the remarks as he spoke to reporters at Embraer’s facility at Fort Lauderdale-Hollywood International Airport.
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Embraer Pitches New E2 Regional Jet
Well, The Greyhound-ification of the skies is now complete. Alaska Air, one of the last US airlines to resist the “no-frills” model to some degree, has announced that they will begin offering a basic fare to sell cheaper tickets for seats in the rear of the plane. The airline also is adding a premium charge for passengers who want the more roomy exit row seats.
The fee changes — including what the airline is calling “basic economy” fares — were announced Monday during a conference call following the airline’s quarterly earnings report.
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Two years ago, JetBlue Airways (NASDAQ: JBLU) tried to buy trendy West Coast rival Virgin America. However, it ultimately lost a bidding war to Alaska Air (NYSE: ALK), which was eager to expand its strong position in the Pacific Northwest to the rest of the West Coast.
JetBlue responded with an aggressive plan to gain market share on transcontinental routes. The linchpin of this strategy was the expansion of Mint, JetBlue’s highly acclaimed premium service, to a slew of new routes. So far, this strategy has been extremely successful, and it is putting a ton of pressure on Alaska Air in the transcontinental market.
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Two years ago, Alaska Air (NYSE: ALK) offered a big premium to acquire Virgin America in order to gain a platform for growth in California. Within three months of the acquisition closing, the carrier had announced a massive expansion in California — including more than a dozen new routes in San Francisco — Virgin America’s hometown.
However, Alaska Air’s 2017 financial performance was disappointing, and the company is still struggling with a combination of rising costs and weak unit revenue in 2018. Much of the unit revenue weakness has been concentrated in California. As a result, Alaska Air has quickly gone from expansion mode to retrenchment, making cutbacks on several routes in California.
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Alaska Air cutting California routes
Tax reform could help Boeing win a big order from Alaska Airlines.
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Alaska and Virgin America pilots have been awarded big pay increases through an arbitration ruling. The arbitration ruling awarded the pilots bigger increases than Alaska Airlines management had sought, but less than the increases sought by pilots. Senior Captains from both air carriers will see their pay increase to $251 an hour, effective today. Senior Captains at Alaska Airlines had been earning $216 per hour, while a senior Captain at Virgin America had been earning $189 per hour. That equates to an increase of 16% for Alaska pilots, and almost 33% for Virgin America pilots. While the new agreement also includes some additional improvements to retirement plan contributions, the union did lose its bid to prevent the company from flying larger regional jets.
The Alaska Air Group closed its acquisition of Virgin America in December of 2016. The merger combined two airlines that were at the top of the customer satisfaction rankings in the United States. However, Alaska’s $2.6 billion acquisition of Virgin America allowed the pilots union to re-negotiate compensation talks due to a clauses in their contract. This increase in pilot pay now comes on the heels of Alaska missing its earnings estimates last week as higher fuel price contributed to soaring costs. Revenue was also hurt by a price war in the California market, and Southwest Airlines has just announced it will soon begin service to Hawaii. The Southwest effect, the term that has been coined to reflect a drop in airfare prices anytime Southwest enters a new market, could also affect Hawaiian revenue in future quarters.
Virgin America was founded in 2004, and began operations out of San francisco International Airport in 2007. The new air carrier became the first airline in the United States to offer Wi-Fi internet on every flight in May of 2009. The airline began service to Toronto from both Los Angeles and San Francisco in June of 2010. Virgin America began flying to Dallas/Fort Worth International Airport in December 2010, and ended its service to Toronto in April of 2011. Following the repeal of the Wright Amendment in October 2014, the carrier moved their Dallas operations over to Love Field. Virgin America announced an order for 60 new Airbus A320’s, with the order split down the middle between the existing model and the NEO (New Engine Option model) in January of 2011. The Alaska Air Group has announced plans to retire the Virgin America brand sometime in 2019.
Virgin America has reportedly put the airline up for sale. News first broke that the airline was shopping for bidders last week. It is rumored that Virgin America investors are ready to cash in now that airline stocks are trading at elevated levels. The time may be right for those investors to get out, as the airline has struggled with intense compitition and low fares on the routes that it serves. Virgin America has been an easy target for its competitors to engage in these battles, as the air carriers small size means there are fewer routes for them to compete on. The recent additions of Honolulu and Kahului in Hawaii only brings the airlines total up to 24 airports in the US and Mexico. The decision by the airline to move its base of operations in Dallas from DFW to Love Field was also viewed as a very poor idea. The airline is being squeezed at Love Field by gate space capacity, with only two available for their use. Southwest Airlines’ Bags Fly Free and no cost ticket change or cancellation policies has made it even tougher to compete there. American Airlines was a competitor that Virgin was far better matched up against from a fare and service standpoint.
Alaska Airline and JetBlue are said to have already made offers for Virgin America. A merger with JetBlue is believed by the street to be the best match. Its hubs in the East include Boston, Fort Lauderdale, New York (JFK), and San Juan Puerto Rico. The only JetBlue hub in the West is based in Long Beach, California. Virgin America has 2 hubs in the West, at San Francisco (SFO) and Los Angeles (LAX). JetBlue also operates the same types of Airbus aircraft as Virgin America, improving crew and maintenance synergies. The two carriers also offer a higher quality of passenger service, with both ranking high in consumer satisfaction polls. The fit with Alaska Airlines is viewed as having less benefit from a route overlap view. However, with both carrier networks primarily based on the west coast, a merger between the two could help Alaska Airlines reduce seat capacity and improve ticket prices. Alaska Airlines has been under pressure from Delta Air Lines, which has been aggressively expanding in Seattle where Alaska is based at. Other airlines may still decide to place a bid as well, so it looks like time will tell what happens with Virgin America.
Image from www.virginamerica.com/
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