Thursday, May 1, 2008

Airline Industry and AirTran Holdings Inc.(AAI)

If you bought LCC, 5 days ago you would have made 30-55% returns. DAL 21-30% and AAI (which I own) 15%.

So I thought I'd post some interesting findings about the Airline industry which should be consolidating finally. Although many people have been burned by it and Warren Buffett stays away from it, I think it has really been ravaged enough. I see limited down side and high upside here. There's so many reason why I invested in AAI which I won't go into now because it's exam time. The only thing that bothers me now about it is its PE is 31 compared to LCC's of 9. I am not sure I have found a good reason for this yet. (from BusinessWeek)

Canadian airlines: Wild blue wonder

Megan Harman
From the April 28, 2008 issue of Canadian Business magazine

Talks of a global slowdown have markets on edge, yet one industry typically regarded as a foolproof economic barometer has seen nothing but blue skies. The domestic airline industry is flourishing. For 14 months in a row, WestJet has filled its planes to record levels, and last year Air Canada posted its strongest results in history. Demand is so strong that two new carriers are set to launch this year. All this good news even has analysts scratching their heads. “I’m as surprised as anyone about the resilience and the demand for air travel in Canada,” says Ben Cherniavsky, a Vancouver-based aviation analyst at investment firm Raymond James. It’s either a sign of a higher propensity to travel, he says, or simply an indication that the economy is not doing too badly after all.

The strong Canadian dollar is one factor, since many buy aircraft and fuel in U.S. dollars. “We’ve been able to weather increases in prices, especially on the fuel front, a lot better,” says Sam Barone, president and CEO of the Air Transport Association of Canada. Even though fewer Americans are flying internationally, Canadians have helped maintain a strong cross-border flow. Toronto-based Porter Airlines’ first U.S.-bound flights, to New York, received more bookings in the weeks prior to their late-March launch than all its other routes combined.

But the months to come might not be so rosy. With a potential recession hampering Canada’s largest trading partner, “there are a few clouds on the horizon,” says Barone. New carriers are edging onto the market with caution. Calgary-based Corporate Jet Air’s small-scale launch this spring will feature flights between Toronto and Calgary, testing the air before expanding to other cities. Its focus on speed and convenience for business travellers is not unlike that of Porter, but lavish amenities set Corporate Jet Air apart: planes that used to seat 50 have been transformed into roomy 18-seaters, and an all-inclusive fare features “gourmet” food and drinks, and limo service to and from the airport. “People are becoming more affluent and less patient, and more willing to pay for a premium service,” says Betty Ledgerwood, director of marketing and branding. “We just see that there’s a big niche in the market.”

AirTran Holdings, Inc., Statement On Completion of Recent Financing

ORLANDO, Fla., May 1 /PRNewswire-FirstCall/ -- AirTran Holdings, Inc. (NYSE: AAI), parent company of AirTran Airways, Inc., one of the nation's leading low-fare air carriers, today, in conjunction with the initial closing of the public offering of its debt and equity securities announced last week, issued a statement from Bob Fornaro, president and chief executive officer:

"The successful completion of these offerings, in combination with our low cost structure, high quality product and young all-Boeing fleet, provides improved financial flexibility and uniquely positions AirTran Airways for the challenges the industry faces in dealing with record high fuel costs. AirTran Airways is on solid footing during these turbulent times in the industry as evidenced by the following:

-- The initial closings of our concurrent offerings of our 5.50 percent Convertible Senior Notes due 2015 and our common stock have today been completed, including the full exercise of the underwriters' over-allotment option on our Convertible Senior Notes. Net proceeds to the Company of the concurrent offerings (including escrowed funds of approximately $12.3 million), were approximately $140.3 million. A closing with respect to the sale of an additional 2,346,875 shares of common stock pursuant to a partial exercise of the underwriters' over-allotment option is scheduled to occur on or about Friday, May 2, 2008.

-- Enhanced invested cash balances.

-- Lowest non-fuel unit costs in the industry (a position we intend to maintain. )

-- Proactively re-casting our business for success in a high fuel environment.

-- Reducing our capacity growth against the current environment from a prior planned 10 percent from Sept. through Dec. 2008 and from a prior planned 10 percent in 2009 to no more than flat in both periods to improve unit revenue.

-- Managing our fleet order to maintain balance of capacity and revenue.

-- Number one airline in quality as ranked by the Airline Quality Rating.

S&P research on AAI (click to enlarge)

Lastly, I think it would be good to buy a rail company as fuel prices keep going up. However, it seems Amtrak is a US government company.

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