Monthly Archive for December, 2011

A Few Notes on Gogo’s IPO Filing

Published
by
Dan Webb
on December 27, 2011
in Uncategorized
. 3 Comments

Internet connectivity provider Gogo filed for an IPO on Friday last week, and its prospectus filed with the SEC has some interesting nuggets of information. Personally, I was quite excited to read through everything as many airlines haven’t provided much in terms of details when it comes to Wi-Fi usage and revenue, and unlike baggage or change fees, they aren’t required to break out these revenues when they report financial data to the DOT.

SplatF went through much of the IPO filing already, and they take a stab at perhaps the most interesting data point: usage rate. “With roughly 355 million passengers having flown on Gogo-enabled planes since 2008, Gogo has only provided 15 million sessions — about 4% take-up,” the website reports. But it does appear that Gogo is making some decent progress in revenue growth. SplatF notes that “total ‘average revenue per passenger’ on commercial airliners in the first 9 months of this year was $0.41, up from $0.26 in the year-ago period, and up from $0.15 in full-year 2009.”

I found a couple of interesting things in the SEC filing as well. First, it’s worth putting  Gogo’s commercial airline revenue in context. Gogo generated just under $59 million in service revenue during the first nine months of 2011. That’s over a 100% increase from the same period a year ago, but so far it appears that connectivity has yet to become a major source of revenue for airlines, as they only get a portion of those revenues. But even if we disregard that for a second – that $59 million for Gogo as a whole pales in comparison to other carriers. In the first six months of 2011, for example, Delta alone earned over $424 million in baggage fees, according to the DOT.

It’s also worth noting that so far Gogo’s commercial aviation business appears to be dragging down the company’s financial results as a whole. The segment loss for commercial aviation was $20.8 million in the first nine months in the year, while Gogo’s business aviation segment recorded a segment profit of over $19 million. That $20.8 million loss, however, is a strong improvement from a $50.8 million loss in the same period last year (page F-17 of the SEC filing has a breakdown of these segment results).

But while Gogo has been experiencing losses over the past couple of years, at least its results are improving. The company’s operating loss for the first nine months of the year was $26.5 million, much smaller loss than the $66.4 million loss experienced over the same nine months last year.

Gogo also detailed its growth strategy, and I found a few bits interesting. It’s not entirely surprising that the company wants to keep expanding service with existing customers, saying it palns to “leverage…[its] unique ability to cost-effectively  equip each commercial aircraft type in an airline’s fleet to increase the number of Gogo-equipped aircraft, targeting full-fleet availability of the Gogo service for all of our airline partners.”

What will be very interesting to watch is Gogo’s plan to go international through a partnership with Inmarsat. Gogo said that it hopes to laverage ” our existing domestic relationships with members of each of the major global airline alliances, as well as the strength of our platform offering and proven track record, to help us to partner with members of these alliances outside North America.”

If Gogo is targeting the alliances, Skyteam seems like a logical step. Delta is already a huge customer for Gogo, as the compnay noted that “approximately 45% of revenue generated by our CA [commercial aviation] segment for the nine months ended September 30, 2011 was generated through our agreement with Delta Air Lines.” United has already announced a deal with Panasonic for Wi-Fi, which includes international aircraft, and based on Delta’s recent emphasis on inflight Wi-Fi I’m sure they’d like to stay competitive here. (American has also said that its upcoming 777-300ER aircraft will feature Wi-Fi service, but it didn’t provide much in terms of details.)

Chart of the Day: Average Fares

Published
by
Dan Webb
on December 26, 2011
in Uncategorized
. 0 Comments

Earlier this month, the Department of Transportation (DOT) released its usual analysis of quarterly fares, and the second quarter data indicates that airlines have (overall) been successful at raising fares as they (generally) remain tight on capacity. Since the second quarter of 2009, domestic fares are up 22.4% and 17.4% on a nominal and an inflation-adjusted basis to 1995 dollars, respectfully. (The DOT uses the Consumer Price Index to make its adjustment.)

Despite this recent increase, fares still seem pretty low on an inflation-adjusted basis.  Fares in the second quarter of this year were nearly 15.8% lower than they were in the same period in 1995!

Frontier and Southwest Spar Over Chicago-Cancun

Published
by
Dan Webb
on December 22, 2011
in Frontier and Southwest
. 4 Comments

As most people reading this blog already know, USA3000 is winding down operations, and will be shutting down at the end of next month. That decision has created an opportunity for Frontier. The Denver-based carrier applied last month for authority to fly from Chicago O’Hare to Cancun, Puerto Vallarta, and Cabo, saying:

The commencement of service will coincide with the termination of service by USA3000 on these routes on or about January 30, 2012. Frontier has entered into an agreement with Apple Vacations to replace Apple Vacations’ current allocation of seats on USA3000′s flights on these routes.

This sounds like a great plan for Frontier, right? The airline can launch some new service in partnership with a well-known travel company, which can provide some nice additional revenue. Unfortunately for Frontier, Southwest has thrown a bit of a wrench in this idea and can potentially prevent Frontier from flying between O’Hare and Cancun.

Southwest can do this because of the current bilateral between the US and Mexico, which in many cases allows three carriers of each country to serve a market. Currently three carriers are allowed to fly between Chicago and Cancun: American, United, and USA3000. The end of USA3000′s service creates an opening for only one carrier, and now Southwest is proposing that its AirTran subsidiary fly to Cancun from Midway with daily year-round service. (Southwest/AirTran did not have any objection to Frontier’s desire to fly to Puerto Vallarta and Cabo.)

Southwest’s sums up its reasoning for why it should get the slots instead pretty well in this paragraph found in a DOT filing:

Because Frontier has no meaningful presence at Chicago, no existing base of Chicago customers, and no feed support for ORD service, it would provide virtually no public benefits beyond the local Cancun market. AirTran/Southwest, on the other hand, with its huge network at Chicago Midway connecting to dozens of cities, will unquestionably be able to generate large amounts of traffic to support MDW – Cancun service as well as to leverage this valuable U.S. authority to the benefit of a large number of communities beyond Chicago.

Frontier has submitted a response, and it’s certainly an interesting read. For example, take a look at this bit (emphasis mine):

With its usual modesty, mega-carrier AirTran/Southwest would have the Department believe that only it could provide substantial public benefits to the traveling public with the third U.S.-carrier designation for the Chicago-Cancun route. However, close scrutiny of the market and the competing applications reveals the fallacy of that position and demonstrates the superiority of Frontier’s O’Hare-Cancun service proposal.

Frontier makes multiple arguments in support of its bid, including that it will be the only carrier going head-to-head against United and American at O’Hare, that it will be using larger aircraft in the route (A320 vs. 737-700), and it will launch service earlier than AirTran.

What I found most interesting is how Frontier tries to use one of Southwest/AirTran’s arguments to show that they don’t understand the Chicago-Cancun market. Here’s what Southwest/AirTran argued:

AirTran explicitly proposes in its application to provide year-round daily service between MDW and CUN. In contrast, Frontier’s application states only that it will operate service between Chicago and Cancun “up to seven times per week,” which clearly suggests that its service will be less than daily for at least part of the year….In addition, while Frontier’s application states that it plans to provide service on a “year-round” basis, Frontier has operated almost all of its current Cancun services on a seasonal (less than year-round) basis. For example, Frontier operates seasonal service in the IND-CUN and SLC-CUN markets (October through April), MKE-CUN (December to April), and MCI-CUN (October to August).

Frontier then argues that what AirTran thinks is an asset of its application is actually a weakness:

AirTran mistakenly believes that it has found an important deficiency with Frontier’s proposal, pointing out that Frontier’s service proposal was for “up to 7 flights weekly” as compared to AirTran’s proposal for daily service. But, that point actually supports Frontier’s application because it underscores AirTran’s lack of understanding of this Mexican beach market.

Frontier continues:

Moreover, it is ironic that AirTran/Southwest would try to make an issue about Frontier’s realistic, year-round schedule proposal given that (i) AirTran only operates 5 times weekly to Cancun from AirTran/Southwest’s Baltimore hub during September/October, (ii) AirTran flies only once per week from Milwaukee to Cancun, and (iii) Southwest has never operated any scheduled service to Mexico.

It’ll be interesting to see how this one turns out for either carrier. Routes like these seem like a great opportunity for Frontier, and of course it’s fun to watch Southwest make moves to build up international service.

Virgin America Posts Opearting Profit in Third Quarter

Published
by
Dan Webb
on December 21, 2011
in Virgin America
. 1 Comment

Virgin America earned a $16.2 million operating profit in the third quarter of this year, but swung to a net loss of $3.3 million during the quarter, down from a $7.5 million net profit in the same quarter last year. Operating margin slipped 4.8 points year-over-year, to 5.6%.

“Although higher oil costs weighed on our overall financial performance for the quarter, as a young airline still fueling growth, we’re pleased to see continued strong revenue performance and to have achieved an operating profit for the quarter,” said CEO David Cush in a press release.

Virgin’s operating cost per available seat mile grew 14.6% year-over-year during the quarter. Much of this increase was attributable to fuel costs, as fuel cost per gallon rose 42.5% year-over-year, to $3.25. Unit costs excluding fuel rose 2.1% year-over-year, an improvement over the 8.2% increase the company reported in the second quarter. Total operating expenses rose 51.5% year-over-year to $274.4 million. Total operating revenue rose slower, 43.8% year-over-year, to $290.6 million.

Total unit revenue, meanwhile, rose 8.8% year-over-year. Virgin noted, however, that “RASM in the carrier’s established markets improved by 17 percent year-over-year.” That measure excludes routes added within the past year.

It’s a bit concerning to see that Virgin couldn’t pull off a net profit in the third quarter, and obviously the airline needs to take more steps to become (sustainably) profitable. But the big story today is cash. Virgin said that at the end of the third quarter it had “$24 million in unrestricted cash and $42 million in total liquidity,” down from $26 million in cash and $53 million in liquidity at the end of the second quarter. That decrease isn’t great, but Virgin has now taken some big steps to boost cash and finance it upcoming deliveries:

Today, Virgin America also reports it has raised an additional $150 million in a new four and a half year debt facility funded in December, further improving the Company’s cash position. The Company has also obtained lease financing commitments for 13 Airbus A320 Family aircraft slated for delivery between October 2011 and September 2013. In addition, the Company has closed on a financing facility for the majority of its pre-delivery payment obligations (“PDPs”) due on the first 20 aircraft within its order of 60 Airbus A320s, scheduled to begin delivery in the summer of 2013.

Those moves should give Virgin America some more breathing room and flexibility to continue its growth plans, that will hopefully lead to more sustainable profitability for Virgin going forward.

Delta Announces LaGuardia Expansion

Published
by
Dan Webb
on December 20, 2011
in Delta
. 2 Comments

Last Friday, Delta announced its post-slot swap schedule for LaGuardia, revealing an expansion plan that includes multiple daily flights to new destinations such as Charlotte, Dallas, Houston, and Miami. That move makes a whole lot of sense considering Delta’s push to win the market for New York business travel. (Cranky Flier noted yesterday that the boosts in large-city service comes at the expense of smaller markets.)

Over the weekend I dove into some DOT O&D data to take a look at Delta’s additions to see what it meant for the airline’s coverage of the top 50 destinations from LaGuardia (table below). By my count, Delta already had service to 24 of the largest 50 domestic destinations, and will be adding service to 13 more with this latest schedule move. That leaves 13 remaining markets not served. Let’s take a look:

  • Ten of those thirteen markets, like Los Angeles and San Francisco are restricted by LaGuardia’s perimeter rule. Delta could fly to these longer-haul destinations if it wanted to, but would only be allowed to do so on Saturdays.
  • One of the top markets is Chicago-Midway, and Delta already has ample service to O’Hare. (In 2010, Delta ended Midway-LaGuardia service and replaced it with O’Hare flights. It’s worth noting that the MDW-LGA flights initially replaced O’Hare-LaGuardia flights back in 2007!
  • The remaining two airports are Akron-Canton and Williamsburg, both of which have nonstop service from AirTran. In the case of the former, Delta is already adding service to Cleveland so it isn’t much of a big deal, in my opinion. In the case of the latter, Southwest is closing that station altogether in March, and Delta will be adding service to nearby Norfolk.

Edited at 11:49pm on 12/20 to note that the data used to generate the table only included domestic markets.

 

 

Alaska Adjusts 737 Order Book (Again)

Published
by
Dan Webb
on December 16, 2011
in Alaska
. 2 Comments

I’ve written here before about how Alaska has made adjustments to its 737 backlog in favor of the 737-900ER, which the Seattle-based carrier originally ordered at the beginning of this year. According to Alaska’s latest investor update, the airline has made yet even more changes to its order book.

Alaska still plans to take 25 total 737s from 2012 through 2015, but that total is number is now composed of nineteen 737-900ERs and six 737-800s, while it was previously composed of sixteen and nine aircraft, respectively. The carrier will now take three of each variant next year, while it had previously said it would take four -800s and -two -900ERs. In addition, Alaska now plans to accept delivery of nine -900ERs in 2013 instead of two -800s and seven -900ERs.

For those keeping score, here’s a comparison of the 2012-2015 delivery schedule from this week and one from a January 25 investor update:

There were a couple of other interesting data points in the investor update. Mainline PRASM for November was up 6.7% year-over-year, exceeding a 5.0% increase in October. Changes in advance booked load factors for December and January had increased since Alaska’s latest guidance. In addition, Alaska said its fourth quarter cost per available seat mile (CASM) excluding fuel and special items for the fourth quarter would be 7.87-7.91 cents,  right within a prior guidance of 7.85-7.95 cents.

Comparing Southwest Delivery Schedules

Published
by
Dan Webb
on December 13, 2011
in Southwest
. 1 Comment

As part of its announcement today, Southwest included a revised delivery schedule from Boeing, and  it’s worth noting some changes to its 737NG order book, especially as Southwest noted today that it “has substituted -800s for all -700 737NG deliveries scheduled for 2012 and 2013 in addition to a portion of its 2014 deliveries.”

Below is a comparison of Southwest’s two latest order book updates, announced today and before along with its third quarter earnings announcement in October. Of special note is the fact that Southwest’s total firm orders for the 737-800 have more than doubled to 73 aircraft. (Southwest also has five leased 737-800s coming next year, but that isn’t new.)

And, for the sake of completeness, here is the latest delivery schedule with the MAX as well:

These tables only have firm orders listed, but you can see the number of options in the press releases linked to earlier in the post.

Southwest Orders the 737 MAX, Bolsters NG Order Book

Published
by
Dan Webb
on December 13, 2011
in Southwest
. 0 Comments

While Boeing has been steadily building up commitments for its new 737 MAX, the airframer announced that it has logged the first firm order of the re-engined aircraft from Dallas-based Southwest Airlines. The airline will also be the launch customer from the type. (Southwest was also the launch customer of the 737-300, -500, and -700 variants.)

The airline announced today it has ordered 150 MAX aircraft, noting it “has flexibility to accept MAX 7 or MAX 8 deliveries.” In addition, it has ordered 58 current-generation 737s, bringing its total firm orders of members of that family to 200. The order appears to be made with capacity discipline in mind, as the new aircraft “are intended to predominately serve as replacement aircraft as the airline continues the modernization of its fleet.” In addition to its firm orders, Southwest also plans to take delivery of five leased 737-800s next year.

JetBlue Announces Boston-Dallas

Published
by
Dan Webb
on December 7, 2011
in JetBlue
. 4 Comments

JetBlue has announced that it will launch thrice-daily service from Boston to Dallas/Fort Worth starting May 1st next year as the carrier continues to solidify its Boston presence.

“We’re excited to bring our Boston customers what they’ve been asking for – more options for their business and leisure travel to Dallas/Fort Worth,” said JetBlue’s Vice President Sales and Revenue Management Dennis Corrigan in a news release.

It’s also worth nothing that the announcement comes after Spirit announced last week that it would start service on the route in March, though it will only fly one daily roundtrip. Spirit’s timing is also very different on the DFW-BOS leg – the airline is operating that as a redeye with a 1:00 AM departure and 5:40 AM arrival.

Dallas was one of the few major markets not served by JetBlue from Boston, and it got me thinking what cities still didn’t have JetBlue service. I decided to head on over to the recently-released second quarter DB1B data and find the 20 largest Boston markets, ranked by daily originating passengers. DB1B is quarterly and is also a 10% sample, so I multiplied the passenger numbers by ten and then divided by 91 (the number of days in the second quarter).

A quick check of the data shows that there are only a few unserved markets left from Boston. JetBlue doesn’t fly to LaGuardia, but does serve JFK and Newark. The biggest markets not served are Atlanta and Philadelphia. The former would be interesting to see, as it would mark JetBlue’s return to Atlanta since leaving in 2003, and plus AirTran/Southwest already has a presence there. I would be very interested if JetBlue were to ever give Boston-Philadelphia a shot, as Southwest launched that route in June 2010 but will be ending service this coming February.

And Your Slide of the Day Comes From…

Published
by
Dan Webb
on December 6, 2011
in Uncategorized
. 3 Comments

…Republic, who presented at an investor conference today. The company had an interesting chart comparing its branded fleet in October 2009 to what it should be at the end of next year. The total number of aircraft will have decreased over 25% that time period, though the average size of aircraft will have increased at the same time as the carrier removed smaller aircraft like the ERJ from its fleet while adding A320s.

By the end of next year, Frontier will be down to four fleet types – the E190, A318, A319, and A320.

JetBlue Confirms Slot Swap Wins (And Other Slot-Swap Related Things)

Published
by
Dan Webb
on December 5, 2011
in Uncategorized
. 1 Comment

JetBlue announced last week that it was the winner of slot bundles at LaGaurdia and Washington-National, confirming earlier an earlier report made by Bloomberg after the auction was concluded. Two bundles of eight slots pairs were offered at LaGuardia, while only one was available for bidding at National. WestJet was the winner of the other slot bundle at LaGaurdia.

The FAA has also made more data about the auction process available to the public. The agency had previously posted the amount of the bids, but until late last week had withheld the identities of the bidding airlines. At the end of the post I’ve listed all the bids, sorted by amount, but there are a few specific bids that I think are worthy of some further discussion.

First, I would’ve loved to see what flying Frontier would add out of National. The carrier recently announced from the airport to Grand Rapids and Madison, and I wonder if they would have used the slots to add even more destinations from the airport or building up existing routes.

Also interesting was Sun Country’s bid for LaGuardia slots. The airline already has a presence in New York, as one of its few year-round routes is service from Minneapolis to JFK. I really don’t know how they’d use the slots. Their expertise is leisure routes, so maybe we could have seen some flying down South, but then again they’ve also added routes like Washington-National to Lansing.

Allegiant’s failed bid for LaGuardia slots makes me wonder if they’ll continue pursuing New York service. Slots at JFK, LaGuardia, and Newark aren’t always the easiest to obtain. One thought that popped into my head is that the company could try serving Islip or Newburgh, but I’m not sure how feasible that is. (Thoughts? Put them in the comments.)

While the completion of the auction is an important milestone in the slot swap deal, there’s plenty of other interesting details that have yet to emerge. Neither JetBlue nor WestJet have announced how they will be using their new slots, and I’m sure we’ll be hearing more from Delta and US Airways about how their LaGuardia and National schedules will be changing.