PNAA conference, Pt 1: Traffic data; AA-US merger thoughts, 787
Each airline region of the world is different and many going through transitions US went through previously, says Bob McAdoo, the airline analyst for Imperial Capital (a boutique investment banking company in California).
McAdoo is speaking at the Pacific Northwest Aerospace Alliance conference in suburban Seattle today. Highlights:
- IATA traffic data doesn’t make a lot of sense any more. I can always get traffic–all I have to do is charge $19. Without knowing the data behind the numbers, traffic data is meaningless. People say US isn’t a growth market, but it’s making money.
- American Airlines-US Airways: Turn back clock to 2005/6: America West took over US Airways and in less than a year had best profit margins in the industry. Boeing is on AA creditors committee and I think there will be MD-80s coming out sooner and these guys (Doug Parker) will run it like a business. These guys will look at a route structure and say what works and won’t work, not a route planning department that likes the look on a map. I think you will see a lot of markets shut down.
- These guys have been in the top one or two in profit margin. US carries more people out of Philly than AA does out of New to Europe.
- This is a non-growth world in many respects.
- McAdoo recalls when he was at Texas International and his job was to put Southwest out of business. “I wasn’t very good at that.”
- Allegiant and Spirit are, in effect, next Southwest. Tells a story of a friend who rode Spirit once and will never ride them again, “but I’ll buy their stock.”
- 737-400 rent $65,000, 737NG (older) $135,000.
- In Europe you have Ryanair which nobody likes but it carries more passengers in Europe than any other airline. Michael O’Leary calls it Southwest on steroids.
- Seeing Emirates Airlines in Seattle or Chicago for example will be major problem for big US carriers, says some. I don’t see it. US carriers don’t carry that much to Middle East.
- On the other hand if a European carrier, the threat is bigger.
- Chinese are concerned US carriers will get disproportionate share of market so limits US carrier access.
- 787: Spent time with some operators–these are 30 year assets and nobody will abandon the airplane. The plane is three years late already, what’s a few more months.
- This is a bump in the road for 787.
- I’m not a believer that the A380 will be a great (sales) success over time. To some extent 787 will be that airplane. You don’t need to accumulate 300-400 people in one clump, can do point-to-point.
- There are places in the world where there is growth. Brazil, China. Not much growth in North America.
- American Eagle flying at AA at risk after merger, a lot of unnecessary flying to Miami at risk.
- You have 40-50 cities that feed Charlotte that don’t feed Miami. Can have better connections to Latin America, Caribbean from Charlotte than from Miami.