Even with some modest recovery in airline stocks, it may be too early to celebrate. The worst may not be over for the industry.
The International Air Transport Association says that global losses for airlines could top $6.1 billion this year. The Wall Street Journal quotes ATA Chief Executive and Managing Director Giovanni Bisignani as saying, "We are bracing for more situations of airlines collapsing" amid higher fuel prices and lower revenue.
The slowdown is apparently moving to Asia, a major destination for many large US and EU airlines.
United (NASDAQ: UAUA) is a good example of a US airline that many thought would be on the rebound. New fear of rising oil prices has spoiled that a bit. After falling from a 52-week high of $51.60, shares crashed to $2.80. They have recently made a minor recovery to $12.40. But, in the last two days, UAUA shares have been off sharply.
Oil is still just below $120. Even at that level, down from $143, airlines face huge increases in fuel prices over last year. A modest disruption in oil supply could send prices back up again.
The market sees US airline stocks as having potential for big returns. But, with the price of oil making a potential bottom, the carriers are still in too much trouble to have a real recovery. Buying shares in the companies still offers more risk than reward. The industry may still have operators that have valuations heading toward zero.
Douglas A. McIntyre is an editor at 247wallst.com.
What's holding the airline sector back, in addition to high jet fuel prices, and keeping the likes of AMR's (NYSE: AMR) American, Delta (NYSE: DAL), UAL's (NYSE: UAUA) United, Southwest (NYSE: LUV), and Continental Airlines (NYSE: CAL) from realizing their potential?
Many economists and analysts would agree that, along with other infrastructure and related investments, the nation's air traffic control system must be upgraded, if the United States seeks an air transportation system capable of maintaining a high level of safety -- and better service -- in the 21st century's more-crowded skies.
Further, that the United States has not already replaced an essentially generation-old air traffic control technology with a modern system is a serious demerit, and one that has -- through delays, cancellations, and other problems -- taken a toll on the flying public and the major carriers.
Shares of UAL Corp. (NYSE: UAUA), the parent company of United Airlines, soared today after the Chicago-based company announced it had enhanced its liquidity by $1.2 billion. The company also posted second quarter results that were not as dismal as Wall Street had expected
The company will receive a payment of $600 million from JPMorgan Chase & Co. (NYSE: JPM) related to the advance purchase of frequent flier miles. In addition, the level of reserves that United is required to maintain under its credit card processing agreement with Chase Paymentech has been reduced to $25 million, a move which will free up about $350 million in previously restricted cash. UAL expects the frequent flier payment to improve cash flow by about $200 million over the next two years.
"Combined with the previously announced approximately $550 million raised from new transactions in the second and third quarters, the company will have increased its total cash balance by $1.7 billion and continues to have more than $3 billion in unencumbered hard assets," UAL said in a press release.
In a move to help cut expenses and save on fuel prices, UAL Corporation (NASDAQ: UAUA), parent of United Airlines, will reduce its 460 airplane fleet by 70 jets. Not yet known is how may jobs will be affected, the Wall Street Journal reported.
In an all stock deal, J.M. Smucker Co. (NYSE: SJM) is expected to buy Folgers coffee from The Proctor & Gamble Company (NYSE: PG) for an estimated $2B, according to the Wall Street Journal. Folgers, the best selling ground coffee in the U.S., has annual sales of about $1.6B.
The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) lost $500M-$700M on some of its hedging positions in Q2, which have contributed to a larger than expected loss that could result in the bank raising more capital by selling a stake to an outside investor. Lehman has begun negotiations with potential investors, including asset managers and Asian banks, sources said.
OTHER PAPERS:
According to sources, the Rocky Mountain News reported that troubled home builder Beazer Homes USA Inc (NYSE: BZH) is pulling out of Colorado. Beazer, which is being investigated for mortgage fraud by several government agencies, has built homes in the suburbs of Denver and in Colorado Springs.
The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.
WEB SITES:
AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.
H.J. Heinz Co. (NYSE: HNZ) is today expected to increase its sales and profit projections for the next two years, as it reports results of its fiscal year ended April 30. The Wall Street Journal reported that sales are to grow 6% or higher from 4%, while earnings per share growth for the next two years is projected to grow between 8% and 11% from the earlier projection of 7% to 9%.
It appears that Vistaprint Limited (NASDAQ: VPRT), a graphic design services and printed products company, counts on referral fees from pop up rewards programs on it website for a certain amount of its revenue and profit and also relies on the referral of its customers to outside firms offering rewards programs, which turns out to be a monthly fee for services such as discounts on movies and amusement parks, according to the Wall Street Journal's "Heard on the Street". Some believe the stock, whose shares have plummeted over concerns of slowing revenue and slimmer gross margins, may be trading too high for its own good.
According to people familiar with their plans, the Financial Times reported that the CEOs of UAL Corporation's (NASDAQ: UAUA) United Airlines and US Airways Group (NYSE: LCC) will today meet to discuss the carriers' potential merger agreement.
OTHER PAPERS:
The Independent reported that for the second time this month, Barclays Plc (NYSE: BCS) revised lower its calculation of analysts' consensus for its full-year profit, cutting its 2008 figure by nearly 8% to GBP5.876B pre-tax; Barclays cut the calculation 15% two weeks ago.
United Airlines, the second largest U.S. carrier, increased almost all domestic airfares by 3-5%, due to surging fuel costs, The Associated Press reported Friday.
It was the third increase in the past two weeks, The AP reported, for United (NYSE: UAUA), which like the U.S.'s other major carriers, is struggling to maintain a viable business model amid the largest increase in aviation fuel costs since the world's second oil shock in 1979-80.
Shares of United fell 82 cents to $14.58 on the news in Friday afternoon trading.
United's latest fare hike takes place just two days after Delta Air Lines (NYSE: DAL) CEO Richard Anderson said domestic carriers will need to raise tickets 15-20% just to break even at existing fuel prices, The AP reported. Surging fuel costs
Independent stock analyst C. Leonard Bauer, formerly of Prudential, said cost factors affecting aviation will create a stark travel choice for business and leisure travelers, at least for the immediate future, including this summer: if you're flying a few months from now, there's an 80-90% chance you'll pay considerably more, he said.
Domestic travelers are going to see a fuel surcharge increase of between $10 and $20 for round trip tickets. Prior to this increase, passengers were already paying up to a $35 surcharge on their tickets. Depending on what market you would be traveling in, the increase will vary. For example, in markets where United is in head to head battle with low cost airlines, there was previously no surcharge at all, and those markets will now see a $5 charge each way.
This is the second time this month that United passengers were hit with fee increases. Earlier this month the carrier announced that it would be lifting its rates on its round trip tickets between $4 and $30 in response to the current high fuel costs.
It's not bad enough that air travelers are facing more and more delays, and airlines are canceling more and flights, but along comes airplane maker Boeing (NYSE:BA) announcing that its 787 Dreamliner is going to face a delay of at least 14 months until deliveries are made.
According to the AP report: "The Times of London reported on its Web site late Wednesday, quoting those familiar with the matter who asked not to be identified, that delays for 787 could reach 18 months, while the Seattle Post-Intelligencer put the delay at 14 months from the original goal."
What's with this industry? Why can't anything be on time?
With three airlines going bankrupt in the last week alone, the industry is a mess. It's no wonder Boeing announced the delay because it needs to really make sure that the plane is sound structurally. The Seattle Times had a story about airline woes and reported: "American, Delta and United airlines recently canceled flights to perform unscheduled inspections of certain aircraft, and US Airways found problems on some Boeing 757s after a wing part on one of its planes fell off during a flight."
With the busy summer travel season fast approaching, travelers better plan for even more delays.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/9/08.
If you have a trip planned on United Air Lines, Inc. (NASDAQ: UAUA) over the next couple of days, you may want to call ahead and verify that your flight is still on schedule. According to news reports today, the airline is going to be performing comprehensive inspections of 52 of its 777 aircraft.
Air travelers have been dealing with delays for the past week as all the major airlines are working to get all their planes inspected and given the "all clear" by the FCC. Last week, we saw major cancellations and delays for travelers flying American Airlines (NYSE: AMR) and Delta (NYSE: DAL) as those two carriers were having scores of planes inspected for potential problems with their wiring bundles.
The United inspections are looking at the fire suppression system in the cargo bays. The company wants to make sure that this system is working correctly, and notified authorities when it discovered that one of the five bottles in the suppression system was skipped over during the last inspection of the system.
The Wall Street Journal reported that KKR Financial Holdings LLC (NYSE: KFN), a unit of Kohlberg Kravis Roberts, revived concerns of a credit crunch after it asked for a restructuring of billions of dollars in short-term debt.
The Associated Press reported that the pilots' unions of Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) are unable to agree on how seniority for the companies' pilots would work under a combined carrier. The impasse puts the deal in "serious jeopardy," inside sources reported.
In the airline industry, it seems that any deal will do. Northwest Airlines Corp. (NYSE: NWA) is already fairly far along in discussions about merging with Delta Air Lines Inc. (NYSE: DAL). Now UAL Corp.'s (NASDAQ: UAUA) United Airlines is talking with Continental Airlines Inc. (NYSE: CAL). But one set of negotiations in not enough for Continental. It is also talking to AMR Corp.'s (NYSE: AMR) American Airlines, according to The Wall Street Journal (subscription required). The paper reports "the talks were exploratory, and it isn't clear they will go further."
Airlines are seeking mergers under the premise that combining companies saves costs. While that is true to some extent, the marriages also hurt customer service -- badly. Putting together incompatible reservations and service operations can take years and be extremely complex, which can make it hell for consumers who just want to take an airplane ride from here to there. Bad customer service is a sure way to drive off fliers, and that is not good for revenue.
The savings in a merger also might not be as great as imagined. Fuel costs stay the same. The number of pilots and crews may drop some, but that can also cause labor disputes and strikes that interrupt service. The number of people needed to handle customer support and processing of reservations probably cannot be cut by much, especially if retaining revenue with unhappy fliers is important.
In an industry where mergers and Chapter 11 filings have been part of the landscape for decades, combining airlines may be no panacea. It is good to remember that the two most successful carriers in the United States, American and Southwest Airlines Corp. (NYSE: LUV) have never been much enamored of merging.
Douglas A. McIntyre is an editor at 247wallst.com.
CAL and United Airlines (NYSE: UAUA) are in advanced negotiations and could complete a combination quickly if Delta (NYSE: DAL) and Northwest Airlines (NYSE: NWA) strike a deal, says Dow Jones.
WTI Crude oil is recently up .12% to $95.57 according to Bloomberg.
CAL March option implied volatility of 71 is above its 26-week average of 58 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Bloomberg reported that Berkshire Hathaway Inc (NYSE: BRK.A) Chairman Warren Buffett forecast that the dollar's value is likely to decline if policies remain unchanged and said he believes a credit crunch is not under way.
Tech Crunch reported that either Google Inc (NASDAQ: GOOG) or News Corp's (NYSE: NWS.A) MySpace is likely to announces a social space acquisition in the near-future. According to industry sources, the acquisition could be in the $1B-$1.5B range and may involve Bebo.
What's holding the airline sector back, in addition to high jet fuel prices, and keeping the likes of 
Shares of .gif){kind=logo}
.gif){kind=logo}
It's not bad enough that air travelers are facing more and more delays, and airlines are canceling more and flights, but along comes airplane maker .gif){kind=logo}
Continental
Does GM deserve a taxpayer bailout?
Boeing could lose $3.5 billion per month if machinists strike
Cramer on BloggingStocks: Dell loses its Street cred once again 
