You've been enjoying yourself too flying US Airways flights, haven't you? No more frivolity. The US Airways experience will make the Chinatown bus look lush. US Airways Group (NASDAQ: LCC) announced these latest passenger torture methods: no movies, no curbside check-in at 34 airports -- and that's on top of recent plans to charge $2 for cokes or coffee. You'll pay extra to use some of your frequent flier rewards, an additional $15 for checked bags and $25 to book on the phone. And if you want a window or aisle seat in the front of coach -- 16% of coach -- it'll cost you $5 to $30 more per segment.
The stock is down about 5% today on these grim announcements and word that the airline is cutting 2,500 jobs (and perhaps on oil prices). It had already planned on cutting capacity, though it had positive news yesterday, with good scores for being on time. US Airways says the current new fees will bring in $250 to $300 to $400 million. I don't think price-conscious passengers are going to remain oblivious to the idea that an airline ticket is not the real price anymore. It'll be like renting a car -- you know that it's really going to cost you twice as much as the rate.
US Airways says it is cutting movie service because the 500-pound machines cost them $10 million in fuel and other costs. It'll keep the movies on flights to Hawaii and overseas. The real problem with the big airplane screens is that nobody is renting the headphones anymore. I don't remember the last time I watched a movie -- or even one of those schlocky sitcoms the airlines seem to love -- on a big airplane screen. We all want our own entertainment -- and bring it in the form of MP3 or DVD players. In an effort to appeal to the broadest audience, the industry has bored everyone. Reuters says that a cut in inflight movies -- if it goes further -- could hurt the entertainment industry, which makes roughly $240 million a year from airlines.
Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how airlines are cutting back on long flights in order to save a little on fuel consumption.
It is a pretty nasty cycle we are seeing with the airlines. The higher fuel costs have led to higher tickets prices and extra fees. These higher prices have led to less air traffic, and that has led to an even greater need to find more ways to cover rising costs. Definitely a tough situation.
The new way they are starting to combat the high costs of flying is by cutting back, or postponing long international flights, in particular flights that are in excess of 12 hours.
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.
Oppenheimer downgraded shares of Chelsea Therapeutics (NASDAQ:CHTP) to Perform from Outperform after their survey suggested physicians believe currently available generic treatments are adequate in neurogenic orthostatic hypotension, which could impact the company's lead drug Droxidopa.
Clearwire (NASDAQ:CLWR) was cut to Sell from Hold at Citigroup on valuation, as they estimate fair value at $13.
OTHER DOWNGRADES:
Goldman downgraded Kellogg (NYSE:K) to Neutral from Buy and Hershey Foods (NYSE:HSY) to Sell from Neutral.
MOST NOTEWORTHY: The airline sector, Siemens and Internap were today's noteworthy downgrades:
Lehman downgraded the airline sector to Neutral from Positive, citing higher fuel costs and the weakening economy. AirTran (NYSE: AAI) and U.S. Airways (NYSE: LCC) were downgraded to Equal Weight from Overweight. UBS said it can no longer recommend airline stocks due to weakening economy, high fuel prices, and less likely industry consolidation. The firm downgraded Continental Airlines (NYSE: CAL), Delta Air Lines (NYSE: DAL), Northwest Airlines (NYSE: NWA) and U.S. Airways to Neutral from Buy.
Goldman removed shares of Siemens (NYSE: SI) from their Conviction Buy List as they believe the company may book additional charges of $1.2B this year.
Jefferies cut Internap (NASDAQ: INAP) to Underperform from Buy as they believe the 10-K filing delay and revenue quality questions reduce visibility into the health of the business.
OTHER DOWNGRADES:
Wachovia lowered Amgen (NASDAQ: AMGN) to Market Perform from Outperform.
SI International (NASDAQ: SINT) was downgraded to Neutral from Outperform at Cowen.
Just when I thought flying couldn't become more unpleasant comes word that US Airways (NYSE:LCC) passengers will have to fly over New Mexico dry. Apparently, the airline is in a tiff with the state's alcohol regulators, who have refused to give them a permit to serve booze while in or over the state. Apparently, the state extends into orbit.
Stuck for what to bring to that Thanksgiving potluck? I'm thinking a cheesecake would be nice, but...I wish there was a way to make it a little more fattening. Thankfully, Lisa Robertson of North Carolina showed me the way with her award-winning Krispy Kremey White-Chocolate Raspberry-Filled Cheesecake, which uses Krispy Kreme (NYSE:KKD) donuts for its crust.
The airline sector is seeing nice gains today after positive earnings reports from JetBlue (NASDAQ: JBLU) andUAL Corp (NASDAQ: UAUA), and the declining oil futures are helping, too. US Airways (NYSE: LCC) is scheduled to report its third quarter earnings before the market opens on Thursday.
In light of major fuel price increases, US Airways has cut its capacity and is considering increasing fares in the next quarter. The airline had better-than-expected traffic over the past few months, and a Goldman Sachs analyst noted that LCC should benefit from fare hikes at low-cost carriers like Southwest (NYSE: LUV), as some customers are likely to defect to US Airways.
On average, analysts are expecting earnings of $1.75 per share, down from $2.74 last quarter, but up from from $1.09 in the year ago period. LCC has beat Wall Street expectations each of the last eight quarters. Though fuel prices have pressured the airlines as oil climbs well into the $80s, the solid earnings from others in the industry this quarter should bode well for the company. If you expect LCC to also report a positive quarter, then now could be a good time to take a look at a bullish hedged trade on the stock.
The office of the Massachusetts secretary of state is investigating whether Bear Stearns (NYSE: BSC) improperly traded mortgage-backed securities for its own account with two hedge funds that failed this past summer, without notifying in advance the funds independent directors, reported the Wall Street Journal.
The Schork Report's Stephen Schork sees an oil correction coming and predicted oil in the $65-$68 range, according to the Wall Street Journal's "Heard on the Street" column.
OTHER PAPERS:
Insurer Aetna (NYSE: AET) has instituted a tighter reimbursement policy for Amgen's (NASDAQ: AMGN) anemia drugs, creating a setback for Amgen, reported the Los Angeles Times.
A consortium led by Icelandic investor Baugur is interested in making an offer for Saks (NYSE: SKS), reported the New York Post, but Saks will not consider a sale until the credit market improves.
MOST NOTEWORTHY: CyberSource, Century Casinos, Spectrum Pharm and Winnebago were today's noteworthy upgrades:
JMP Securities upgraded shares of CyberSource (NASDAQ: CYBS) to Market Outperform from Market Perform citing valuation, positive management comments regarding BidPay, and incrementally positive industry checks on its fraud product.
Brean Murray upgraded shares of Century Casinos (NASDAQ: CNTY) to Buy from Hold based on continued progress at recently opened properties, reduced Street expectations, and potential catalysts.
Brean Murray also upgraded Spectrum Pharmaceuticals (NASDAQ: SPPI) to Buy from Hold. The firm is highly confident that Spectrum's ozarelix will demonstrate similar efficacy and safety in the current U.S. Phase IIb trial and expects statistical significant. The firm expects Ph III initiations by year-end 2007 and Ph IIb data to be released on 2Q08.
Winnebago Industries (NYSE: WGO) was upgraded to Outperform from Sector Perform at RBC Capital. The firm expects Winnebago to begin to post better earnings from more favorable mix and pricing in the 2008 model year.
Do you want the bad news or the good news first? US Airways Group (NYSE: LCC) said this morning that second-quarter profit dropped 14% amid higher maintenance costs and additional expenses. On the plus side, however, the carrier's quarterly results topped Wall Street's expectations.
During the latest reporting period, quarterly earnings fell to $263 million, or $2.77 per share, from $305 million ($3.25 per share) in the prior year. Excluding items, LCC would have banked $2.74 per share, a dime better than analysts' consensus view.
Revenue edged lower to $3.16 billion from $3.17 billion last year, matching Wall Street's target.
In an accompanying statement quoted by the Associated Press, Chairman and CEO Doug Parker noted that the airlines "strengthening revenue environment" should continue to offset increased fuel costs.
Fun fact: US Airways' stock symbol, "LCC," reportedly alludes to the phrase "low-cost carrier."
Speaking of low cost, the stock is indicated lower in pre-market action, down roughly 2.5%. Since mid-January, the shares shares have been stifled beneath technical resistance at their 20-week moving average. In recent weeks, the stock has attempted to challenge this trendline but has had little luck. A negative move today could drop the shares beneath their 10-week moving average as well, below which the company has not traded since late June.
As of today, there's a new airline in the skies: Virgin America. That's right folks: British Billionaire Richard Branson has expanded his Virgin Atlantic fleet across the pond. The new San Francisco-based start-up will use a fleet of Airbus A320's to fly two routes: San Francisco to J.F.K in New York and San Francisco to Los Angeles International.
While Virgin America will only open with those two routes, they plan on ramping its schedule fast. In the next three months, Virgin will add Las Vegas and Washington Dulles to the schedule and move up to a total 10 U.S. destinations a year from now. The fleet plans to service 30 destinations within the next five years.
Northworst, I mean, Northwest Airlines Corp. (NYSE: NWA) is the current worst-in-class, as its 'passengers' have been caught in the middle of a labor dispute between pilots and the airline, facing canceled flight after canceled flight. However, Northwest is just one of many culprits in this effort to convince the American public to take a car vacation.
Even with airlines padding their flight times to increase on-time arrivals, almost one in every four is delayed. And while the industry continues to use weather as the whipping boy, according to FAA statistics it accounts for less than 1% of delays.
As we enter the vacation season, I would have expected the airline industry to put its best foot forward. Instead, it seems to be dropping its collective drawers to moon us. My advice? Drive. Yes, you'll be cooped up in a small chair, but you can get up to pee any time you wish. Flight delay info can be found on the FAA website.
UAL Corporation (NASDAQ: UAUA) opened at $36.24. So far today the stock has hit a low of $36.19 and a high of $38.13. As of 11:05, UAUA is trading at $37.77, up $2.44 (6.9%).
UAUA shares are leading the airline sector in a charge today as UAL subsidiary United Airlines forecast a rise in second-quarter revenue and UBS upgraded U.S. Airways (NYSE: LCC) after an extended performance slump. Many analysts from various investment banks had positive words for the stock and the sector this morning, further boosting the airlines. Recent technical indicators for UAUA have been neutral and improving slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $30 range. UAUA hasn't been below $30 since October and has shown support around $33.90 recently. This trade could be risky if fuel costs make another big jump in the next 3 months, but even if that happens, the stock would have to fall by more than 21% before this position would be in trouble.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls a position in UAUA or LCC.
The Wall Street Journal reported that Ford Motor Company (NYSE: F) is looking for buyers for its Jaguar and Land Rover brands, which are valued at a combined $1.3B to $1.5B, but any sale is expected to take a month or longer.
Airbus is in the final stages of a deal with U.S. Airways Group Inc (NYSE: LCC), which is expected to purchase about 30 A350 jetliners worth about $7B at list price, according to the Wall Street Journal.
The New York Times reported that negotiations on a buyout of Cadence Design System Inc (NASDAQ: CDNS) by private equity firms Blackstone Group and Kohlberg Kravis Roberts appear to have stalled over price.
Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how 
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Just when I thought flying couldn't become more unpleasant comes word that 
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Do you want the bad news or the good news first? 
As of today, there's a new airline in the skies: 
In what might prove to be great news for 
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