The current cost of doing business as airlines consolidate
Repainting planes, merging headquarters, introducing new uniforms, ordering new stationary, integrating staffs....these are some of the issues that came to mind when airlines merge. Associated Press reported good news/bad news related to Republic Airways' takeover first of Midwest and then of Frontier last year. The good news was that second-quarter revenues grew by 113% to $683.3 million; the bad news is that income fell by 82%. Republic's merger-related costs were reportedly close to $20 million in items that hit the bottom line related to merger costs. "They ranged from $18.5 million of expenses related to the integration of the branded businesses and return of leased aircraft, $6.4 million in negative adjustments for fuel hedges and prior period fuel excise taxes; and a $5.2 million positive adjustment due to a reduction in lease obligations for Midwest aircraft and office facilities," according to AP, which also noted that Republic now owns Chautauqua Airlines, Frontier Airlines, Lynx Aviation, Midwest Airlines, Republic Airlines and Shuttle America.
Republic's numbers are small potatoes compared with the imminent Continental-United merger, which is expected to be consummated this fall. According to an annotated report on Wikinvest.com, "For the second quarter of 2010, the company reported its first quarterly operating profit since 2007 of $430 million, an improvement of $751 million since year ago second quarter." Continental, meanwhile, Thursday posted second-quarter earnings of $233 million, reversing a similar loss of $213 million loss a year ago. Comparing revenues with profits is an apples-and-oranges mix, but those are the numbers that I found -- but in a sense, they do demonstrate the differences in scale. If Republic's merger costs were $20 million, imagine what the United-Continental union will cost.
Merging or not, US carriers, which have been aggressively trimming costs, mothballing aircraft and charging passengers for formerly free services, are reporting second-quarter profits almost across the board. Three big legacy carriers -- Delta, United and US Airways -- among them earned a cool $1 billion in the second quart (April through June). At Alaska Airlines, JetBlue and Southwest, revenues also rose and black showed on balance sheets. Among the biggies, only AMR, American's parent company, bucked the trend ans was down compared with 2009.
With revenues rising and on the ledgers showing profits for the first time in three years, I still wonder how the cost of big mergers will impact the balance sheet, and down the road, whether more monopolistic merged companies will keep the money rolling in with continued add-ons. I don't know what the second-quarter revenues were, but in "Lawmakers Consider Taxing Airlines' Fees" regarding a Congressional hearing on these add-ons, the Wall Street Journal reported, "Airlines collected $1.3 billion from fees for checked baggage and reservation changes in the first three months of this year, a 13% increase over the same period in 2009, government data show."
Silly me. Why am I even asking the question. What will probably happen is that the add-ons will be locked in or perhaps even increased to help the airlines cover the merger costs and their top exectives' bonuses -- and the payment to law and accounting firms for effecting the mergers.
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