Merrill Lynch downgrades three airlines- Moody's fumbles
Continental, Delta and AirTran all lowered to 'neutral'
By Matt Andrejczak, CBS.MarketWatch.com
Update: 1:13 PM ET Sept. 23, 2004
SAN FRANCISCO (CBS.MW) -- Merrill Lynch dropped "buy" ratings Thursday on Continental Airlines, Delta Air Lines and AirTran Airways, citing too much competition for East Coast flights as well as uncertain demand for an abundance of new flights to underserved markets. Shares of the companies -- all downgraded to "neutral" -- slipped across the board in afternoon trading. "We think airlines with sizable East Coast operations will be at risk for further earnings reductions until excess capacity is withdrawn -- either voluntarily or involuntarily," Merrill Lynch analyst Michael Linenberg said a research note.
Continental (CAL: news, chart, profile) fell lately by 37 cents, or 3.9 percent, to $9.13, while AirTran (AAI: news, chart, profile) dropped 24 cents, or 2.2 percent, to $10.68 and Delta (DAL: news, chart, profile) shed 12 cents, or 3.2 percent, to $3.58. However, the analyst didn't cut his "buy" rating on two other carriers that also have a big East Coast presence: Southwest Airlines (LUV: news, chart, profile) and JetBlue Airways (JBLU: news, chart, profile). These low-fare airlines, he explained, are likely to find ways to capitalize on the missteps of others.
Growing East Coast competition
Competition for flights along the Eastern Seaboard has gained steam since this summer. The region accounts for about half of Delta and AirTran's revenue, according to industry data.
Independence Air (FLYI: news, chart, profile), recasting itself from a regional carrier for United Airlines to a low-fare upstart, launched operations from Washington-Dulles International Airport in June. It's offering about 300 daily departures to smaller cities. See related story. And Delta, as part of its transformation plan to avert bankruptcy, decided to drop Dallas-Ft. Worth as its hub to focus on adding more flights from New York and Boston. It's also expanding Florida service.
For its part, AirTran has had its wings clipped by the recent hurricanes that hit Florida and has warned its advanced bookings to the Sunshine State are running far below last year's levels. The Orlando, Fla.-based low-fare carrier has had to cancel at least 580 flights since Hurricanes Charley, Frances and Ivan began hitting in quick succession beginning in mid-August. Against this backdrop, AirTran is expected to report slumping profits for the second half of this year.
Analysts project AirTran will swing to a third-quarter loss of 2 cents a share, a reversal from its 24-cent profit in the year-ago period, according to Thomson First Call. The airline is expected to earn 6 cents in the fourth quarter, down from 18 cents a year-ago.
Moody's ups credit outlook on U.S. airports to 'stable' LOL
By Tomi Kilgore
NEW YORK (CBS.MW) -- Moody's Investors Service raised its credit outlook on the U.S. airport sector to "stable" after 3 years of negative or uncertain outlooks as low fares and airline capacity growth has boosted airport revenue generation and increased bond security. Moody's said that an improving overall economy has also helped lead to a rebound in airline traffic.
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