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A Southwest Airlines Boeing 737 MAX 8 arrives at Daniel K. Inouye International Airport on January 20, 2024 in Honolulu, Hawaii.
Kevin Carter | Getty Images
An engine cowling fell off of a Southwest Airlines Boeing 737-800 and struck a wing flap during takeoff from Denver International Airport, the Federal Aviation Administration said Sunday.
The FAA said Southwest Flight 3695 was on its way to Houston’s William P. Hobby Airport and safely returned to the gate at Denver at 8:15 a.m. local time. Southwest said customers on the flight transferred to a different aircraft and were scheduled to arrive at their destination three hours late.
“Our Maintenance teams are reviewing the aircraft,” Southwest said. The FAA said it is investigating the incident. Southwest didn’t immediately respond when asked when the plane and engine last underwent maintenance.
In response to a request for comment, Boeing pointed to Southwest’s statement.
The cowling loss comes as the FAA investigates a separate Southwest incident in March. One of its flights strayed off course and flew close to the air traffic control tower at LaGuardia Airport as it attempted a landing in New York.
The plane is an older model of the Boeing 737 than the Max jets. Boeing is under heightened regulatory scrutiny after a January incident when a door plug blew off a nearly new 737 Max 9 when the Alaska Airlines flight was at 16,000 feet, causing a near-catastrophe.
Boeing’s quality control issues have spiraled into safety concerns, slowing deliveries of new Max aircraft. Big Boeing customers like Southwest and United say the issues have affected their growth plans.
The long-awaited FAA certification of its 737 Max 7 and Max 10 models is also behind previous schedules. Boeing CEO Dave Calhoun last month said that he would step down by year’s end, and Boeing replaced its chairman and chief executive of its commercial airplane unit.
The planned acquisition of Spirit Airlines (SAVE -10.84%) by JetBlue Airways (JBLU 4.33%) is officially off, and investors are worried about what comes next for Spirit. Shares of the discount airline traded down 14% as of 10 a.m. ET Monday as investors decided they’d rather not go along for the ride.
A deal doomed from the start
JetBlue and Spirit agreed to combine in July 2022 after JetBlue won a bidding war against Frontier Group Holdings. Frontier had argued that a JetBlue/Spirit tie-up would invite intense regulatory scrutiny, but JetBlue was the higher bidder.
The regulatory issues ended up being a dealbreaker. Earlier this year, a federal judge sided with the government on questions about whether a JetBlue/Spirit combination would limit competition. The two airlines were appealing that decision, but with a deadline fast approaching to complete the deal they are instead waving the white flag.
“After discussing our options with our advisors and JetBlue, we concluded that current regulatory obstacles will not permit us to close this transaction in a timely fashion under the merger agreement,” Spirit CEO Ted Christie said in a statement. “We are disappointed we cannot move forward with a deal that would save hundreds of millions for consumers and create a real challenger to the dominant ‘Big 4’ U.S. airlines.”
As part of the termination, JetBlue will pay Spirit $69 million. Spirit shareholders also received about $425 million in prepayments from JetBlue as agreed upon in the merger agreement as a way to sweeten the deal.
Is Spirit a buy now that it is going it alone?
Spirit is now left to fly solo into some dangerous headwinds. Although air travel demand has held up relatively well despite rising inflation and growing economic questions, pressure is building. The airline will need to carefully plan capacity from here given questions about demand, and with some of its planes temporarily out of service due to engine issues.
Spirit also has about $1.1 billion in debt due in 2025. The company has hired advisors as part of what it calls taking “prudent steps to ensure the strength of its balance sheet and ongoing operations.”
Prior to the initial Frontier courtship, Spirit was one of the rare growth stories in the airline industry. If the economy holds and management is able to navigate through the debt issues, the airline once again could have an attractive story to tell investors. But there is also the real risk of bankruptcy should things turn south in a hurry.
Investors would be prudent to look elsewhere.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The inaugural flight of an Avelo Airlines Boeing 737-800 takes off from Hollywood Burbank Airport to Charles M. Schulz-Sonoma County Airport in Santa Rosa on April 28, 2021.
Patrick T. Fallon | AFP | Getty Images
In the nearly four years since the Covid-19 pandemic upended air travel, the largest U.S. airlines have returned to profitability. The CEOs of two upstart airlines that launched in the middle of the pandemic say they’re about to join them.
Avelo and Breeze Airways, two low-cost carriers that debuted in 2021 when U.S. air travel demand was more than 30% below pre-pandemic levels, have both grown their operations rapidly.
They’ve launched dozens of new routes across the country, and their founders say their strategy of linking cities where there’s less competition from large carriers is paying off. Think Los Angeles’ Hollywood Burbank Airport, rather than Los Angeles International, or Islip, Long Island, over New York City.
“When you have Goliaths, and you’re just David, it’s really hard,” said Avelo Airlines CEO Andrew Levy.
Delta, American, United and Southwest together control about three-quarters of the U.S. market, according to Cirium data.
Avelo says it flew 2.3 million customers in 2023, and that its planes were more than 80% full on average. Breeze flew more than 2.8 million travelers last year, and its flights were 77% full, according to the company. The carriers are still tiny. For comparison, Southwest Airlines, the largest domestic carrier, flew more than 137 million passengers last year.
Yet, Avelo reported its first profitable quarter in the last three months of 2023, and a company spokesperson said the airline will likely turn an annual profit in 2024. It brought in revenue of $265 million for the full year 2023, up 74% from the prior year.
Levy said he had expected the airline to turn a profit sooner, but high fuel costs during a period of broad inflation and Russia’s invasion of Ukraine two years ago pushed back the timeline.
Breeze is also on track for its first profitable year in 2024, said CEO David Neeleman.
David Neeleman, founder and CEO of Breeze Airways, before boarding the airline’s inaugural flight at Tampa International Airport in Tampa, Florida, on May 27, 2021.
Matt May | Bloomberg | Getty Images
It typically takes two to four years from launch for airlines to turn a profit, said Henry Harteveldt, president of Atmosphere Research Group, a travel industry consulting firm. Avelo and Breeze each faced additional challenges that have weighed on the entire industry, including a jump in oil prices, supply chain snarls and shortages of pilots and air traffic controllers.
“The fact that the airlines are both still operating is a credit to [Levy’s and Neeleman’s] visions, their leadership, but also the dedication of their employees,” Harteveldt said.
Skipping hubs
Both airlines have staked a claim in the low-cost carrier segment, which also includes Frontier and Allegiant, which offer base fares, add-ons and secondary airport flights.
Avelo flies to about 50 destinations and operates out of six bases including Connecticut’s Tweed-New Haven Airport and Delaware’s Wilmington Airport. Many of its destinations are from the Northeast to popular vacation destinations in Florida and South Carolina, but it also serves destinations in California and other western states in the U.S.
The carrier moved beyond the continental U.S. in 2023 when it launched service to Puerto Rico and will likely expand to international destinations this year, Levy said.
Breeze, which Neeleman founded after also starting JetBlue Airways and Brazilian carrier Azul, mostly eschews major hubs and flies out of about 50 airports such as New York’s Westchester County Airport and Akron-Canton Airport in Ohio.
It flies to standard vacation destinations, but also offers cross-country flights from cities such as Hartford, Connecticut or Charleston, South Carolina, to destinations including Las Vegas and Los Angeles. It hopes to launch international service by 2025.
Avelo and Breeze have both continued to announce new routes and destinations this year. Avelo had 11 routes shortly after launching in the summer of 2021 and now has about 75, while Breeze flew about 16 routes that summer and is currently selling roughly 180.
A Breeze Airways airplane on the tarmac at Tampa International Airport in Tampa, Florida, on May 27, 2021.
Matt May | Bloomberg | Getty Images
Breeze and Avelo sell base fares — some as low as double digits — and charge fees for checked luggage and advanced seat assignments, upcharges that have become common not just among budget airlines, but most large carriers, too.
Breeze’s lowest-fare option allows travelers to bring on only a personal item, but the airline also sells first class seats and extra legroom options with more amenities. Neither airline’s base fare includes a carry-on bag.
Operational costs
Offering low airfares has made industry-wide cost increases all the more daunting for Avelo and Breeze. The nationwide shortage of pilots following the pandemic and rising labor costs, for example, have posed a challenge.
Large airlines, which can offer pilots big salaries, have hired away pilots from smaller carriers in recent years to staff up after the pandemic.
“What you really want to watch with pilots is attrition. … We had an attrition rate that was higher than we liked, and now it’s where we want it,” said Neeleman.
The carrier has many first officers who are poised to be upgraded to captain, helping alleviate the shortage, he added.
Airlines have also struggled with late deliveries of aircraft and difficulties getting thousands of replacement parts.
Founder, Chairman and CEO of Avelo Airlines Andrew Levy speaks at Hollywood Burbank Airport in Burbank, California, on April 7, 2021.
Joe Scarnici | Getty Images
Avelo has faced delays in delivery of its used Boeing 737 aircraft that it leases, CEO Levy said. The company currently has 16 planes in its fleet and has five on order.
“The whole aviation supply chain system has been mucked up since Covid. And it still is not quite back to what it was,” Levy said.
Breeze said last month that it will exercise options on 10 more Airbus A220 aircraft. The company will exclusively fly the A220 for its commercial service by the end of 2024. It currently flies 22 A220s and will have 32 in operation by the end of 2024, according to Neeleman.
Neeleman said Breeze is aiming to be profitable before it decides whether to file for an initial public offering or another option. Avelo also hopes to achieve sustained levels of profitability before an IPO.
Levy said Avelo’s focus is “on getting to a point where the company is IPO ready,” and that he has no interest in selling the company.
Some airlines, particularly low-cost carriers, have in recent years looked to merges to chip away at the dominance of the big four carriers. JetBlue and Spirit announced plans to combine in July 2022 in a deal that would have created the fifth-largest airline in the U.S., though a federal judge blocked that merger in January. Those airlines have appealed that ruling.
Hawaiian Airlines and Alaska Airlines plan to combine, though they’ll continue to operate the brands as distinct carriers.
Both Levy and Neeleman said there is room for multiple players in the low-cost carrier space.
“The more competition we have in the U.S. airline industry, the better it is for the traveling public,” Atmosphere Research Group’s Harteveldt said.
— CNBC’s Leslie Josephs contributed to this report.
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Travelers arrive for flights at O’Hare International Airport in Chicago on March 16, 2021.
Scott Olson | Getty Images News | Getty Images
Airlines are raising their prices to check a bag — again. Just how much you it will cost you, however, depends on when you pay for the service.
United Airlines, American Airlines and JetBlue Airways are among the carriers that have raised the price to check bags this year. Each of them charge customers more if they check their bags at the airport or close to their departure compared with paying to check a bag online in advance.
Carriers are encouraging customers to pay to check their bags ahead of their flight, an approach the airlines argue will free up employees at check-in areas and get travelers to their gates faster.
Earlier this week, American Airlines raised its checked bag fees for the first time in more than five years and adopted the two-tiered strategy that United, JetBlue and several budget airlines already have.
American Airlines customers traveling in coach will pay $35 to check a first bag for domestic flights if the service is booked online in advance, or $40 if they purchase the option at the airport, the carrier said Tuesday. American Airlines previously charged $30 for either service.
There are exemptions. Customers who have certain airline or other rewards credit cards, are traveling in a top-tier class or have elite frequent flyer status generally can check at least one bag for free on domestic or short international flights.
Why does it cost less to check a bag in advance?
“It allows our team members to spend more time with customers who require additional assistance with their travel journey,” an American Airlines spokeswoman told CNBC.
American this week also said it is reducing fees for slightly overweight bags, which used to force some travelers to remove items from their bags last-minute at the airport to meet the threshold.
The different fee tiers is an approach ultra-low-cost airlines already had to luggage fees.
“It incentivizes people to get the transaction out of way. It’s easier for them, and honestly, it’s easier for us,” said Frontier Airlines CEO Barry Biffle. “There are people who need legitimate assistance” at the airport.
The prices differ depending on demand and other factors. Most travelers who add on baggage pay the fee ahead of time, Biffle said.
United first started charging customers more for paying for checked bags at the airport in 2020. On Friday, the carrier said it was raising bag fees by $5 for most flights in North America to $35 if customers prepay online at least 24 hours before their flight, or $40 otherwise, starting with bookings made on Feb. 24. A second checked bag will cost $50, or $45 at least 24 hours in advance.
Why are airlines raising baggage fees?
Luggage fees are a big moneymaker for airlines. In the first nine months of 2023, U.S. airlines brought in more than $5.4 billion from baggage fees, up more than 25% from the same period of 2019, according to the Transportation Department’s latest data.
Airlines have argued that higher costs such as labor and fuel, their biggest expenses, mean they had to raise bag fees.
“While we don’t like increasing fees, it’s one step we are taking to get our company back to profitability and cover the increased costs of transporting bags,” JetBlue said in a statement about its latest increases. “By adjusting fees for added services that only certain customers use, we can keep base fares low and ensure customer favorites like seatback TVs and high-speed Wi-Fi remain free for everyone.”
Ground operations employees load baggage onto a Southwest Airlines Boeing 737 aircraft on the tarmac at John Wayne Airport in Santa Ana, California.
Patrick T. Fallon | Bloomberg | Getty Images
Southwest Airlines is an outlier among the large U.S. airlines. It allows customers to check two bags for free. “That’s the way it’s going to stay,” Chief Operating Officer Andrew Watterson said.
“It does not cost us $35, $40 … to handle a bag,” Watterson said in an interview. Many customers on major airlines bring carry-on bags to avoid bag fees, but Watterson said that could slow down the operation, a big deal for Southwest, which he said tries to turn aircraft around for the next flight in 45 minutes, and even less for some of its smaller Boeing planes.
“It does smooth the operation for people to check it rather than bring it on,” he said. “Overall, we think the benefit is a combination of some efficiencies but also customers coming back to us. A repeat customer business cannot be overstated. And when you treat your customers well, give them a fair policy, they come back over and over again.”
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Sun Country Airlines Holdings (SNCY 7.71%) outperformed expectations in the final three months of 2023, and its stock is taking flight as a result. Shares of Sun Country opened up more than 12% on Thursday and remain up 6% as of 12:30 p.m. ET.
Costs are falling on a unit basis
Sun Country operates a fleet of 54 aircraft engaged in scheduled service, charter flights, and cargo. The company has relationships with Amazon for cargo and with collegiate and pro sports teams, as well as the U.S. government, for charter, helping it to maintain one of the more diverse revenue mixes in the business.
In the fourth quarter, that mix paid off. Sun Country earned $0.12 per share, topping the $0.05 per-share estimate despite revenue that, at $245.5 million, was a little light compared to expectations.
Costs were up 7.7% year over year, including higher wages, but the airline operated more flights than a year ago and was therefore able to bring down its cost per available seat mile, a common industry metric, by about 2.2%. Charter revenue grew by 8.8% from last year, and cargo sales were up 3.6%.
“We are excited that Sun Country’s uniquely diversified business model, and the efforts of our outstanding employees, produced another strong quarter,” CEO Jude Bricker said in a statement. “Additionally, we continue to maintain solid cost control.”
Is Sun Country stock a buy after a strong earnings report?
The airline is forecasting year-over-year revenue growth of between 5% and 9% in the current quarter, and operating income margin flat to up slightly as higher wages are at least partially offset by lower fuel costs. Salaries, wages, and benefits grew 20.2% in 2023, while maintenance expense increased 30% in part due to Sun Country’s growth, so investors are likely to be satisfied with flat margins.
The issue for Sun Country, and the rest of the airline industry, is so much of what happens in 2024 is out of their control. A spike in fuel costs or a falloff in demand could eat into the best-laid plans.
It’s that uncertainty that likely has Sun Country’s early gains fading as the day goes on. Investors considering buying in would be getting a well-run airline, but the volatility of this business should not be underestimated.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lou Whiteman has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
By Jonathan Stempel
(Reuters) – American Airlines was sued on Monday in a proposed class action by two customers who said the carrier stripped them of 1.1 million frequent flier miles after they doubled up on credit cards offering mileage bonuses.
Ari and Shanna Nachison said American wrongly accused them of fraud for opening multiple AAdvantage accounts, with cards issued under co-branding arrangements with Citibank and Barclays.
The Los Gatos, California residents said that while some card applications prevented multiple mileage bonuses within a 48-month period, theirs did not, and it remained unclear why American closed their accounts in early 2020.
Both said the Fort Worth, Texas-based carrier cited violations “related to the accrual of ineligible miles and benefits; through fraud, misrepresentation and/or abuse of the AAdvantage Program” in emails announcing the terminations.
Ari Nachison said he lost 564,463 miles, while Shanna Nachison said she lost 550,664 miles.
The Nachisons said they were excused from applicable statutes of limitations because American’s “boilerplate” emails did not mention specific violations or credit cards at issue, delaying them from pursuing legal remedies.
American did not immediately respond to requests for comment. Lawyers for the plaintiffs did not immediately respond to similar requests.
The lawsuit filed in the San Jose, California federal court seeks damages for people whose AAdvantage accounts were terminated based on alleged fraud for obtaining Citi-AAdvantage and Barclays-AAdvantage credit cards.
Some airlines including American have in recent years raised spending and mileage requirements for frequent fliers, who use their status to obtain tickets, better seats, early boarding and other perks.
Earlier this month, American said some flying benefits would be restricted to AAdvantage members, including free same-day standby to switch to earlier U.S. flights.
The case is Nachison et al v American Airlines Inc, U.S. District Court, Northern District of California, No. 24-00530.
(Reporting by Jonathan Stempel in New York)
Last year was Denver International Airport’s busiest on record.
While airline stocks have yet to fully recover to pre-pandemic levels, passengers have returned in droves — and millions of them are flying through the Colorado hub.
“We will end 2023 much higher than our forecast at about 78 million passengers annually,” said Phil Washington, CEO of the Denver International Airport. “So this has been tremendous growth.”
The airport, known as DIA to Colorado locals, opened in 1995. It was originally built to handle 50 million passengers per year, but now that number is expected to reach more than 100 million people per year by 2027, according to DIA estimates.
OAG, a global travel data provider, said Denver went from the 21st busiest airport in the world in 2019 to the sixth in 2023.
United Airlines is Denver’s biggest operator with 46.7% market share, followed by Southwest at 30.7% and Frontier Airlines at 9.7%, according to DIA.
The midcontinent airport has become United’s busiest hub. It recently invested nearly $1 billion in Denver to add more gates, flights and destinations, and opened the largest lounge in its network.
“About 60% of our customers are connecting from other places. Forty percent of our customers are local Denver, and it’s a fast growing city,” said Jonna McGrath, vice president of Denver Airport operations for United Airlines. “We want to grow before 2030 to about 650 flights a day.”
CNBC got a behind-the-scenes look at United’s Denver operations and explored how the airport and the airline plan to keep up with demand.
Watch the video to learn more.
Spirit Airlines Inc.’s stock soared Friday as the discount air carrier gave an upbeat revenue outlook and looked to reassure investors amid concerns that the failed merger with JetBlue Airways Corp. could result in a bankruptcy.
Spirit said in a filing with regulators that it had $1.3 billion of liquidity at the end of 2023, including unrestricted cash and cash equivalents, short-term investment securities and $300 million of liquidity under the company’s revolving-credit facility.
The stock
SAVE,
ended 17% higher on Friday, after gaining more than 25% earlier in the session. The close in the black snapped a five-day losing streak for the shares, which closed at a record $5.70 low on Thursday.
Spirit said it “took several steps to shore up its liquidity” in the fourth quarter so it could work on “necessary strategic shifts” to better compete and return the business to profitability.”
It raised $419 million in cash and repaid $465 million in debt from sale-leaseback transactions on aircraft in January and December.
The company was addressing concerns about its balance sheet after a federal judge on Tuesday moved to block the merger with JetBlue
JBLU,
due to competition concerns. The stock plunged 47.1% that day, and has fallen nearly 62% in the three days since the merger was blocked.
A number of analysts have raised the possibility that the blocked merger could result in a bankruptcy filing, with credit rating agency Fitch Ratings being the latest to cast doubt on Spirit’s prospects as a standalone airline.
On Friday, however, Raymond James analyst Savanthi Syth said that a bankruptcy filing is not “a foregone conclusion,” although variables include Spirit’s work in addressing fixed costs to support a smaller operation and how the domestic air travel market shapes up to be this year.
Moreover, “it is clear to us that Spirit is pressing JetBlue to appeal the anti-trust ruling, but we continue to believe the chances of success are low,” Syth said in a note.
Read: JetBlue dodged a bullet after judge blocked Spirit acquisition, J.P. Morgan says.
Spirit said it expects fourth-quarter revenue of $1.32 billion, as bookings during the peak travel period over the Christmas and New Years holidays were “strong.” FactSet consensus calls for fourth-quarter revenue of $1.305 billion.
Lower fuel and airport costs helped push operating expenses for the quarter below expectations, and the guidance range for operating margins was improved to negative 12%-to-13% from negative 15%-to-19%, the company said.
Citi analyst Stephen Trent said in a note that Friday’s filing “brings at least some better view around 4Q’s guide itself,” but kept his sell rating on Spirit’s stock.
Spirit said it expects a “significant source of liquidity over the next couple of years” from negotiations with Pratt & Whitney on compensation for financial damages related to geared turbofan (GTF) neo-engine availability issues.
Spirit Airlines said it’s weighing options to refinance its 2025 debt maturities, including the $1.1 billion of aggregate principal amount of 8.00% senior secured notes.
Spirit’s stock has tumbled 59.1% over the past three months, while the U.S. Global Jets ETF
JETS
has climbed 16.6% and the S&P 500 index
SPX
has rallied 11.9%.
—Tomi Kilgore and Claudia Assis contributed to this article.
Spirit Airlines (SAVE -7.17%) is reportedly scrambling for ways to deal with its debt, the latest indication of the troubles the company faces if it unable to merge with JetBlue Airways (JBLU 7.79%). Investors are scrambling for the exits, sending Spirit shares down 28% as of 1:30 p.m. ET Thursday.
Spirit is getting serious about its debt
Spirit Airlines is flying through some heavy turbulence right now. Just two years ago, the airline was the target of competing offers from JetBlue and Frontier Group Holdings that resulted in Spirit being valued at nearly $4 billion.
JetBlue won the bidding war, but the suitor’s hopes of acquiring Spirit were dashed earlier this week when a federal judge sided with antitrust regulators seeking to block the merger as a threat to competition. The airlines could appeal the ruling, but with time running out on the agreement and the aviation landscape growing more treacherous in the quarters since the deal was announced, there appears to be little momentum left to get the merger done.
As was noted when the ruling was announced, the decision puts Spirit in the unenviable position of having to survive a potential recession on its own with debts piling up and some of its planes out of commission due to engine issues. The company has about $1.1 billion in debt due in 2025, and with interest rates soaring it will be difficult for it to refinance.
Spirit intends to discuss its options with advisors, according to a Thursday Wall Street Journal report. Investors are worried that the discussions could lead to a bankruptcy filing that would address the debt but also wipe out equity holders, sending the shares to fresh lows.
Is Spirit Airlines a buy after the stock’s rapid plunge?
Shares of Spirit have lost more than 70% of their value since the judge’s decision and are down 90% over the past three years.
The company’s troubles come at a unique time for the airline industry. Typically, airlines get into trouble at the depths of a recession when there is little demand for new aircraft. That can allow for an orderly restructuring, as creditors have few options should they decide to repossess planes.
But with Boeing and Airbus struggling to keep up with demand, aircraft remain in high demand even as questions about the economy have surfaced and demand for air travel appears to have cooled. Spirit likely has little leverage in negotiations with creditors because repossessed aircraft could likely easily be farmed out to other carriers.
It is far too soon to say anything definitive about Spirit’s future. But the risks are significant enough for investors to turn away. Unless Spirit can resurrect a merger agreement or find another way to raise cash, it is hard to be optimistic about where the airline goes from here.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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