Author Nicky Hager with copies of his book, Dirty Politics. Photo / Mark Mitchell
Dirty Politics, the new book from author and investigative journalist Nicky Hager, will feature leaked emails between National Party figures and right-wing bloggers.
The book, which has been released in Wellington tonight, aims to tell the story of "how attack politics is poisoning NZ's political environment".
It includes email correspondence between Whaleoil blogger Cameron Slater and Jason Ede, one of the Prime Minister John Key's press secretaries, in relation to information found on Labour's website.
Mr Hager said the Prime Minister's office had been "collaborating" with National Party "proxies" who were carrying out attacks on behalf of Mr Key while working to preserve his image.
The book shows Mr Slater and Mr Ede discussed the information and how to avoid being caught.
"Part of the book is about how John Key has cultivated a very respectable image of being friendly and relaxed but at the same time there has been another part of his politics which New Zealanders have not seen or understood."
Speaking to reporters this evening, Mr Hager said the book was about the "unseen side of Mr Key's political management".
He denied he had a political agenda in releasing the book so close to the election.
"Any person, any of you who had access to the documents I have would have leapt at the chance to use this information because it's so illuminating about the Government."
"That's what the job is - to tell people before the election."
He said he got the material early this year and could have taken more time with the book.
"But I've worked like a dog because I believe that people have a total right to know this before the election.
"So have I hurried it out before the election - totally. Is it politically motivated? It's motivated by the public interest that I think people have in knowing what's going on."
Mr Hager said his book would show Mr Key "has some very serious questions to answer".
Many of those questions were about his long term press advisers who were doing things like "going inside the Labour Party's computers", organising other dirty tricks and feeding material to bloggers Mr Slater and David Farrar to orchestrate personal attacks.
"When you read the book you're going to find chapter after chapter of remarkable things that him as leader of the party... he's got a lot to answer for.
"In some cases it's political blackmail, there are many cases of digging sexual dirt to try and scare and threaten people. There are many cases that looked to the country as if they were spontaneous acts of politics which were actually orchestrated from the ninth floor."
Mr Hager described Mr Slater as an "obnoxious" blogger whose attacks on a young man killed in a car crash earlier this year had led to hackers attacking the Whaleoil website.
He said the attack knocked out the Whaleoil site for a number of days during which time a hacker had come away with "thousands and thousands" of documents.
He said the papers revealed an "an astonishingly cynical and ugly view" of the way National's "proxies" behaved in politics.
Mr Hager said people would become increasingly astonished as they read through the book because the "dirty politics" only got worse.
"You will not believe what you read and how bloody awful it is."
In a speech prior to the launch, the book was described as one which "implicates John Key and senior National Party staff".
It ''revolves around a cast of Key, Cameron Slater, Jason Ede, David Farrar, Judith Collins and other National Party figures''.
"It shows a very different side of John Key and his Government than most New Zealanders know'', the book's publishers said.
Hager's earlier books have included Seeds of Distrust, which threatened to ankle-tap former Prime Minister Helen Clark as she headed into the 2002 election.
Mr Hager followed with The Hollow Men which gave voters an inside look at the manipulations of National's 2005 campaign. His 2010 book Other People's Warsexposed New Zealand's intelligence and military activities in Afghanistan and Iraq during the "War of Terror" - a stark contrast to the friendly, public relations-driven view the New Zealand Defence Force had offered.
His previous access to well-placed intelligence sources have driven speculation he was preparing to release Edward Snowden-sourced documents about New Zealand's involvement in the US-led Five Eyes spying alliance. But talk around Wellington yesterday had some leaning towards an expose on political manipulations.
Ahead of today's launch, Prime Minister John Key dismissed Mr Hager saying: "Most people know that Nicky Hager is a screaming left-wing conspiracy theorist."
It's a view which is in contrast to praise from US journalism legend Seymour Hersh, who last year said: "Nicky Hager has more knowledge and understanding of the American intelligence world in Afghanistan - both its good and its very bad points - than any reporter I know."
The release of the latest book has been carried out in total secrecy. Publicity for the book ahead of the launch has been non-existent, although the launch itself at Wellington's Unity Books has become today's must-attend Wellington function.
Media commentator Russell Brown said Mr Key's comments should be seen as preparing the ground for whatever might be coming by attempting to diminish Mr Hager's credibility.
"They are generally stories people don't want told," he said of Mr Hager's work. "You can see that in the push back which comes before the book comes out."
Mr Brown, AUT's Journalist In Residence and frontman with Toi Iti for Maori Television's Media Take, said Mr Hager had proven his credentials repeatedly and should be regarded as credible.
"One very valuable thing about Nicky is that he operates at a different level to most journalists. He has a strong sense in the public interest. He can take a long time to get the detail right. We're lucky to have someone in his position."
Mr Brown said Mr Hager's books fell into either the "barnstormer" or "technical" category and he expected this one would be greeted as a "barnstormer".
Mr Hager's first book wasSecret Power, published in 1996. It was a world-exclusive and remains the authoritative text on the United States-led pre-digital spying network called Echelon.
Air New Zealand (ANZ) will launch its first scheduled Boeing 787-9 service on August 9th. It will be the second carrier in the world to introduce the jet to commercial service.
According to ANZ’s website, the first flight will take place between the company’s Auckland headquarters and Sydney, Australia, operating NZ103 and 104, respectively. The carrier plans to begin long-haul service via its Auckland-Perth route on October 15th, though it has speculated that it may opt to move the date forward.
Whether and to what extent the jet will remain in commercial service in-between August and October is not entirely clear. If current schedules are any guide, the airliner’s debut may be short-lived: post August 9th schedules do not show the jet scheduled for any other future flights. But fear-not, the airline told Australian Business Traveller last week that the jet would be swapped onto the route on a “surprise and delight basis”. Such a tactic has been utilized by a few new Dreamliner carriers already, including British Airways, to ease crew-members into the jet.
Despite ANZ’s launch-customer status, Japanese carrier ANA will have the honor of being the first to operate the elongated Dreamliner. Its introduction will come in only a few days’ time, on the 7th. The airplane will serve a handful of domestic destinations before switching to international long-haul sometime in 2015 (ANA declined to narrow the window).
ANA’s move has caused speculation that the two are locked in a battle to deploy the jet first. No doubt the decision burned ANZ, which has been trumpeting its first to operate status for some time, and thus the waters have been a bit testy as of late. After ANA’s post-delivery announcement that it would be first to fly the airplane (via an invitation-only charter flight on the 4th), ANZ was quick to point out that it wasn’t a revenue flight and thus didn’t count. ANA since moved up its first revenue flight to the 7th, leapfrogging ANZ by two days. ANA insists the decision was merely operational, chalking it up to needing less preparation time to place the airplane into service.
The projects include the construction of a new international arrivals complex, reconstructing the center runway, updating both satellite terminals, and building a bridge between the south satellite and the new arrivals facility. Work starts in the fall of 2015, with completion expected in the summer of 2019. The airport’s airline tenants will pay the costs. Serving 37 million passengers per year, SEA is the 15th busiest airport in the U.S., and it has recently become a battleground between Alaska and Delta.
With the north satellite redesign, Alaska’s operations will get eight new gates for a total of 20 and bring the interior design to 21st Century standards, including a new lounge for Alaska’s frequent fliers. Alaska, which has over 50 percent of SEA’s market share, will have its combined flights ultimately served by the north satellite and Concourse C.
CGI conceptualization of North Satellite Terminal Courtesy: Port of Seattle
The south satellite terminal, where Delta has been rapidly growing a West Coast international hub, will get an updated interior to include new carpets, new podiums, updated signage, and repainting. A new bridge will allow international passengers to move from the south satellite to customs and immigration facilities at the new international arrivals facility. Both satellite terminals will continue to operate normally during the expansion.
The new international arrivals complex will allow international passengers to arrive at the south satellite, as they currently do, and it will also allow them to arrive at Concourse A. This is important given the overall rapid growth in international flights currently arriving at SEA, which cause passenger overcrowding in the current 1970′s era facility during the peak hours.
This photo of a seemingly-gravity-defying sculpture at the Cairo Airport is making the rounds on social media. At first glance, there is something about it that seems off. Then you look closer and you realize it seems impossible!
This statue at the airport in Cairo looks like it defies the laws of physics…
Did they ever figure out how the Egyptians built the pyramids? Because I think this whole foating rocks in thin air thing might just be connected… Hmmm… But seriously, good job to the artist for creating such a perplexing illusion. Very cool!
Sometimes what you see is not what you get… Here’s a great example of why it’s sometimes better to look twice before you jump to conclusions. This may look like a truck flipped over at a gas station, but there’s more to it than that… See if you can figure it out yourself:
Before you jump to conclusions about this photo, take a good close look and see if you can spot the surprise…
Still can’t see it? Maybe this pic will help.
Pretty cool, huh? These 2 pics were both uploaded to Reddit by two differentusers who saw the same heavily modified truck. Apparently, it was designed to look like it’s flipped over, but drives like a normal truck on hidden wheels. Share with your friends and see if they can figure it out from just the first pic!
I’ve never been white-water rafting before, but if I did go on a river trip and saw what this guy saw, I might seriously wonder if I’d missed something huge going on… Maybe Godzilla is attacking? Or maybe giant aliens have invaded and they are attacking our expensive transportation equipment?
A Reddit user was on a rafting trip in Montana, when he saw THIS in the water…
Hawaiian Holdings, parent company to Hawaiian Airlines, announced a second quarter net profit of $27.37 million, or $0.43 cents per diluted share on Tuesday. The results represent a 58% year-over-year (YOY) increase from Q2 2013’s $11.31 million dollar profit.
Operating revenues grew 7.8% over 2013 to $575 million. Passenger revenues rose 5.3% YOY to $506.8 million on a 5.7% YOY climb in yield to 14.94 cents; which drove a 4.1% YOY rise in passenger revenues per air seat mile (PRASM) to 11.90 cents. The remainder came from other operating revenues, which jumped 31.4% YOY to $68.92 million. Cargo revenues played a major role in the growth of non-passenger revenues, growing 24% YOY to $19 million.
Capacity as measured in available seat miles (ASMs) increased just 1.2% YOY, due to route cancellations across the Pacific and the back-loading of a domestic expansion into June. ASM growth for the second quarter will likely be a percentage point or two higher, but the broader trend remains.
Broken down by region, PRASM for routes to the mainland United States rose 4% YOY with said routes generating 50% of Hawaiian’s passenger revenue in the quarter (roughly $252 million) despite a four percentage point decrease in load factor. Hawaiian expects industry capacity in the third and fourth quarter to grow by 9%, and that adverse tailwind will likely affect PRASM figures downwards in the second half of the year. PRASM on inter-island routes, which Hawaiian predictably refers to as “Neighbor Island routes,” grew 8.3% YOY, though this figure was skewed upwards by the Ohana turboprop operation. Inter-island operations represented 24% of Hawaiian’s passenger revenue ($122 million), with international operations making up the remaining 26% ($132 million).
International operations continued to weigh down Hawaiian’s revenue numbers, with PRASM falling 1.6% YOY. However, as Hawaiian CEO Mark Dunkerley noted in the carrier’s quarterly results conference call, the “results continue a trend of sequential improvements driven in part by lapping of the period last year where the strengthening U.S. dollar undermined the value of our foreign currency sales.” In particular, the value of the Japanese yen has stabilized as Premier Shinzo Abe moves into a phase of his Abenomics reform plan not centered around massive monetary stimulus.
After several consecutive quarters worth of growth into the Pacific, Hawaiian has retrenched by canceling services to Fukuoka, Manila, Taipei, and Tokyo Narita, as well as reducing frequencies to several other destinations. These aircraft have been redeployed to stronger markets like South Korea and in particular the West Coast of the United States, with 35 new frequencies added in the second quarter, including 28 to Kona, Maui, and Lihu’e.
After years of becoming increasingly superseded by Alaska Airlines on services to secondary Hawaiian airports, Hawaiian has begun to fight back in the market segment, in particular adding services from Los Angeles and Oakland to Kona and Lihu’e in June. Commensurately, overall PRASM growth performance, at 4.1% was strongly improved, though that figure was certainly skewed by the launch of Ohana by Hawaiian, which operates on routes that are so short that PRASM over $0.50 is not uncommon.
Operating expenses conversely, rose 5.6% YOY to $524.2 million. Fuel cost increased modestly, rising 2.9% on a 2.3% increase in per-gallon prices and the aforementioned 1.2% rise in ASMs. While fuel costs are not low per-se, they have been exceedingly stable over the past year-and-a-half by the standards of the market. This is an enormous boon to airlines, even if it’s not as visible on financial statements, because it allows them to make decisions with relatively precise information (frequently leading to crisper and more decisive action).
Labor expenses, rose sharply, jumping 8.8% YOY to $112.5 million in the quarter, while maintenance expenses rose 10.1% to $58.4 million. Landing fees and non-aircraft rental expenses grew 10.3% YOY to $21.7 million, while depreciation and amortization expenses rose to $23.8 million. The various cost-line increases drove up the carrier’s cost per ASM (CASM) to 12.30 cents, a 4.4% increase YOY. Excluding fuel, CASM rose roughly in line with expenses overall; 5.8% to 8.21 cents.
The airline ended the quarter with $564 million in cash and short term investments, as well as available borrowing capacity of $69.4 million under a Revolving Credit Facility. Outstanding debt and capital lease obligations totaled $1.07 billion. As compared to the end of the first quarter of 2014, Hawaiian’s cash position at the end of the second quarter was $85 million higher, while debt and capital lease obligations were $131 million higher, tied to secured loan agreements to help finance the purchase of two further Airbus A330-200 aircraft.
Capital expenditures for the quarter totaled $165 million, but after delivery of the remainder of Hawaiian’s A330-200 order over the next year, that number should decline sharply. This will allow a recovery in Hawaiian’s mediocre free cash flow numbers.
On an operating basis, Hawaiian recorded an operating profit of $51.6 million, which translates to a 9.0% operating margin, up from 7.0% a year prior. Pre-tax return on invested capital (ROIC) totaled 13.5%, while post-tax ROIC came in at 8.1%. Despite middling net profit figures, Hawaiian tends to deliver above average ROIC performance, likely because the compensation of Mr. Dunkerley and other executives is tied to that metric.
Hawaiian’s revenue performance was promising and the profit improvement was driven largely by that element of its operations. Expenses rose in the quarter, but a large element of that was increased investment and headcount due to the Ohana operation. As Ohana spools up, revenue figures should get an added boost. A slowdown in growth (even the uptake of the A330-800neo and A321neo are only expected to drive “single-digit” capacity increases annually) will allow Hawaiian to crystallize Pacific operations and solidify dominance over inter-island service.
More importantly, the carrier is entering a new strategic phase, one that doesn’t completely eradicate the growth ethos we outlined in our analysis of the carrier’s first quarter results but more accurately, tones it down. “What we are recognizing is that we’re going into a new period,” opined Mr. Dunkerley on the call, noting that Hawaiian is entering, “a period that feels very different from the period that we’re [Hawaiian are] exiting this year.”
TransAsia Airways flight 222 crashed during an emergency landing in at Magong Airport on Penghu Island in Taiwan on Wednesday, killing dozens.
Exactly how many perished was not clear, with government officials quoting between 47 and 51 dead. What is clear is that the flight crashed on final approach with 58 aboard; 54 passengers and 4 crew.
The flight departed Kaohsiung International Airport on Wednesday for Magong Airport. The flight was operated by an ATR 72-600 turboprop aircraft. It wound up crashing roughly one mile from the airport into a pair of unoccupied homes during stormy weather.
While an investigation is underway, much attention is being paid to the decision to launch the flight into poor weather. The area has been hit hard by Typhoon Matmo, which continues to move north of Taiwan.
Magong Airport has one runway, 02/20, with a length of 9,843 feet. It is equipped with ILS, VOR, RNAV, and NDB. There are reportedly no hills or tall buildings on the approach.
According to CCTV, the first approach was waived off while the pilot attempted to land on the second attempt.
Allegiant Travel Company, the parent company of Allegiant Air, announced a $33.49 million second quarter profit on Wednesday, or $1.87 per diluted share. The figure represents a 29.9% year-over-year increase year-over-year (YOY) versus the same period of 2013, and marks Allegiant’s 46thconsecutive quarter of profitability.
Operating revenues for the Las Vegas based carrier rose 13.6% YOY to $290.54 million. Scheduled passenger revenues grew 14.4% to $189 million as yields rose 6.5% to 9.45 cents, and passenger revenue per available seat mile (PRASM) rose 6.4% to 8.45 cents. Load factors and average per-passenger remained stable, reflecting a 7.5% YOY growth in capacity as measured in available seat miles (ASMs), and a 12.4% increase in traffic to 2.11 million passengers.
Ancillary revenues, which are critical to Allegiant’s a-la-carte business model, grew 9.8% YOY to $95.44 million. Air-related ancillary revenues, which include items ranging from bag fees to on-board food purchases, rose 12.1% to $85.78 million. Conversely, third party product revenue declined 6.9% to $9.66 million, or $4.58 per person. The increase translates to roughly $45.23 in fees and third party revenue per passenger, down 2.2% YOY. However, Allegiant’s average stage length is down about 3.0%, which means that on a per-ASM basis (PRASM contribution), average ancillary and third party revenue rose slightly.
We’ve been warning on Allegiant’s third party revenue figures for some time, and this quarter’s figures did nothing to dispel that worry. In nominal terms, these revenue figures represent just about 3% of Allegiant’s top-line numbers, but third party services are a critical portion of Allegiant’s overall value proposition. Many of Allegiant’s sales are driven by package customers (perhaps up to 10%) and a decline in third party sales thanks to less hotel room discounting (hotel room nights purchased decreased 19.8%) could close off a market that had been a strong growth driver for Allegiant over the past couple of years. On the airline’s quarterly earnings call, President Andrew Levy admitted that the third party revenue figures were a challenge.
“[We] see the primary reasons for the decline particularly in the Last Vegas hotel market, which is the still the dominant portion of the hotel revenue. So I think you have the combination of declines here associated with just a less favorable contract than what we entered in to back in the really bad times when the hotels were had a little less leverage…. And in addition to that, [there is the] continued shifting of the network, so that a greater percentage of our capacity is away from Las Vegas, which is helpful on the car side. [T]here [are] no new updates as far as how we plan to reverse the trend obviously, the lasting effect of this will certainly help as far as the year-over-year comps. But more important are some of the IT tools that are coming; some of which we have at our disposal now.”
Operating expenses for the airline grew 9.9% YOY in the second quarter to $234 million. Labor expenses rose fastest, reflecting Allegiant’s aging workforce, with a 19.3% rise to $47.30 million. Fuel costs rose 7.6% to $104 million, reflecting both a 5.1% increase in consumption, as well as a 2.6% increase in per-gallon price to $3.20, though overall fuel costs were essentially flat on a per-ASM basis. While Delta continues to see reductions in fuel price, the benefit to the rest of the industry from Trainer has begun to recede. Operating cost per ASM (CASM) grew 2.5% YOY to 10.23 cents, though it rose a more alarming 4.2% excluding fuel.
For the trailing 12-month period, Allegiant delivered a 17.5% return on capital employed, though that figure is sure to decline as Allegiant continues to refleet with A319s (including a recent purchase of 12 airframes) and A320s. Capital expenditures for the quarter totaled $257.0 million, nearly three times as much as they did during the same period in 2013.
Allegiant ended the quarter with $548.2 million in unrestricted cash versus $619.4 million in total debt, positioning Allegiant with a net debt of $71.2 million after it ended 2013 with no net debt. The rise in debt primarily occurred due to the uptake of 12 A319s from a European operator, which added $142 million in debt to the balance sheet. For the quarter, Allegiant recorded an operating profit of $56.4 million and an operating margin of 19.4%, up from 16.8% in the second quarter of 2013. Allegiant, along with fellow ULCC Spirit Airlines, continues to lead the US airline industry in terms of operating margin, though Delta (and potentially American) are quickly catching up.
Allegiant Air finds itself in an interesting position strategically. Years of consolidation and fare increases by legacy and network carriers have created a massive growth opportunity for ULCCs in the United States. Passengers around the country are starved for low fares, and pent up, organic demand at the fare levels Allegiant provides is perhaps upwards of 40 million passengers per year (extrapolating from previous years with similar economic conditions). But what aircraft can Allegiant use to fly these passengers?
The McDonnell Douglas MD-80s that form the backbone of Allegiant’s fleet are rapidly approaching the end of their life, not so much due to a lack of virtue on the part of the airframe but rather due to the heightening scarcity of parts. Allegiant’s current fleet plan calls for 53 MD-80s, 6 757s, 10 A319s, and 10 A320s in its fleet by the end of 2016, though a recent transaction could push the number of A319s up to 22. Even with those aircraft, Allegiant is only pushing a 32% increase in fleet size, much smaller than the near-doubling that Spirit and Frontier are likely to pursue over the same period. But as mentioned before, the MD-80 fleet is on its last legs and A319/A320 secondhand demand around the world is still robust (driving up acquisition costs). The 757 could be an interesting add in limited markets, but it’s nearly as old as the MD-80 (admittedly with more cannibalization potential) and likely too big for most of Allegiant’s markets.
That places Allegiant is in the awkward position of having to replace at least 50% of its present-day fleet while simultaneously growing overall fleet count by upwards of 50%. Surveying the state of the secondhand aircraft market today, that doesn’t seem possible without so much capital expenditure that investors become extremely antsy. And if refleeting is as hard as projected, it won’t necessarily affect Allegiants profitability figures, but it will represent a massive opportunity lost.
Delta Air Lines reported a second quarter profit of $801 million, or $0.94 cents per diluted share, up 16.9% year-over-year (YOY) from $685 million in the second quarter of 2013. The superb financial performance was driven by strong mainline growth in the domestic and Trans-Atlantic operating regions, as well as reduced fuel costs thanks to the substitution of more fuel efficient mainline Boeing 717s for regional jets (fuel efficiency per available seat mile [ASM] increased 1.2%) and lower fuel prices.
Operating revenues leapt up 9.4% YOY to $10.62 billion, led by consolidated passenger revenues, which rose 9.1% YOY to $9.2 billion on a 3.8% YOY increase in yields to 17.37 cents. The improvements in yields helped drive a 5.4% YOY increase in passenger revenue per available seat-mile (PRASM), once again positioning Delta amongst industry leaders in PRASM growth after two to three quarters of (relative pullback). Delta delivered the impressive figures despite a 3.2% YOY increase in ASMS, though traffic as measured in revenue passenger miles (RPMs) increased 5.0% YOY.
The 3.2% increase in capacity represents an interesting up-shift in capacity growth on the part of Delta after years of impassioned rhetoric on the virtues of aggressive capacity discipline. Part of the increase certainly arises from fleet effects. As Chief Financial Officer Paul Jacobson noted on the carrier’s quarterly earnings call, Delta’s domestic capacity grew 3% despite 4% fewer departures, largely because of Delta’s introduction of the 717. However, because the capacity increase occurs due to up-gauges, the operating cost per seat is better and trip costs (based on a reduction in frequencies) are similar, which means that the capacity increases are margin-expansive.
Broken down by segment, mainline domestic passenger revenues rose 15.7% YOY to $4.49 billion on a 10.2% increase in unit revenues and a 7.4% YOY increase in yields. Latin America revenues jumped 22.6% to $604 million on a massive YOY capacity expansion of 23.5%. The capacity growth did put pressure on fares, driving a minor 0.7% reduction in unit revenues on a 0.4% drop in yields. Trans-Atlantic flying recovered after several quarters of revenue and unit revenue declining, with revenue rising 5.5% YOY to $1.66 billion on a corresponding 7.2% increase in unit revenue and a 5.6% rise in yields. Pacific flying continues to struggle thanks to increases in competitive capacity and the general slowdown of economies in the region, with revenues falling 2.6% YOY to $819 million on a 3.2% reduction in unit revenues and a 1.9% drop in yields. Regional domestic revenues fell 0.8% to $1.68 billion, though yields still edged up 0.2% over 2013. Cargo revenues fell 1% YOY to $230 million.
After several quarters of successive devaluation, the value of the Japanese yen has stabilized after several quarters thanks to a shift in focus to fiscal matters in the economic plan of Japanese premier Shinzo Abe. Delta is the US carrier most exposed to fluctuations in the yen on an absolute basis thanks to its hub at Tokyo Narita, and despite the stabilization, net of hedges, the currency effect still cost Delta $10 million.
Asian operations as a whole are likely to struggle financially thanks to the steady spool up of operations in Seattle. However, despite a 30% increase in capacity, international unit revenues ticked upwards by 2% and domestic unit revenues grew 6% YOY on a 25% increase in capacity. As with any YOY comparisons, the basis of comparison is important, and for the moment, Seattle (by Delta standards) remains a low-revenue hub. Conversely, high fare hubs at New York and Atlanta continued to drive profitability, with double digit unit revenue increases in both markets, buoyed particularly by trans-continental operations in New York.
Delta’s equity investments, a small-scale facsimile of Etihad’s famed “equity alliance,” also paid dividends with Heathrow revenue rising 24% and unit revenues growing 5% thanks to the partnership with Virgin Atlantic. In Latin America, partnerships with Gol and Aeromexico deliver feed equivalent to one fourth of Delta’s traffic on routes to Brazil and Mexico respectively, and helped drive $36 million in incremental revenues in the quarter. Venezuela offsets some of the improvement in Latin America, with $190 million in trapped revenues and a RASM hit of 3-4 percentage points in coming quarters.
Image Credit: Lonnie Craven / Miami-Dade Aviation Department
Operating expenses rose just 2.8% in the second quarter to $9.04 billion. Rising labor costs (up 6% YOY to $2.04 billion) were offset by a 6.2% decrease in fuel costs to $2.43 billion (down from$2.59 billion in Q2 2013), which reflected a 3% drop in fuel prices per gallon to $2.93. Overall cost-line performance was mixed; maintenance and landing fee expenses declined while depreciation and sales expenses increased. Profit sharing expenses skyrocketed 188.1% YOY to $340 million. Consequently, consolidated operating costs per ASM (CASM) fell less than 0.1% YOY to 14.63 cents, while CASM excluding fuel remained flat YOY.
After several quarters of operational losses (even as it remained margin positive thanks to the reduction in crack spread), Delta’s controversial Trainer refinery recorded an operating profit of $13 million and is projected to break-even in the third quarter. And Delta CEO Richard Anderson noted on the earnings call that Delta continues to make incremental improvements on an operating basis with changes in oil supply.
“The important thing for our strategy is to continue to lower the overall input costs for the plant through domestic crudes,” stated Mr. Anderson, “[Thus]… we can help to create that cushion in a low distillate crack environment where we can make a little bit money at the refinery while also enjoying the full benefits lower crack spreads at the airline.”
Third quarter operating margin came in at a sizzling 14.9% on a near doubling of operating profit to $1.58 billion. And third quarter operating margin (leveraging Delta’s strength in the Atlantic) is expected to jump even higher to 15-17%. Free cash flow came in at $1.54 billion, cementing Delta’s market leadership in the metric thanks to a conservative capital allocation strategy and a deferred tax asset.
Once again, Delta has delivered market-leading financial results. Moreover, Delta is in a unique position that allows it to maintain that level of financial performance. Its hubs in New York, Los Angeles, and Seattle are all in a nascent developmental stage, which means that a clear pathway to PRASM and profit growth exists.
While an investigation is underway, much attention is being paid to the decision to launch the flight into poor weather. The area has been hit hard by Typhoon Matmo, which continues to move north of Taiwan.
Broken down by segment, mainline domestic passenger revenues rose 15.7% YOY to $4.49 billion on a 10.2% increase in unit revenues and a 7.4% YOY increase in yields. Latin America revenues jumped 22.6% to $604 million on a massive YOY capacity expansion of 23.5%. The capacity growth did put pressure on fares, driving a minor 0.7% reduction in unit revenues on a 0.4% drop in yields. Trans-Atlantic flying recovered after several quarters of revenue and unit revenue declining, with revenue rising 5.5% YOY to $1.66 billion on a corresponding 7.2% increase in unit revenue and a 5.6% rise in yields. Pacific flying continues to struggle thanks to increases in competitive capacity and the general slowdown of economies in the region, with revenues falling 2.6% YOY to $819 million on a 3.2% reduction in unit revenues and a 1.9% drop in yields. Regional domestic revenues fell 0.8% to $1.68 billion, though yields still edged up 0.2% over 2013. Cargo revenues fell 1% YOY to $230 million.
