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November 9, 2015
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Roger King, CreditSights (Reproduced with Permission) – Telephone #: +1 (203) 904-8365

Executive Summary

  • DoJ investigates the potential of noncompetitive behavior in the US airlines industry artificially raising fares.
  • Data shows independent airline capacity initiatives, in fact over-expanding this summer and suffering declining yields.
  • Capacity growth is limited along the east coast by airport constraints and overall by the geriatric air traffic control system.
  • Current industry consolidation was DoJ-approved.
  • Most likely resolution has incumbents giving up some slots in New York and Washington to low-cost carriers.
  • Buy US airlines bonds and EETC tranches—the industry outlook is very positive.

Relative Value
Now back from August vacation, the Department of Justice can dig into Senator Blumenthal’s postulation of non-competitive behavior in the US airline artificially raising fares. As unofficial amicus curiae, here are some points for the DoJ to ponder: 1) unit revenues on multi-year decline; 2) real yields remain flat; 3) no direct evidence or behavioral patterns of collusion; 4) airport fees, TSA surcharges, and federal fees keep rising; 5) major airports are capacity constrained; 6) advance fare announcements and capacity outlooks are fundamental to reservation systems and financial analysis; 7) DoJ approved the current industry structure; and 8) DoJ does not understand airline industry fundamentals—the core issue. Most likely, incumbents will give up a few slots at controlled airports and this will be a blip. DoJ might slice a sliver off the expanding pie, but the US airline outlook is very bullish. Buy any senior
secured note offered, a scarce commodity (See Report: US Airlines: 2Q15 Review and Outlook).

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April 4, 2013

It is a pleasure to announce that Roger King of CreditSights has agreed to contribute to the Castalia blog. Roger has a specialty in high yield, along with airlines, aircraft and shipping.

We expect you find his commentaries of interest and most useful. In addition to his contribution to the Castalia blog, his complete analyses are available from CreditSights (www.Creditsights.com).

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