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