Airline Execs Sell Company Shares | It’s Not Who You’d Think
Airline executives and directors sold $49.9 million of stock in February, the most in three years, as industry shares posted a record rally fueled by a widening vaccination effort.
The insider sales increased as investors bet that vaccine campaigns would gain steam and improve the prospects for a travel rebound.
Bloomberg News surveyed insider transactions for the 11 largest publicly traded U.S. carriers. The data exclude April 2020, when Warren Buffett’s Berkshire Hathaway Inc. dumped its large stakes in the four biggest U.S. airlines.
Last month, Allegiant Chief Executive Officer Maury Gallagher Jr. was the industry’s top seller, shedding 101,000 shares worth $21.5 million in 13 transactions. Last year, he sold shares worth $67.9 million. Gallagher still owns more than 13% of outstanding shares in Las Vegas-based Allegiant, which he co-founded in 1997.
Southwest’s insider sales made up 19% of the February total for airlines. President Tom Nealon collected at $2.98 million, while Chief Operating Officer Mike Van de Ven got $1.82 million and Chief Financial Officer Tammy Romo had $1.74 million.
“Our window is open infrequently and we’ve been accumulating stock for a long time and took the opportunity to diversify holdings,” said Mesa CEO Jonathan Ornstein, who also sold nearly $915,000 in shares last month.
American Airlines said Monday it is planning to issue $5 billion in bonds and seek a $2.5 billion loan backed by its frequent flyer program, funds it intends to use to pay back some of its debt used to help weather the coronavirus pandemic.
In September, Delta raised a record $9 billion in debt backed by its SkyMiles loyalty program.
Airlines make money from their frequent flyer programs by selling miles to banks, which customers earn by using their credit cards. Last year, American said its AAdvantage program was valued at between $19.5 billion and $31.5 billion.
Fort Worth, Texas-based American had total debt of $41 billion at the end of 2020 up nearly 23% from the year earlier, before the pandemic hit.
Some Airlines Become Takeover Targets | Sharks Are In The Water
Some U.S airlines, which have suffered huge losses due to the Covid pandemic, may have to merge to survive, but labor unions and government regulatory officials may pose headwinds to such deals.
In 2020, the largest U.S. airlines also saw their share prices fall — American Airlines stock plunged 45%, Delta dropped 31%, United fell 50%; and Southwest Airlines slipped 13.3%, while the S&P 500 rose by 16.3%.
The environment could be ripe for merger and acquisitions in the sector but Helane Becker, senior research analyst at Cowen, says she thinks the Biden administration may not approve many deals due to anti-competition issues, noting the last big airline merger — Alaska Air and Virgin America in 2016 — had “a tough time getting through” the Justice Department partly due to concerns about fares going up and mergers being anti-competitive.
Ben Baldanza, former CEO of Spirit Airlines, says the likeliest takeover candidates would be carriers with “hard to replicate route networks, good access to restricted airports” or those with “fleets that wouldn’t cause undue financial risk, and those where labor issues could be more easily addressed.”
Baldanza, who is also a Forbes contributor, says he does not expect to see a “wave” of mergers this year, but “wouldn’t be surprised” to see a few. “Not likely that American, United, Delta, Southwest, or Air Canada could successfully be involved as a buyer or seller,” he adds.
“But among the remaining U.S. airlines and the independent regional airlines, I could see some potential mergers happening.”
Baldanza could also imagine a “merger of equals” like Spirit and Frontier Airlines. “JetBlue [could merge] with Alaska Air,” Becker says. “We are not saying this will occur, we are just saying it won’t be [the larger carriers like] American Airlines buying Alaska [Air] or JetBlue.”
Baldanza thinks that higher share prices might “create an impediment” to some mergers, but also points out that this makes the buyer’s stock a “potentially more valuable currency.”
Ross Gerber, president and CEO of Gerber Kawasaki Wealth & Investment Management of Santa Monica, warns that airlines have many issues to face moving forward. “Increased costs and limited foreign and business travel will crimp any attempt at profits for some time,” he says. “I don’t think we will see consolidation as it would only cause more losses for the companies involved. Airlines need to focus on being lean and providing great service — not buying each other.”
Spirit Airlines does not believe the pandemic has restricted its growth opportunities. The airline’s CEO is still bullish on the opportunities ahead for the carrier, and it is eagerly anticipating an increase in demand for leisure travel closer to home, which will clearly benefit the airline.
For at least 2021, and perhaps even into 2022, the demand outlook for airlines will be based on domestic leisure travel. With travel restrictions in effect and some passengers worried about traveling internationally, it makes sense for Spirit to focus mainly on the markets where Americans want to fly.
The airline could easily look at more island destinations in the Caribbean or else target some secondary cities, like Puerto Vallarta, in Mexico. Of course, however, there is much more room to grow within the US.
Recently, Spirit announced it would be coming to Milwaukee and Louisville in Wisconsin and Kentucky, respectively. With 16 new Airbus A320neos coming this year and already sitting on an excess aircraft, the airline can target a number of destinations.
The COVID-19 pandemic has reshaped the global travel landscape and U.S. no-frills carriers are pouncing.
As legacy airlines shrink to contain costs, budget carriers Spirit Airlines, Allegiant Travel and privately-owned Frontier Airlines are resuming pilot hiring and expanding networks to seize turf dominated by larger rivals.
The three airlines’ combined U.S. market share, which barely topped 10% before the pandemic, could grow by 10 percentage points this year alone, said René Armas Maes of UK-based consultancy MIDAS Aviation.
Las Vegas-based Allegiant has told prospective pilots whose hiring was halted as the pandemic unfolded: “We have recalled all of our furloughed pilots and are now planning for exciting growth opportunities.”
Allegiant’s fixed costs account for just around a quarter of its total. That flexibility helps budget carriers open new routes on a trial-and-error basis. During the pandemic, for example, they have pivoted toward beach and mountain destinations.
Together the three large airlines control around 60% of domestic travel and could chase away rivals on smaller routes if they choose, industry critics said.
Traditional airline perks like catering services have lost their luster in an era of masks, and budget airplanes feature the same hospital-grade aircraft filtration systems as others.
And they could benefit from more cost-conscious small and medium sized businesses changing travel policies to favor lower-cost airlines, albeit constrained by their more limited flying through large hubs.
After the last downturn, low-cost carrier JetBlue Airways grabbed market share from American on the U.S. east coast. Now it is grappling with competition from ULCCs and is teaming up with its old rival.