Originally Posted by
Sunvox
Next we add back a guess on "Special Charges" which have ranged from $100 to $500 million over the last several years, and lastly we add back last years profit sharing number (going from memory here) of about $340 million and batta-bing-batta-bang we have our earnings number for PS calculation forecast at $3.2 billlion + $250 million special charges + $340 million PS2017 = $3.79 billion.
If we save a $1 billion dollars in fuel the percentage goes up to 8.5% or said another way - every $100 million in fuel savings adds about 0.3% to PS.
The key here is that in 2015 when we had a huge PS number oil was around $40 a barrel and our fuel costs were about $3 billion less, and as fuel cost have risen ticket prices (revenue) have not gone up equally.
Also interesting to note that Delta's PS for 2017 was based on revenues of $44 billion and profit of $5.5 billion and oddly enough their payroll number is lower so all in all it makes for a much bigger payout, but not because of the mechanism behind the calculation as they get 10% of the first $2.5 billion which is darn close to the $2.7 billion in our 2017 calculation. It's all about the roughly $2 billion in additional profit they have.
Joe, I think you are missing two important points. As someone else already mentioned, Delta's contract focuses on the word "profit" and ours mirrors other work groups within the company and focuses on the word "margin."
You can type it in to google, or just click here:
https://smallbusiness.chron.com/prof...gin-10684.html
My viewpoint is similar in that margin focuses on "your company's long-term viability" while profit "is a short term indicator of how well your company is doing."
You are not being shown all the cards in this long term game, so you can't accurately predict, (there really is zero transparency) how we will fare in the profit sharing game at the end of the year.
Which leads to my second point. Take a look at the company's 1Q19 earnings report:
https://hub.united.com/united-airlin...634807011.html
Focus on bullet number 7. It says: "Repurchased $527 million of its common shares in the first quarter of 2019"
Now ask yourself, if we only made $292 million in income for 1Q19, how the hell could we possibly burn $527 million in stock buybacks? I use the word 'burn' because I see it as management refusing to use that money on something that would actually help the operation. Are they really telling us that there was no better use for half a billion dollars, than to bury it? Yes, it will raise the stock price because you are lowering the total number of shares out there, but is that really more important than the actual investment in the corporation? I get it, Wall Street wants to focus on reducing the cost per available seat mile, and this just happens to fall outside of CASM calculations, but still, Dulles airport couldn't use half a billion to kick start a new terminal? There is really no long term infrastructure program within the company that could use the investment now, while the economy is good and we can afford it?
How did we manage to spend $527m buying our own stock, when we only had an income of $292m? Yes, it's a cash flow business, but they are getting away with moving money around from one accounting category to another, without acting in the best interest of the corporation. They are simply acting in the best interest of the share price, and calling that the best interests of the share holders.
If I were king for a day, I would change our contract wording to reflect profit instead of margin. I would insist the board of directors eliminate the stock buy back program. And lastly, I would demand that the management of this company recognize that these are the good times. The economy is booming, so business is good. It won't always be this way. Now is the time to invest in the infrastructure for the long term. With the next recession, you won't be able to issue more stock to raise the money when you need it, because that will only lower the individual share price even further in an already down economy.
Winter is coming!