Ouch: Grounded planes will cost American $350M

Plus: Fact-checking Morris-Jenkins; Investors wise to take Bruton Smith's buyout offer; When to take 'Avengers' pee break

The Charlotte Ledger

Fresh and real Charlotte business news that makes you smarter. Delivered to your inbox for free three days a week.

Need to subscribe? Sign up here (charlotteledger.substack.com). Forward this to your friends.

Good morning! Today is Friday, April 26, 2019. Here are today’s big stories in Charlotte-area business news:

Planes grounded, fuel costs up, fares rising:

The grounding of 737 Max planes after March’s deadly crash in Ethiopia is expected to cost American Airlines $350M this year, executives said this morning. And higher fuel prices are costing Charlotte’s biggest airline planeloads of cash, too.

But as the summer travel season swings into gear, fares continue heading upward. “We will do everything we can to cover our costs,” CEO Doug Parker said in the airline’s quarterly earnings call.

The money American is losing because of the deactivation of 24 Boeing Max 8 planes could wind up being even more if the planes don’t return to service by Aug. 19 as American is planning. But Parker said he’s confident the FAA will allow the planes in the air by then.

“We believe Aug. 19 is a date that gives us a lot of certainty, gives our customers a lot of certainty, and we expect it will be certified well before that date,” Parker said. Some analysts were skeptical. The airline has already had to move 700,000 passengers onto other flights because of the 15,000 flight cancellations connected to the grounding of the planes.

Other highlights from American’s quarterly conference call on Friday:

  • Expansion: American said it is gearing up for a big expansion starting next month from Dallas-Fort Worth – a prelude to a smaller expansion by year’s end in Charlotte. In Dallas, it’s adding 100 flights a day, for a total of about 900, when it picks up 15 extra gates. In Charlotte, it will have five extra gates when construction is complete later this year. American now has 674 daily flights from Charlotte and has said it expects that number to increase to more than 700.

  • Frequent fliers: American said it made more award seats available beginning last year – even though it cost the airline 0.9 percentage points in unit revenue in Q1.

  • Credit card changes: Execs also touted changes to the Barclaycard American AAdvantage Aviator Red card, which is adding a companion pass and Wi-Fi credits starting May 1.

  • Old reliable: Parker said the airline made big improvements in on-time arrivals: “Despite the challenges we have had with our fleet, we have improved our competitive position in reliability.”

  • Earnings: American beat analysts’ (low) expectations. Profits were still up. Still, the stock fell Friday morning.

Also on Friday, the Biz Journal (paywall) reported that average fares out of Charlotte rose in the 4Q of last year:

The average fare of a domestic flight at Charlotte Douglas during the final quarter of 2018 came in at $429.66, which is about 2.1% higher than the $420.78 fare during same quarter in 2017 and about 2.8% higher than the $418.17 fare in last year's third quarter. …

Charlotte Douglas had the second-highest fare when compared to the 50 largest U.S. airports. Only Dulles International Airport, serving the Washington, D.C., metro area, had a higher average fare, at $433.60. 

That’s the premium we in Charlotte pay for having more nonstop flights than most cities our size.

Why Bruton Smith’s Speedway Motorsports deal should go through

This week, Bruton Smith and his sons made an offer to take Speedway Motorsports private. They’d pay about $213M to acquire the 29% of the company shares they don’t already own.

As some of the media reports have pointed out, that would make Speedway Motorsports, which owns Charlotte Motor Speedway and seven other tracks — a little more nimble in setting the schedule for NASCAR races. It would also relieve what can be burdensome reporting and regulatory requirements of being a public company. The France family made a similar move last year with International Speedway Corp.

The real burden-lifting here, though, might be the relief to shareholders of being able to escape from holding what has been a dog of a stock — and to get out at a respectable price.

Source: Yahoo Finance.

The big question: Will any Speedway Motorsports shareholders raise a stink about the offer and demand a higher price?

They probably shouldn’t. Since 2009, U.S. stock indexes have almost tripled, while Speedway Motorsports stock (TRK) has been mostly flat. The $18/share offer represents a solid 29% premium on the previous day’s closing stock price.

Sam McNeil, managing partner of Charlotte’s River Capital Partners, tells The Ledger that the offer is about 10x EBITDA — which “on the surface looks like a decent multiple for a company that has not been a good performer for investors.”

That’s a polite way of saying it has been stinking up investors’ portfolios for the better part of the last decade. It’s also a more generous offer than the France family’s proposed International Speedway Corp. deal, which is now the subject of lawsuits from shareholders alleging breach of fiduciary duty.

With Speedway Motorsports, independent shareholders and a board panel of outside directors have to approve the deal under the terms of the offer.

The largest non-Smith shareholder is Dimensional Fund Advisors of Austin, Texas. It bought most of its shares in 2009, securities records show. Back then, the share price was in the mid-teens — roughly where it is now. The company didn’t return an email this week.

Investors might be wise to cut bait and let the Smiths figure out the slumping racing business.

Advice from NextDoor: Keep a beekeeper on speed dial

Fact check: Do you need Morris-Jenkins to service your air conditioner before using it?

The issue: Morris-Jenkins is running a TV and radio ad suggesting you should get your heating and air-conditioning unit checked now, before you crank up the AC. But is that really necessary?

The claim: “When it starts getting warmer, and you’re thinking about turning on that air conditioner, don’t do it! AC compressors get dried out during the winter, and they need to be brought into service gently. Gently. For just $89, a Morris Jenkins technician will wash the outside unit and bring it into service gently. We promise not to disrupt your household. We come and go gently.”

The truth: It is a good idea to get your heating and air conditioning unit serviced once a year, says Joe Christie, Rowan-Cabarrus Community College’s program chair for construction technologies.

“We have a saying around here: ‘Grease is cheap,’” he says. “If you keep up the maintenance on something, things will last you a lot longer. The life and death of any HVAC system depends on how clean the coils are. The dirtier it gets, the harder it has to work.”

But is it imperative to have it cleaned before using it for the season? That sounds like more of a stretch.

Christie says if you have separate furnace and AC systems, and your AC system is older – like, 15+ years old – then it’s more likely to have problems when you first start it up because it has been dormant for several months. Newer AC systems should be fine.

But a lot of people in the Charlotte area have heat pumps, which use the same unit for heating and cooling. If you have one of those, it has been running this winter when the heat was on, so there should be no issue with turning on the AC for the first time. He guesses that about 60% of heating and air units locally are heat pumps. If you are not sure whether you have a heat pump or separate AC/furnace combination, review your owner’s manuals or talk to a pro, Christie says.

He adds: “I love the ad on TV that says ‘start it up gently.’ A lot of these systems are either on or off. There is no ‘gentle’ system to crank them up.”

The verdict: Half-true. It is important to have your AC serviced yearly, and spring is a sensible time. But the warning from Morris-Jenkins not to crank up your AC before having it serviced is unfounded for most people.

Loves me some internet

Video Shows Chimpanzee Using an iPhone, Scrolling Through Instagram Like a Pro

In brief

Gender pay-gap data denied: “Shareholders at Bank of America on Wednesday joined other bank investors in rejecting proposals to provide more compensation data in the interest of closing the gender pay gap.” (American Banker)

Hulk eats lunch? Make a run for it: “Avengers: Endgame” opens today and is expected to have the biggest opening weekend of all time. The movie is also three hours long. Here’s some useful news: “When to take a bathroom pee break during Avengers: Endgame

Earnings round-up: First-quarter profits were up at Nucor and Sonic Automotive.

Worth a read: “Exclusive: The inside story of David Chadwick’s sudden split with Forest Hill Church.” (Observer/paywall).

More Charlotte 5G: Verizon has selected Charlotte as one of 20 cities in which to install 5G service, WFAE reports.

Food and booze news

A weekly wrap-up of the week’s eating and drinking developments

Got a news tip? Think we missed something? Drop me a line at editor@cltledger.comand let me know.

Like what we are doing? Feel free to forward this along and to tell a friend.

The Charlotte Ledger is an e-newsletter and web site publishing timely, informative, and interesting local business news and analysis Mondays, Wednesdays, and Fridays, except holidays and as noted. We strive for fairness and accuracy and will correct all known errors. The content reflects the independent editorial judgment of The Charlotte Ledger. Any advertising, paid marketing, or sponsored content will be clearly labeled.

The Charlotte Ledger is published by Tony Mecia, an award-winning former Charlotte Observer business reporter and editor. He lives in Charlotte with his wife and three children.