In a move dreaded by some rival airline executives, Delta Air Lines (DAL) CEO Gerald Grinstein announced plans on Jan. 5 to simplify domestic fares. The strategy, which others will likely match, is expected to slice revenues in an industry struggling to turn a profit. Investors drove down airline shares in the wake of Delta's decision.
The new fares are an effort to entice customers who have long loathed the complex rules and high last-minute ticket prices of the major airlines. While Delta's $499 cap on one-way economy prices is still higher than many discount fares, the new SimpliFares could slow the market share gains of such rivals as Southwest (LUV), JetBlue (JBLU), and AirTran (AAI). The changes could cut industry revenues by 4% or up to $3 billion a year, figures analyst Michael Linenberg of Merrill Lynch (MER). Grinstein figures Delta will gain share and stimulate new traffic. But even if the plan doesn't generate extra revenue, he is bowing to the realities of a market driven by discounters.
These days, everyone in Big Pharma seems to be taking it on the chin because of problems with prescription drugs. So what's Bristol-Myers Squibb's (BMY) response? It wants to put even more emphasis on such patented medicines. Although Bristol won't comment, published reports say the New York-based company is close to selling its over-the-counter medicine unit, which makes Excedrin and Bufferin pain pills. Consumer-drug sales have been flat at roughly $350 million, or less than 2% of Bristol's total revenues of $21 billion. Still, analysts say the unit could fetch $700 million. Bristol could use the money to find new prescription drugs. It recently lost patent protection on diabetes drug Glucophage, sending sales tumbling, while its cholesterol-lowering Pravachol is losing market share to newer drugs.
General Motors (GM) is already stoking incentives to start the new year, adding $1,500 rebates for repeat buyers. It's no wonder. Although auto makers sold cars and trucks at a record annualized rate of 18.4 million in December, GM was the only major company to suffer a dip in volume. GM's sales slid 6% in the month, and its market share for the year fell to 27.2%, from 28% last year. Even rival Ford Motor (F), which has typically struggled to boost sales, managed a 1% gain in December. If overall sales cool off in the first quarter after the strong December, expect GM to remain aggressive.
California Governor Arnold Schwarzenegger will support a legislator's initiative to privatize the state's pension plans, including the California Public Employees' Retirement System, the nation's largest, at $180 billion. The proposal would put state employees hired after July, 2007, into privately managed accounts similar to 401(k) plans and is designed to cut state expenditures on retirement benefits. The measure is opposed by unions who say it would put retirement savings at risk and make it harder for the state to recruit talented employees.
The holes in Krispy Kreme's (KKD) accounting keep growing larger: On Jan. 4, the Winston Salem (N.C.)-based doughnut chain said it will restate earnings for the fiscal year ended February, 2004, reducing previously reported net income by as much as 8.6%. The restatement -- which the company warned may not be the last, as the Securities & Exchange Commission and a special audit committee continue to pore through its books -- results from certain operating expenses that Krispy Kreme previously rolled into the cost of buying back some franchising rights. At the same time, the doughnut chain said its failure so far to file a third-quarter financial report with the SEC will put it in default on its main $150 million credit facility as of Jan. 14 -- though it's hoping to receive a waiver from lenders.
-- Nordstrom's (JWN) December sales rose 9.3%.
-- Chipmaker Xilinx (XLNX) reduced its revenue estimate for December.
-- Sirius Satellite Radio (SIRI) will offer up to three video channels in partnership with Microsoft (MSFT).
No. 2 electronics retailer Circuit City Stores (CC) blamed rivals' aggressive promotions for its lackluster yearend. On Jan. 5, the company said December sales grew just 1.8%, while sales at stores open a year or more slipped 5.8%. Shares fell 8.4%, to $13.71, on the news.