Both Continental Airlines (NYSE: CAL) and Southwest Airlines (NYSE: LUV), the two most financially-secured airlines have hit turbulence in the wake of the rising gas prices.  The basic equation shows that as fuel prices sky-rocket, the airlines hit turbulence and will have to ground themselves, if you will.  Southwest has been one of the only airlines to see profits for the last several quarters.  However, the company has finally seen the same turbulence that has been giving other major airline carriers financial problems due to such high fuel costs.

Continental and Southwest Airlines will both attempt to fight the fuel battle by raising prices.  Southwest Airlines Co. which always has deals for travelers for its select domestic locations had to raise its summer prices last week, only then to raise them an additional $10  for flights each way from mid-June through mid-August.  In addition to raising prices, Southwest will have to postpone their plans for fleet expansion.  

The leading low-cost carrier Southwest Airlines Co., headquartered out of Dallas, Texas, has been the only airline company to see a profit this first quarter.  The company’s revenue rose 15.1% to $2.53 billion.  Although the company had reported a profit, they still saw a decline in their numbers as they earned only $34 million, or 5 cents per share, in the first quarter compared with $93 million, or 12 cents per share, a year earlier.

Continental Airlines, the fourth-largest airline carrier by passenger volume, has reported a first-quarter net loss of $80 million, or 81 cents a share, compared with net income of $22 million, or 21 cents a share, a year ago.  Due to the Houston-based company’s large international traffic, Continental’s revenue rose 12% to $3.57 billion.

Continental claims that they will take 14 older, less fuel-efficient aircrafts out of service.

Continental, in addition, will remove 34 of its older fleet of Boeing 737-300’s. Continental’s reduction of their older fleet will reduce the U.S. mainline capacity by 5% this upcoming Fall. “In this fuel environment, we must reduce our domestic capacity to help reduce our losses in the domestic system," said President Jeff Smisek.  Continental and Southwest Airlines will be cutting seat capacity to reduce routes that aren’t providing the airline companies with sufficient funds.  This is a first among U.S. airlines this year to trim domestic capacity even if it cuts their share of the market.

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Google Inc. (NDAQ: GOOG) announced high-than-expected net income of $1.55 billion on $5.19 billion in revenues. The search giant saw a 42% increase in revenue growth compared to the first quarter of 2007 and a 7% increase compared to the fourth quarter of 2007. The strongest growth was seen in international revenues, which finally increased to more than half of its total revenues.

"Our ongoing innovation in search, ads, and apps helped drive healthy growth globally across our product lines, yielding another strong quarter for Google," said Eric Schmidt, CEO of Google. "As we integrate DoubleClick into our advertising platform, we see exciting new ways to improve the user experience and increase value for our advertisers and partners. Also, while exercising operational discipline, we continue to explore opportunities that add value to users everywhere and to Google in the long term."

Google reported that 66% of its revenues were derived from websites that it owns compared to 33% from its content partners. This marks a continued shift towards creating its own revenues, which is much more profitable in the long-run. The search giant also noted that its acquisition of DoubleClick was immaterial to revenue and only slightly dilutive to both GAAP and non-GAAP operating income, net income and earnings per share for the first quarter.

The stock jumped 10% after hours on the news as investors breathed a collective sigh of relief. Many were concerned that the company would post a loss following weakness in pay-per-click advertising predicted by research firm comScore. The huge surprise to the upside has many investors newly bullish on the stock and confident that it will be able to overcome any difficulties in the U.S. economy.

In the end, these factors make GOOG a stock worth watching going into the future. Many are hoping that this news will provide a boost to the technology sector that is already fresh off of good news from IBM.

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Bill Ackman's Pershing Square offered to purchase Borders Group's (NYSE: BGP) businesses in Australia, New Zealand and Singapore for $135 million in a Schedule 13D/A filing with the SEC. The expected offer comes after the activist hedge fund recently completed a financing agreement with the bookseller that gave it a much-needed capital infusion.

Borders insists that the international units are worth substantially more than the $135 million offer and is looking at strategic alternatives other than the offer from Pershing Square. So far, the bookseller has not made any public announcements of a higher bidder but there is still a lot of time remaining.

Pershing Square also valued Borders' UK and Singapore businesses at $67.5 million in the event that it could not acquire the other businesses or the company wished to keep or sell them separately. Many of these international businesses remain strong despite a slowdown in the United States and could make a great acquisition for other booksellers.

Borders has found itself under pressure from lower discretionary spending by consumers and increased competition from online retailers like Amazon.com (NDAQ: AMZN). The bookseller is hoping that this latest capital infusion will give it the capital necessary to implement a series of strategic initiatives designed to improve sales and increase profits.

Shares dropp $0.02, or 0.31%, to $6.43 on the day.

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With the rising costs of fuels, many airline companies seem to be grounded, some literally.  However, one merger has brought on not only a way to battle the ever so large economic struggle of the airline industry, but will have created the world’s largest airline.  Delta Airlines (NYSE: DAL) and Northwest Airlines (NYSE: NWA) have officially joined together in a union that will parent 75,000 employees with revenues of $35 billion.  

The $17.7 billion Delta Air Lines Inc. merger with Northwest Airlines Corp. is done.  However, as it may seem that this much anticipated deal would be good for both companies, Delta shares have undergone quite the drop in share prices today with over a 13% decline.  Northwest shares also fell, but just under 9%.  The companies, that jointly announced their merger last night at 8 PM EST, will keep Delta’s headquarters out of Atlanta and foresee no hub closures.  Collectively, the two airlines will oversee a fleet of 800 airplanes with flights to more than 390 destinations in 67 countries.

The deal will grant that each Northwest share will be exchanged for $1.25 Delta shares, a 16.8%  premium based on today's closing price.  With this merger, it is predicted a one-time cash costs of no more than $1 billion to integrate the two airlines. However, the deal is expected to generate more than $1 billion in annual revenue and cost cuts from more effective aircraft utilization, a more comprehensive and diversified route system, reduced overhead and improved operations.  Delta CEO Richard Anderson, who had also served as a former CEO of the Eagan-based Northwest Airlines, will remain CEO of the new Delta.  Delta Chairman of the Board Daniel Carp will become chairman of the new board, Northwest Chairman Roy Bostock will become vice chairman and Delta's Ed Bastian will be president and CFO.  

This new merger between Northwest and Delta Airlines will Delta will maintain executive offices in Atlanta (as the company’s headquarters), Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo.

The airlines said small U.S. communities will now have better access to more destinations across the globe and will benefit from the combined carriers' complementary route networks.  However, there are many concerns, especially in  a time of tight budgets and strict government regulations.  Northwest and the state of Minnesota are to maintain current hubs and headquarters, and if Northwest fails to abide by this, the company would owe the state $240 million and lose a package worth $200 million. After the merger was announced Monday evening, Minnesota’s Gov. Tim Pawlenty issued a statement claiming that "We will be closely scrutinizing the impact of the merger and will strongly stand up for Minnesota's interests during the review process."

With such a merger as this,  there are some issues to be dealt with concerning the unions of the two airlines who were unable to come to an agreement on combining seniority lists. Seniority determines pay and flight assignments, and Delta's pilots (generally younger than Northwest's) had worried that they would receive the short-end of the stick.  Officials had wanted the pilots to agree prior to a deal, but faced with ever-rising operating costs ultimately decided to move ahead with the merger without an agreement.

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Affymetrix, Inc. (NDAQ: AFFX) shares plummeted after the company reduced its first quarter expectations to $170 million, including an intellectual property payment of $90 million. The life sciences company also reduced its full-year estimates from an earlier range of $505 million to $525 million to a new range of $490 million to $510 million. The reduction comes as a result of lower research spending by pharmaceutical and industry customers.

The troubled Affymetrix is currently exploring ways to reduce expenses in order to at least partially offset the impact of this revenue reduction. So far, it has laid off 23 people in West Sacramento and plans two more rounds of job cuts in the near future in order to further reduce its operating expenses and overhead. More extreme measures could be taken in the future if revenue reductions continue to persist.

Currently, Affymetrix trades at around 60x earnings for 40x future earnings. Its lackluster growth rate gives the stock a PEG of 1.36, which means it may be slightly overvalued. The company also lags its peers with a 3.3% growth rate compared to a 10.3% growth rate for its peers and a 6% growth rate for its nearest competitor. Affymetrix's operating margins are also well below their peers despite a higher growth margin. This suggests that its costs tend to be higher than its peers and could be substantially lowered in order to more effectively compete.

Perhaps the only largest upside is the massive amount of cash on the books. Affymetrix has a whopping $494 million - or $7.13 per share - in cash on its books. This accounts for nearly 70% of the stock's current market value. Clearly, value could be unlocked here if the company began a share buyback program or distributed a special dividend. Combined with cost cutting measures, this stock could quickly become one worth watching!

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Blockbuster Inc. (NYSE: BBI) announced that it offered to acquire Circuit City Stores, Inc. (NYSE: CC) today for at least $6.00 in cash, subject to due diligence. However, Circuit City failed to provide the due diligence necessary to make a definitive proposal and effectively blocked any transaction. Now, Blockbuster is making the proposal public in order to put pressure on the electronics retailer and allow shareholders to participate in the destiny of the company.

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage. We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies," said Blockbuster Chairman and CEO Jim Keyes.

Blockbuster insists that the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices. It would also allow both companies to benefit from the revenue growth generated by their complementary products, while the resulting synergies would substantially improve consolidated financial performance, thereby increasing shareholder value.

Given Circuit City's $3.90 per share price, this transaction would represent a substantial premium for shareholders. Meanwhile, Blockbuster shareholders would benefit from an obvious diversification away from the troubled DVD rental market and into consumer electronics. In the end, Circuit City shares may be depressed but a turnaround could take years to affect. As a result, this is an offer that will definitely be considered.

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Many department stores have traditionally set themselves apart by installing in-house labels and designer lines made exclusively for them. The move was designed to produce higher profit margins than national brands when times were good, but many fear that the strategy could come back to haunt them now that the markets have turned. Many stores are being forced to mark down the prices of such exclusive lines in a move that could end up hurting the brands' image.

Unfortunately, retailers are also unable to siphon off some of the pain to suppliers since they are themselves the manufacturer. This means that instead of the markdown allowances that national brands provide, these retailers are stuck with even greater losses than they have already experienced. In effect, the strategy is a "double edged sword" says one analyst with Deutsche Bank.

To make matters worse, many retailers are also forced to pay minimum royalties to the brand designers. The WSJ highlighted one such example with Sears Holdings Corp. (NYSE: SHLD) and Kmart, who agreed to pay a minimum of $65 million last year and $20 million this year to Martha Stewart Living Omnimedia despite the lines not meeting sales targets by a long shot.

In the end, many retailers still insist that these products are necessary to differentiate themselves from their competitors. But in a poor economy, it may be wise for investors to start looking at the income states and sales forecasts more closely to see just how much of a retailer's inventory is tied up in these goods.

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In completely predictable move that nonetheless is generating lots of attention, Yahoo Inc.’s (NDAQ: YHOO) largest shareholder has criticized Microsoft Corporation’s (NDAQ: MSFT) threat to wage a proxy battle and lower its offer.

Legg Mason Inc. owns around 7% of Yahoo, giving portfolio manager Bill Miller obvious incentive to try and drive the offer price up.

In a WSJ interview, Miller said, “Telling shareholders you're going to take something away from them is not a way to get their support,” in a reference to Microsoft’s threat to simply pull its bid. Of course, in reality telling shareholders that the deal will soon be off the table seems to be a very good negotiating tactic for Microsoft. Yahoo shares were trading around the $20 per share mark prior to Microsoft’s $29 per share bid, and Yahoo shares are likely to stay around $20 for a long time if the deal doesn’t happen.

Miller would understandably like Microsoft to raise its offer – what Yahoo shareholder wouldn’t? But with no viable alternatives for Yahoo, why should Microsoft bid against itself?

The very need for Miller to speak out against Microsoft’s threat proves the threat is already working: Yahoo’s largest shareholder is worried that the Microsoft deal will disappear.

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The U.S. economy may be headed into a recession, but e-commerce sales are estimated to grow 17% to $204 billion this year. The Forrester Research report sees a continued increase in e-commerce spending as value-shoppers go bargain hunting and affluent investors seeking the comfort and convenience of shopping from home. This is great news for many online retailers as well as online marketing companies.

"From higher shipping costs to changes in consumer shopping habits, online retailers are not immune to the current economic climate," said Scott Silverman, executive director of Shop.org. "But the fact that online sales will increase substantially this year demonstrates the resilience of the channel and is a testament to the value and convenience most customers find when shopping online."

Companies like Amazon.com Inc. (NDAQ: AMZN) and eBay Inc. (NDAQ: EBAY) stand to benefit the most from the increased online spending given their market leadership positions. Unfortunately, much of this growth is already priced into the stocks. Amazon.com trades at 68x earnings with a P/E to growth ratio of 2.19, which means that the stock may be overvalued given its most recent growth. Meanwhile, eBay is trading at 125x earnings with a P/E to growth ratio of 1.25, which makes it a little more affordable.

The Forrester Research report also indicated that search engine marketing continues to be the most effective way to reach new customers. In fact, 90% of all online retailers use pay-for-performance search placement and 79% said they will make such tactics an even greater priority this year. Currently, the survey found that around 35% of all sales comes from search engine marketing venues.

These increases should help boost stocks like Google Inc. (NDAQ: GOOG) who rely on search engine marketing for much of their income. Other potential benefactors include Yahoo Inc. (NDAQ: YHOO) and Microsoft (NDAQ: MSFT), who both have their own online ad platforms that many online retailers use to advertise their services in an increasingly competitive market.

"What’s spearheading online retail sales growth is a tale of two shoppers that visit the web for very different reasons," said Sucharita Mulpuru, Forrester Research principal analyst and lead author of the report. "The casual shopper goes online to look for the best price, leveraging the transparency of the Internet to save money. However, more affluent customers appreciate the convenience of shopping online and are not necessarily looking for the best deal. Retailers would be wise to recognize there are significant opportunities within both audiences and should market to them accordingly."

In the end, this is great news for the only positive segment of the retailing market.

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Washington Mutual's (NYSE: WM) dreams came true today after it announced a $7 billion capital infusion from an investment syndicate led by private-equity firm TPG. Unfortunately, shares dropped after the bank then announced a higher-than-expected $1.4 billion preliminary write-off for the first quarter and a move to slash its dividend to shore up capital. In the end, the good news offset the bad and shares gave back their earlier gains.

Washington Mutual, like many other banks, has found itself under substantial pressure amid rising defaults. The firm's loan loss provisions for the first quarter alone will run $3.5 billion with a net write-off expected to come in at around $1.4 billion. So, while the $7 billion in additional liquidity is good news, the bank may yet face substantial capital concerns going forward. That's not to mention the significant dilution that shareholders will experience.

Fortunately, Washtington Mutual has a series of plans in place to improve its financial situation after this latest capital injection. The bank will significantly reduce its leverage once the new capital is in place, which makes it a far less risky institution. Additional, the planned elimination of its wholesale lending and home-loan centers will help it refocus on the much more stable retail banking sector that isn't completely reliant on real estate for success.

In the end, this is good and bad news for shareholders. The additional capital will enable the bank to reduce its exposure to loans and ensure its going concern. However, the additional capital also comes at a cost - share dilution. Overall, the move should be good for the long-term but difficult for the short-term.

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