Republic Airways Holdings remains profitable in the third quarter

Republic Airways Holdings (Indianapolis) on a GAAP basis, reported net income of $9.0 million, or $0.18 per diluted share, for the quarter ended September 2011, compared to net income of $21.2 million, or $0.58 per diluted share, for the same period last year.

On an ex-item basis, Republic is reporting net income of $20.4 million, or $0.40 per diluted share, compared to an ex-item net income of $25.9 million, or $0.70 per diluted share, for the three month periods ended September 2011 and 2010, respectively.

Republic Airways Holdings Inc. is an airline holding company that owns Chautauqua Airlines, Frontier Airlines (2nd), Republic Airlines (2nd) and Shuttle America

The Company’s branded business segment includes all operations flown as Frontier Airlines and Frontier Express. Total branded revenues increased 9.0% to $485.9 million for the quarter, compared to $445.9 million for the same period in 2010. Capacity on Frontier, as measured by ASMs, was down 0.9% from the prior year’s third quarter. Load factor for the quarter was a record 89.7%, which was an increase of 2.3 points from the third quarter of 2010. Total revenue per ASM (TRASM) was 12.26¢, up 10.0% from the same quarter in 2010. For the quarter ended September 2011, Frontier posted ex-items pre-tax income of $15.3 million compared to $19.4 million for the quarter ended September 2010.

The unit cost for Frontier, excluding fuel, was 7.23¢ for the quarter, a 0.8% increase from 7.17¢ for the same metric for the third quarter of 2010. The unit cost in the current quarter was negatively impacted by integration and fleet transition expenses as well as the July hailstorm in Denver, which reduced ASMs and increased expenses. Also, the current quarter’s results include only limited benefit from our restructuring efforts.

Fuel costs for Frontier were $196.5 million for the quarter. The fuel cost per gallon, including into-plane taxes and fees, increased 45.7% to $3.38 for the third quarter of 2011 compared to $2.32 for the prior year’s third quarter. This price increase resulted in $61.6 million of additional fuel expense in the third quarter of 2011, as compared to the third quarter of 2010. The third quarter 2011 result includes a mark-to-market loss on fuel hedges of $5.0 million, or $0.09 per gallon. The Company realized gains of $1.2 million, or $0.02 per gallon for hedges that were settled during the quarter. The Company has hedged approximately 25% of Frontier’s fourth quarter fuel consumption and currently does not have any hedge positions for 2012.

On July 13, a severe hailstorm occurred at the Denver International Airport, damaging 22 aircraft that operate on behalf of Frontier. In the following days, Frontier cancelled approximately 250 flights while the aircraft were being repaired. The Company accommodated affected passengers on other airlines and contracted with other carriers to operate flights on behalf of Frontier. On July 23, Frontier resumed its full flight schedule. The Company estimates that its pre-tax income on Frontier was negatively impacted by approximately $10.0 million, including the insurance deductible, in the third quarter due to the hailstorm.

In May 2011, the Company announced its program to restructure Frontier to reduce costs, improve profitability and ensure the viability of the carrier. Throughout the restructuring of Frontier, the Company has emphasized our plan to increase the seat density operating within our branded business. In May 2011, when the Company unveiled the plan, we operated 37 aircraft with 76 seats or less. By May 2012, the Company expects to have approximately five such aircraft in operation for Frontier. The Company believes these fleet adjustments, combined with other restructuring efforts, will greatly improve the unit cost and financial performance of Frontier in 2012.

Frontier branded aircraft with 99 or more seats, which are expected to produce more than 95% of Frontier’s capacity in 2012, had an ex-item, ex-fuel operating unit cost of 6.31¢ in the third quarter of 2011 and 6.54¢ for the nine months ended Sept. 30, 2011.

As of November 7, 2011, the Company has finalized agreements with its A319 aircraft lessors that will provide for an annual reduction in lease expense of more than $26 million in 2012. These agreements also provide for the return of four A319 aircraft during the first quarter of 2012.

The Company has finalized its agreement with Airbus to purchase 80 A319/320 New Engine Option (NEO) aircraft. The aircraft will be powered by CFM International, Inc. (“CFM”) LEAP-x engines. These aircraft will be operated by Frontier and are expected to be placed into service beginning in the second half of 2016.

Copyright Photo: Michael B. Ing.

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