Republic Airways Holdings Inc. (Indianapolis) reported net income of $25.8 million, or $0.51 per diluted share, for the quarter ended September 30, 2012. This compares to net income of $9.0 million, or $0.18 per diluted share, for the same period last year. Operating revenues of $713.1 million, decreased 7.1%, compared to $767.9 million for last year’s third quarter, on a 5.7% decrease in consolidated capacity.
The Company reported the following key metrics for the third quarter and first nine months of 2012:
|Three months ended September 30,||Nine months ended September 30,|
|(Unaudited)||2012||2011||% Change||2012||2011||% Change|
|(in millions, except as noted)|
|Consolidated operating revenues||$||713.1||$||767.9||-7.1||%||$||2,138.8||$||2,166.7||-1.3||%|
|Consolidated operating margin||10.3||%||6.4||%||3.9 pts||7.5||%||2.8||%||4.7 pts|
|Consolidated net income||$||25.8||$||9.0||186.7||%||$||38.7||$||(28.3||)||236.7||%|
|Diluted Earnings per share (dollars)||$||0.51||$||0.18||183.3||%||$||0.79||$||(0.59||)||233.9||%|
|Consolidated EBITDAR margin||25.7||%||21.7||%||4.0 pts||22.9||%||18.7||%||4.2 pts|
|Frontier total revenue per ASM (cents)||12.33||11.70||5.4||%||11.98||11.22||6.8||%|
|Frontier operating income (loss)||$||31.1||$||0.1||nm||$||26.4||$||(67.9||)||nm|
|Frontier operating margin||8.3||%||0.0||%||8.3 pts||2.4||%||-6.8||%||9.2 pts|
Business Segment Presentation
As announced in the fourth quarter of 2011, the Company has adjusted its presentation of business segments in 2012 and has revised the prior year’s information to conform to the current period segment presentation. Reportable segments now consist of Republic and Frontier. The Republic segment includes all regional flying performed by sub-100-seat aircraft operating under either fixed-fee or pro-rate agreements, subleasing activities, regional charter operations as well as the cost of any unassigned regional aircraft. The Frontier segment includes passenger service revenues and expenses for operating Frontier’s Airbus fleet, as well as its charter and cargo operations.
Republic Segment Summary
Republic revenues for the quarter decreased 14.9%, or $58.9 million, compared to the prior year’s third quarter, due primarily to a decrease of $29.3 million in fuel reimbursement under its fixed-fee agreements. Effective July 1, 2012, Republic no longer records fuel expense and does not recognize fuel-related pass-through revenue under any of its fixed-fee agreements. The remaining revenue decrease is due to lower block hour production on Republic, which decreased 3.7% from the prior year’s third quarter, due mainly to 50-seat aircraft that remained unassigned after being discontinued from pro-rate operations in Milwaukee.
Income before taxes for Republic was $12.6 million for the quarter, compared to a pre-tax income of $16.7 million for the third quarter of 2011. Pre-tax results on Republic were negatively impacted by $2.9 million, or 0.08 cents per ASM of other expenses comprised of a loss of $11.2 million associated with the sale of five E190 aircraft which was partially offset by an $8.3 million gain on the sale of slots.
Fuel costs for Republic were $25.4 million for the quarter, a decrease of $53.7 million from the prior year’s third quarter, due mainly to the removal of any fuel expense under fixed-fee agreements. The price per gallon decreased 4.2% from $3.35 to $3.21 year over year for the quarter. The Company has removed more than 20 aircraft from pro-rate operations over the last twelve months, which resulted in lower fuel consumption in the third quarter of 2012. The majority of these aircraft have been placed into fixed-fee service or subleased.
Cost per Available Seat Mile (“CASM”), including interest expense but excluding fuel, increased 7.3% to 8.74¢ for the third quarter of 2012, from 8.15¢ for the same quarter of 2011. The increase is mainly due to expenses for aircraft that were unassigned and not producing ASMs during the quarter, and reduced seat count on our 58 US Airways E-jets, which have been reconfigured with first class cabins and approximately 7% fewer seats.
As of September 30, 2012, Republic operated 63 aircraft with 44-50 seats and 131 aircraft with 69-80 seats to support its fixed-fee commercial agreements. Additionally, Republic operated one aircraft with 50 seats and 17 aircraft with 99 seats under pro-rate agreements with Frontier. Nine 37- to 76-seat aircraft remained unassigned as of September 30, 2012.
Frontier Segment Summary
Total Frontier revenues increased 1.1% to $375.7 million for the quarter, compared to $371.6 million for the same period in 2011. Capacity on Frontier, as measured by ASMs, decreased 4.0% from the prior year’s third quarter. Load factor for the third quarter was 91.6%, an increase of 0.8 points from the third quarter of 2011. Total revenue per ASM (“TRASM”) was 12.33¢ for the quarter, an increase of 5.4% from the same quarter in 2011.
For the quarter ended September 30, 2012, Frontier posted pre-tax income of $29.8 million compared to a pre-tax loss of $1.5 million for the quarter ended September 30, 2011. The significant improvement in Frontier’s financial results was driven by solid unit revenue increases and lower unit costs as a result of the network and financial restructuring completed in 2011.
The operating unit cost for Frontier, excluding fuel, was 6.86¢ for the quarter, a 3.1% decrease compared to 7.08¢ for the same quarter in 2011. Frontier’s unit cost for the third quarter of 2012 includes approximately 0.34¢ related to expenses associated with pro-rate operations between Republic and Frontier.
Fuel costs for Frontier were $135.4 million for the quarter, a decrease of $11.3 million from the prior year’s third quarter. The fuel cost per gallon, including into-plane taxes and fees, decreased 3.2% to $3.31 for the third quarter of 2012, compared to $3.42 for last year’s third quarter. The third quarter results include a benefit on fuel hedges of $1.6 million, or $0.04 per gallon, while the 2011 results include an expense of $5.0 million, or $0.12 per gallon. Frontier currently has approximately ten percent of its anticipated Airbus fuel consumption hedged through March 31, 2013.
As of September 30, 2012, Frontier operated a total of 57 Airbus aircraft versus 59 Airbus aircraft as of September 30, 2011. One A319 aircraft was removed from operations during the quarter to prepare the aircraft for return to the lessor during the fourth quarter.
Recent Business Developments
On July 25, 2012, the Company announced the sale of five E190 aircraft to US Airways. Three of the aircraft will be delivered in the fourth quarter of 2012, and the remaining two aircraft are planned for delivery in the first quarter of 2013.
On October 25, 2012, the Company announced it had entered into a multi-year charter contract to operate five E190 aircraft on behalf of Caesars Entertainment Operating Company. The aircraft are expected to go into charter service in January 2013 and will be sourced through a reduction in E190 pro-rate operations between Republic and Frontier.
On October 26, 2012, the Company amended its contract with Delta Air Lines to operate an additional seven 50-seat E145 aircraft under its existing capacity purchase agreement for a one-year period. All seven aircraft are expected to be in service before the end of 2012. The Company does not expect to have any unassigned aircraft by the end of 2012.
On October 29, 2012, the Company finalized restructuring agreements with several key stakeholders on its 50-seat regional jet program. The agreements, combined with other business improvement initiatives, are expected to improve the operating cash flow of the Company by approximately $45 million annually over the next five years. However, the Company is still in negotiations with several other critical stakeholders which are necessary to complete the comprehensive restructuring effort for Chautauqua Airlines.
Balance Sheet and Liquidity
The Company’s total cash balance increased $46.6 million to $417.3 million as of September 30, 2012, compared to December 31, 2011. Restricted cash increased $38.7 million, to $190.1 million, from December 31, 2011. The Company’s unrestricted cash balance increased $7.9 million, to $227.2 million, from December 31, 2011. A condensed cash flow statement has been provided in the tables section of this release.
The Company’s debt decreased to $2.20 billion as of September 30, 2012, compared to $2.36 billion at December 31, 2011. As of September 30, 2012, approximately 85% of the total debt is at a fixed interest rate. The Company has significant long-term lease obligations for aircraft that are classified as operating leases and are not reflected as liabilities on the Company’s consolidated balance sheet. At a 6.0% discount factor, the present value of these lease obligations was approximately $1.07 billion and $1.20 billion as of September 30, 2012 and December 31, 2011, respectively. A condensed balance sheet as of September 30, 2012 and December 31, 2011 has been provided in the tables section of this release.
Republic Airways Holdings, based in Indianapolis, Indiana, is an airline holding company that owns Chautauqua Airlines, Frontier Airlines, Republic Airlines and Shuttle America, collectively “the airlines.” The airlines operate a combined fleet of more than 280 aircraft and offer scheduled passenger service on nearly 1,500 flights daily to over 135 cities in the U.S. as well as to the Bahamas, Canada, Costa Rica, Dominican Republic, Jamaica, Mexico and the Turks and Caicos islands under branded operations at Frontier, and through fixed-fee flights operated under airline partner brands, including AmericanConnection, Continental Express, Delta Connection, United Express, and US Airways Express. The airlines currently employ approximately 10,000 aviation professionals.
Copyright Photo: Brian McDonough. Operated in the Republic Airways in-house brand, Embraer ERJ 170-100SU N806MD (msn 17000019) pictured departing from Philadelphia, is actually operated by subsidiary Republic Airlines (2nd).