Monthly Archives: July 2013

Republic Airways Holdings’ second quarter net income increases 23% to $24.6 million, Frontier Airlines reports pre-tax 2Q income of $13.7 million

Republic Airways Holdings Inc. (Republic Airlines 2nd) (Indianapolis) reported diluted earnings per share of $0.46, which is a 15.0% increase from the $0.40 per diluted share result in the second quarter of 2012. Net income increased 23.0% to $24.6 million for the quarter ended June 30, 2013, compared to net income of $20.0 million for the same period last year. Operating revenues totaled $664.4 million, a decrease of 8.7%, compared to $728.1 million for the second quarter of 2012.

“We are pleased to report improved financial results for the second quarter, driven primarily by the year over year improvement in our small regional jet operations at Chautauqua,” said Republic Chairman, President and CEO Bryan Bedford. “Our process to sell Frontier continues and I am very pleased that we were able to reach tentative labor agreements with both our Flight Dispatchers and Flight Attendants, which remain subject to membership ratification. I am thankful for the continued professionalism and dedication of my 10,000 co-workers on behalf of our passengers.”

Republic Segment Summary

Republic’s pre-tax income improved 45.8% to $27.7 million from $19.0 million in the prior year’s second quarter, due mainly to the redeployment of idled 50-seat aircraft and the successful completion of our Chautauqua restructuring efforts in late 2012.

Total Republic revenues decreased $20.6 million, or 5.8%, from the second quarter of 2012 to $336.8 million in the second quarter of 2013. Fixed-fee service revenue increased $34.9 million, or 12.4%, to $316.9 million, despite the removal of fuel expense and related reimbursement on our United E170 fixed-fee agreement, which accounted for $25.1 million of revenues in the prior year’s second quarter. The majority of the increase in fixed-fee revenues relates to Republic’s Q400 agreement with United that began in the second half of 2012 and Republic’s E190 charter agreement, which began in January 2013. Republic passenger service revenue decreased $56.1 million due to a reduction of pro-rate operations with Frontier, as aircraft previously operating in pro-rate service were either transitioned to other fixed-fee agreements or sold.

Fuel costs for Republic decreased $42.3 million to $12.1 million for the quarter, due mainly to the removal of fuel expense on our United agreement as noted above. The fuel cost per gallon, including into-plane taxes and fees, increased to $3.34 per gallon in the second quarter of 2013, compared to $3.26 per gallon in the prior year’s second quarter. The fuel cost per gallon related to our fixed-fee charter agreement is generally higher than our pro-rate operations with Frontier and is treated as a pass through cost under the agreement.

As of June 30, 2013, Republic operated a fleet of 232 aircraft. Within our fixed-fee commercial and charter agreements, Republic operated 70 aircraft with 44-50 seats and 157 aircraft with 69-99 seats. In addition, Republic operated five 99-seat aircraft under the pro-rate agreement with Frontier, down from seventeen, 99-seat aircraft operated in pro-rate service during the second quarter of 2012.

The Company expects to take delivery of 18 Embraer ERJ 175 aircraft to operate under its American capacity purchase agreement by the end of 2013. Additionally, the Company expects to place into service the final six Q400 aircraft under its United capacity purchase agreement over the next two quarters.

Frontier Segment Summary

For the quarter ended June 30, 2013, Frontier Airlines (2nd) (Denver) posted pre-tax income of $13.7 million, which is down slightly from $14.1 million of pre-tax income for the quarter ended June 30, 2012.

Frontier’s capacity, as measured by available seat miles (ASMs), was down 10.1% from the prior year’s second quarter, as a result of operating fewer Airbus aircraft. Frontier’s total revenues decreased 11.6% to $327.6 million for the quarter, compared to $370.7 million for the same period in 2012. Total revenue per ASM (TRASM) decreased 1.6% to 11.98 cents in the second quarter of 2013 from 12.18 cents in the second quarter of 2012.

Fuel costs decreased from the prior year’s second quarter by $22.6 million to $114.2 million for the quarter. The fuel cost per gallon, including into-plane taxes and fees, decreased to $3.14 per gallon in the second quarter of 2013, compared to $3.35 per gallon in the prior year’s second quarter. The second quarter of 2013 results included a loss on fuel hedges of $1.7 million, or $0.05 per gallon.

The operating unit cost for Frontier, excluding fuel, was 7.27 cents per ASM for the second quarter of 2013, a 1.3% increase compared to 7.18 cents per ASM for the same quarter of 2012.

As of June 30, 2013, Frontier operated 52 Airbus aircraft, compared to 58 Airbus aircraft as of June 30, 2012. All six aircraft removed were returned to lessors.

Recent Business Developments

On June 17, 2013, the Company announced it had reached a tentative agreement (TA) on a new five-year contract with the Transportation Workers Union (TWU) Local 540 Dispatchers. This TA is currently being voted on by union membership and we expect the voting results on August 1, 2013.

On June 24, 2013, the Company announced it had reached a TA on a new five-year contract with the International Brotherhood of Teamsters (IBT) Local 135 Flight Attendants. This TA is currently being voted on by union membership and we expect the voting results on July 29, 2013.

On July 15, 2013, the Company announced that it had entered into an agreement with an affiliate of the Brazilian Development Bank (BNDES) for the financing of 47 Embraer E175 aircraft. These aircraft will provide service under the terms of the capacity purchase agreement with American Airlines announced in January. The first aircraft was delivered on July 15, 2013, and is scheduled to go into service with American on August 1, 2013.

Balance Sheet and Liquidity

The Company’s total cash balance increased $44.8 million to $439.1 million as of June 30, 2013, compared to December 31, 2012. Restricted cash increased $53.2 million, to $200.3 million, from December 31, 2012. The Company’s unrestricted cash balance decreased $8.4 million, to $238.8 million, from December 31, 2012. A condensed consolidated balance sheet and cash flow statement have been included in the tables section of this release.

The Company’s debt decreased to $1.98 billion as of June 30, 2013, compared to $2.12 billion at December 31, 2012. As of June 30, 2013, approximately 90% of the 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% discount factor, the present value of these lease obligations was approximately $0.9 billion and $1.0 billion as of June 30, 2013, and December 31, 2012, respectively.

Copyright Photo: Bruce Drum/AirlinersGallery.com. Republic Airways (Republic Airlines 2nd) Embraer ERJ 170-100SU N821MD (msn 17000042) departs from Fort Lauderdale-Hollywood International Airport.

Frontier Airlines (2nd):

Republic Airways (Republic Airlines 2nd):

Alaska Air Group achieves second quarter net income of $104 million

Alaska Air Group, Inc. (Alaska Airlines and Horizon Air – Alaska Horizon) (Seattle/Tacoma) today reported second quarter 2013 GAAP net income of $104 million, or $1.47 per diluted share, compared to $68 million, or $0.93 per diluted share in the second quarter of 2012. Excluding the impact of mark-to-market fuel hedge adjustments of $1 million, the company reported adjusted net income of $105 million, or $1.47 per diluted share, compared to adjusted net income of $111 million, or $1.53 per diluted share, in 2012.

“These results represent our 17th consecutive quarter of profitability and the second-best June quarter in our history. I want to thank our employees at Alaska and Horizon who are continuing to work hard to keep us safe and reliable, provide a great experience for our customers, and produce results that make Alaska a great place to invest,” CEO Brad Tilden said. “Although our quarterly results were down slightly, our financial performance continues to be very strong. This is why we were very pleased to recently announce the initiation of a quarterly dividend which, combined with our share repurchases, will be a key component of our capital deployment program.”

The following table reconciles the company’s reported GAAP net income and earnings per diluted share (EPS) during the second quarters of 2013 and 2012 to adjusted amounts:

	Three Months Ended June 30,
	2013				2012
(in millions, except per-share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
Reported GAAP net income	$	104	$	1.47	$	68	$	0.93
Mark-to-market fuel hedge adjustments, net of tax	1		—		43		0.60
Non-GAAP adjusted income and per-share amounts	$	105	$	1.47	$	111	$	1.53

Top Copyright Photo: Brian McDonough/AirlinersGallery.com. Banking on its final approach, Alaska Airlines’ Boeing 737-890 N514AS (msn 35193) prepares to straighten up for landing at Washington (Reagan National).

Alaska Airlines:

Horizon Air:

Alaska Horizon:

Bottom Copyright Photo: Bruce Drum/AirlinersGallery.com. Horizon Air’s (Alaska Horizon) Bombardier DHC-8-402 (Q400) N436QX (msn 4236) exits the runway at Seattle-Tacoma International Airport.

United Airlines posts a second quarter net profit of $469 million

United Airlines (Chicago) today reported second-quarter 2013 net income of $521 million, or $1.35 per diluted share, excluding $52 million of special charges. Including special charges, UAL reported second-quarter 2013 net income of $469 million, an increase of 38 percent year-over-year, or $1.21 per diluted share.

UAL generated $10 billion of revenue in the second quarter of 2013, its highest ever second-quarter revenue result.
Leading the U.S. airline industry in year-over-year passenger revenue per available seat mile (PRASM) growth for the second consecutive quarter, United’s PRASM increased 1.0 percent in the second quarter compared to the second quarter of 2012.
Second-quarter consolidated unit costs (CASM), holding fuel rate and profit sharing constant and excluding special charges and third-party business expense, increased 4.5 percent year-over-year on a consolidated capacity (available seat miles) reduction of 2.1 percent. Second-quarter consolidated CASM increased 0.7 percent year-over-year.
UAL ended the second quarter with $7.0 billion in unrestricted liquidity.

Second-Quarter Revenue and Capacity

For the second quarter, total revenue was $10.0 billion, an increase of 0.6 percent compared to the same period in 2012. Second-quarter consolidated passenger revenue decreased 1.1 percent year-over-year to $8.7 billion, on a consolidated capacity decrease of 2.1 percent year-over-year. Cargo and other revenue in the second quarter increased 13.8 percent versus the second quarter of 2012, or $162 million, to $1.3 billion.

Consolidated revenue passenger miles (RPMs) decreased 1.7 percent on a consolidated capacity decrease of 2.1 percent year-over-year in the second quarter, resulting in a consolidated load factor of 84.7 percent, the highest second-quarter consolidated load factor in United’s history.

Second-quarter consolidated PRASM increased 1.0 percent compared to the same period in 2012. Consolidated yield for the second quarter increased 0.6 percent year-over-year.

Mainline RPMs in the second quarter decreased 2.1 percent on a mainline capacity decrease of 2.4 percent year-over-year, resulting in a mainline load factor of 84.9 percent. Second-quarter mainline yield increased 0.5 percent compared to the same period in 2012. Second-quarter mainline PRASM increased 0.7 percent year-over-year.

Second-Quarter Costs

Total operating expenses decreased $133 million, or 1.4 percent, in the second quarter versus the same period in 2012. Excluding special charges, second-quarter total operating expenses increased $21 million, or 0.2 percent, year-over-year.

Second-quarter consolidated and mainline CASM increased 0.7 and 1.3 percent year-over-year, respectively. Second-quarter consolidated and mainline CASM, excluding special charges and third-party business expense, increased 1.1 percent and 1.8 percent, respectively, compared to second-quarter 2012. Third-party business expense was $170 million in the second quarter of 2013.

In the second quarter, consolidated and mainline CASM, excluding special charges and third-party business expense and holding fuel rate and profit sharing constant, increased 4.5 percent and 5.2 percent, respectively, compared to the second quarter of 2012.

Liquidity and Cash Flow

UAL ended the second quarter with $7.0 billion in unrestricted liquidity, including $1.0 billion of undrawn commitments under its revolving credit facility. During the second quarter, UAL generated $1.1 billion of operating cash flow. The company’s gross capital expenditures and purchase deposits for the quarter were $549 million. The company made debt and capital lease principal payments of $540 million in the second quarter, including $144 million of pre-payments.

Finance, Network and Fleet

United issued $300 million of senior unsecured notes due 2018 at an interest rate of 6.375 percent.
During the quarter, the company expanded its industry-leading global route network, launching new nonstop service between Paris and San Francisco; between Tokyo and Denver and between Shannon, Ireland, and Chicago. The company also launched new nonstop service to Austin, Texas; Charleston, S.C.; Fairbanks, Alaska; Edmonton, Alberta, Canada; Grand Rapids, Mich.; Guatemala City, Guatemala; Mobile, Ala.; Portland, Ore.; Saint George, Utah; San Jose, Costa Rica; San Jose del Cabo, Mexico; Traverse City, Mich.; Vancouver, British Columbia, Canada; and Wichita, Kan. United also added three new cities to its network: Dickinson, N.D.; Fort McMurray, Alberta, Canada and Santa Fe, N.M. The company announced future new nonstop markets, including the company’s first nonstop service to St. Lucia, as well as additional service to Austin, Texas, and Gunnison, Colo.
United welcomed back the Boeing 787 Dreamliner with commercial service between Houston and its other domestic hubs. The airline launched the highly anticipated Denver to Tokyo-Narita service in June, marking a successful return of the Dreamliner to United’s international skies. United also launched temporary 787 service from Houston to London in June, and in August the company will start additional 787 international service from Houston to Lagos, Nigeria, and from Los Angeles to Tokyo and Shanghai.
The company increased its Dreamliner order to 65. United will be the North American launch customer for the Boeing 787-10. The company also converted its existing order for 25 A350-900s into A350-1000s and added an additional 10 aircraft to the order, totaling 35 aircraft. United expects delivery for both the 787-10 and A350-1000 beginning in 2018, enabling the airline to further modernize its international widebody fleet by replacing older, less efficient aircraft to reduce fuel and operating costs, enhance the customer experience and maximize network opportunities.
United will introduce 70 Embraer 175 aircraft into the United Express fleet beginning in 2014. These aircraft – with 76 seats, a larger first-class cabin and larger overhead bins – will be operated by SkyWest Airlines, Inc. and another United Express carrier, with deliveries expected in 2014 and 2015.
The company took delivery of six Boeing 737-900 ERs and removed from service two Boeing 757-200s and the last five Boeing 737-500s and the last five Boeing 767-200s from its fleet.
The company executed a definitive purchase agreement with AltAir Fuels for 15 million gallons of cost-competitive, commercial-scale, sustainable aviation biofuel to be used on flights departing LAX in 2014. AltAir Fuels’ renewable jet fuel is expected to achieve at least a 50 percent reduction in greenhouse gas emissions on a lifecycle basis.

Product, Loyalty Program and Facilities

United reached a milestone of being the only U.S. carrier offering 180-degree flat-bed seats and personal on-demand entertainment in premium cabins on all scheduled, long-haul international flights from the continental U.S.
The company continued outfitting aircraft with global satellite Wi-Fi, offering inflight connectivity on long-haul international flights. The airline now has 57 aircraft complete and is installing satellite Wi-Fi at a rate of over 25 aircraft per month for the remainder of 2013.
The airline introduced its 200th aircraft with live television, offering customers more than 100 channels of live programming while in-flight. United operates more live television-equipped aircraft than any other airline in the world.
United launched subscription options that offer customers access to Economy Plus seating or pre-paid checked baggage charges for a year, providing new choices for customers to tailor their travel experiences.
United introduced a revenue component to its MileagePlus premier status qualification requirements for the 2015 program year.
United debuted the MileagePlus Small Business Network, a first-of-its-kind loyalty program that enables businesses to earn and redeem miles by purchasing goods and services from the program’s vendor partners, including leading providers of printing, shipping, credit card payment processing, office supplies and computing services.
United opened its new Terminal B south concourse at Houston’s George Bush Intercontinental Airport. The $97 million south concourse is a new 225,000-square-foot facility dedicated to United Express regional flights.
United signed a 20-year lease extension at Newark Liberty International Airport and committed to invest an additional $150 million in the region’s largest hub to ensure the airport remains one of the country’s premier global gateways. The facility upgrades include a redesign of the airline’s check-in facilities, a new catering facility and an advanced checked baggage screening system.

Top Copyright Photo: Jay Selman/AirlinersGallery.com. During the second quarter United Airlines again retired the last five Boeing 737-500s and the last five Boeing 767-200s from its fleet. Boeing 737-524 N16642 (msn 28903) climbs away from the runway at Charlotte Douglas International Airport.

United Airlines:

Bottom Copyright Photo: Ton Jochems/AirlinersGallery.com. Boeing 767-224 ER N69154 (msn 30433) rests between flights at Los Angeles International Airport.

Southwest Airlines reports a net profit of $224 million in the second quarter, removes the first AirTran Boeing 717

Southwest Airlines Company (Dallas) today reported its second quarter 2013 results. Second quarter 2013 net income was $224 million, or $.31 per diluted share, which included $50 million (net) of unfavorable special items. This compared to net income of $228 million, or $.30 per diluted share, in second quarter 2012, which included $45 million (net) of unfavorable special items. Excluding special items, second quarter 2013 net income was a record $274 million, or $.38 per diluted share, compared to $273 million, or $.36 per diluted share, in second quarter 2012. This was in line with the First Call consensus estimate of $.38 per diluted share. Additional information regarding special items is included in this release and in the accompanying reconciliation tables.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “We are pleased to report record quarterly earnings of $274 million (excluding special items). This performance benefited from all-time high operating revenues and lower fuel prices. In addition, our focus on managing costs resulted in modest year-over-year cost inflation despite significant investments in fleet modernization and other strategic initiatives. I commend our hard-working and dedicated Employees for their efforts to achieve these excellent results, while simultaneously executing on our strategic initiatives.

“While the lingering effects of government sequestration and higher taxes continued to be a drag on air travel demand, second quarter 2013 revenues and passenger traffic still reached record levels. In addition, we are in the midst of integrating AirTran, launching new city-pairs, and optimizing the combined networks. We maintained strong load factors and ended the quarter with a record June load factor of 85.0 percent, which is notable considering the increasing mix of larger gauge 737-800s and Evolve -700s. Although the 2.4 percent year-over-year decline in second quarter unit revenues was below plan¹, results improved throughout the quarter. Third quarter 2013 revenue trends are encouraging, thus far. To date, July unit revenues are approximately three percent above last year’s July, benefiting from Southwest and AirTran network connections and our gradual combined network optimization. Current bookings for the remainder of the third quarter also look solid.

“We remain on track with our plan to fully integrate AirTran into Southwest Airlines by the end of 2014. We are on schedule to complete the conversion of AirTran’s Boeing 737-700s to the Southwest livery and deploy the Southwest international reservation system next year. During second quarter, we transitioned one -700, bringing total aircraft conversions to 12 since the acquisition. Seven more -700 conversions are planned for this year, with the remaining 33 planned for next year in conjunction with the conversion of AirTran’s eight international markets. We will be transitioning AirTran’s 88 Boeing 717-200s out of the fleet, beginning next month.

“Connecting the Southwest and AirTran networks was a key milestone this quarter. As of April 14, Customers can now fly across our combined 97 destinations on a single itinerary. Our ability to optimize the combined networks and operations is enhanced significantly with connecting capabilities as we continue to transition AirTran markets to the Southwest network. Earlier this week, we extended our 2014 flight schedule through early March and announced new Southwest service between Hartsfield-Jackson Atlanta International Airport and Ronald Reagan Washington National Airport, beginning in February, which will augment AirTran’s five daily nonstop flights. During second quarter 2013, Southwest launched new service to Charlotte, North Carolina; Flint, Michigan; Portland, Maine; Rochester, New York; and Wichita, Kansas, which were all AirTran cities. We also began operating Southwest’s first scheduled service outside of the continental United States, with daily service to San Juan, Puerto Rico, beginning April 14^th. By the end of 2013, we will have a Southwest presence in all AirTran domestic cities retained following the acquisition. While much of the converted capacity represents new city-pairs, we expect these new routes to develop rapidly. Our Cargo business also benefited from connecting the networks, coincident with the April 14^th launch of cargo on AirTran under the Southwest brand.

“We are excited about our future network opportunities as we add international capabilities and continue the development of our domestic route network. We were thrilled to be awarded the slot exemption from the U.S. Department of Transportation to begin service between Houston Hobby and Ronald Reagan Washington National Airport next month. The introduction of this daily Southwest service will complete a triad of nonstop service options between Hobby and the Boston, New York, and Washington, D.C. metro areas.

“We continue to make progress on our fleet modernization efforts. During second quarter, we added three new Boeing 737-800s into service and retired two Boeing 737-300s. We also removed the first AirTran 717 from active service during the quarter in preparation for its transition out of the fleet next month. As of June 30, 2013, all Southwest Boeing 737-700s and 14 Boeing 737-300s have been retrofitted with the Evolve interior, and we plan to retrofit 64 additional -300s in the second half of this year. In May, we announced revisions to our future aircraft delivery schedule, including the launch of the Boeing 737 MAX 7 in 2019, with three objectives in mind: efficiently and aggressively manage our invested capital, shift the mix of new aircraft deliveries to the MAX, and replace Boeing 717s and Boeing 737s being retired over the next three years with more economical aircraft. This includes augmenting our Boeing orders with the acquisition of pre-owned aircraft. In line with our plan, available seat miles (capacity) for 2013 are estimated to increase two percent year-over-year as a result of larger gauge aircraft. For 2014, we currently plan to keep our capacity in line with 2013 as we continue to optimize our network and execute our strategic plan.

“Our fleet modernization and other fuel conservation efforts resulted in a 4.1 percent improvement in second quarter available seat miles per gallon. Second quarter economic fuel costs declined significantly to $3.06 per gallon, as expected, compared to second quarter 2012’s $3.22 per gallon. Based on our fuel derivative contracts and market prices as of July 22, third quarter 2013 economic fuel costs are expected to be in the $3.05 to $3.10 per gallon range, which is below third quarter 2012’s $3.16 per gallon.

“Our second quarter unit costs, excluding fuel, special items, and profitsharing, increased 1.7 percent, compared to second quarter last year. Based on current trends and benefits from our fleet modernization efforts, we expect our third quarter 2013 unit costs, excluding fuel, special items, and profitsharing, to increase slightly from third quarter 2012’s 7.72 cents.

“Our balance sheet and liquidity remain strong with approximately $3.7 billion in cash and short-term investments, as of yesterday, and a $1 billion fully available revolving credit facility. Our second quarter cash flow from operations was $778 million, and capital expenditures were $193 million, resulting in $585 million in free cash flow². Our strong cash flow generation and record second quarter profits (excluding special items) reinforce the Board’s authorizations in May 2013 to increase our stock repurchase program from $1 billion to $1.5 billion, along with quadrupling our quarterly dividend to an estimated 1.2 percent annual yield (based on yesterday’s closing stock price of $13.76). During second quarter 2013, we returned approximately $279 million to our Shareholders through the payment of $28 million in dividends and the repurchase of approximately $251 million, or approximately 18 million shares, under an accelerated stock repurchase program completed in June. Since August 2011, we have repurchased approximately $975 million, or approximately 100 million shares, under our total $1.5 billion share repurchase authorization.”

Financial Results

The Company’s second quarter 2013 total operating revenues increased 0.6 percent to $4.6 billion, while operating unit revenues decreased 2.4 percent, on a 3.0 percent increase in available seat miles, and approximately four percent increase in average seats per trip, all as compared to second quarter 2012. Total operating expenses in second quarter 2013 increased 1.3 percent to $4.2 billion, as compared to second quarter 2012. The Company incurred costs (before taxes) associated with the acquisition and integration of AirTran, which are special items, of $26 million during second quarter 2013, compared to $11 million in second quarter 2012. Cumulative costs associated with the acquisition and integration of AirTran, as of June 30, 2013, totaled $363 million (before profitsharing and taxes). The Company expects total acquisition and integration costs to be no more than $550 million (before profitsharing and taxes). Excluding special items in both periods, total operating expenses in second quarter 2013 were $4.2 billion, compared to $4.1 billion in second quarter 2012.

Second quarter 2013 economic fuel costs were $3.06 per gallon, including $.05 per gallon in unfavorable cash settlements for fuel derivative contracts, compared to $3.22 per gallon in second quarter 2012, including $.04 per gallon in unfavorable cash settlements for fuel derivative contracts. The Company has derivative contracts in place for approximately 80 and 85 percent of its estimated fuel consumption in the third and fourth quarters of 2013, respectively. As of July 22^nd, the fair market value of the Company’s hedge portfolio through 2017 was a net asset of approximately $102 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding fuel, special items, and profitsharing in both periods, second quarter 2013 operating costs increased 0.7 percent from second quarter 2012, and 1.7 percent on a unit basis.

Operating income for second quarter 2013 was $433 million, compared to $460 million in second quarter 2012. Excluding special items, operating income was $479 million for second quarter 2013, compared to $485 million in the same period last year.

Other expenses for second quarter 2013 were $70 million, compared to $92 million in second quarter 2012. This $22 million decrease primarily resulted from $47 million in other losses recognized in second quarter 2013, compared to $62 million in second quarter 2012. In both periods, these losses primarily resulted from unrealized mark-to-market gains/losses associated with a portion of the Company’s fuel hedging portfolio, which are special items. Excluding these special items, other losses were $12 million in second quarter 2013, compared to $14 million in second quarter 2012, primarily attributable to the premium costs associated with the Company’s fuel derivative contracts. Third quarter 2013 premium costs related to fuel derivative contracts are currently estimated to be approximately $22 million, compared to $15 million in third quarter 2012. Net interest expense declined to $23 million in second quarter 2013, compared to $30 million in second quarter 2012, primarily due to the repayment of AirTran aircraft financing facilities during the first quarter of 2013.

For the six months ended June 30, 2013, total operating revenues increased 1.4 percent to $8.7 billion, while total operating expenses increased 1.2 percent to $8.2 billion, resulting in operating income of $503 million, compared to $481 million for the same period last year. Excluding special items, operating income was $591 million for first half 2013, compared to $495 million for first half 2012.

Net income for first half 2013 was $283 million, or $.39 per diluted share, compared to $327 million, or $.43 per diluted share, for the same period last year. Excluding special items, net income for first half 2013 was $328 million, or a record $.45 per diluted share, compared to $255 million, or $.33 per diluted share, for the same period last year.

The Company’s return on invested capital (before taxes and excluding special items) was approximately nine percent for the twelve months ended June 30, 2013. Additional information regarding pre-tax return on invested capital is included in the accompanying reconciliation tables.

For the six months ended June 30, 2013, net cash provided by operations was $1.8 billion, and capital expenditures were $727 million, resulting in free cash flow² in excess of $1 billion. The Company repaid $216 million in debt and capital lease obligations during first half 2013, and intends to repay approximately $100 million more in debt and capital lease obligations during the remainder of the year.

Copyright Photo: Brian McDonough/AirlinersGallery.com. A beautiful banking shot of Boeing 737-8H4 WL N8322X (msn 36997) completing the River Approach into Washington’s Reagan National Airport (please click on the photo for the full-size view).

Southwest Airlines:

JetBlue Airways starts Boston-Houston Hobby flights today

JetBlue Airways (New York) today launches two daily nonstop flights between Boston Logan International (BOS) and Houston’s William P. Hobby Airport (HOU). HOU becomes the 49th destination from BOS.

JetBlue’s schedule between Boston and Houston:

Boston (BOS) to Houston (HOU):	Houston (HOU) to Boston (BOS):
Depart – Arrive	Depart – Arrive
7:00 a.m. – 9:57 a.m.	10:35 a.m. – 3:15 p.m.
1:40 p.m. – 4:39 p.m.	5:20 p.m. – 10:00 p.m.
– Flights operate daily effective July 25, 2013 – – All times local –

JetBlue operates more than 100 daily flights from Boston’s Logan International Airport to destinations across the United States, Caribbean and Mexico, serving approximately seven million customers at BOS annually. Flights to Houston will be operated on the airline’s 100-seat Embraer 190 aircraft.

Copyright Photo: Brian McDonough/AirlinersGallery.com. Embraer ERJ 190-100 IGW N190JB (msn 19000011) in the Mosaic scheme arrives at Baltimore/Washington.

JetBlue Airways:

Royal Air Maroc adds its first Embraer 190

Royal Air Maroc (Casablanca) has put into revenue service its first Embraer 190. The pictured former Gulf Air ERJ 190-100 IGW PH-DNA (msn 19000372) was delivered on July 19 and is being operated by Denim Air for RAM.

Royal Air Maroc:

US Airways reports a record Second Quarter net profit

US Airways Group, Inc. (US Airways) (Phoenix) today reported its second quarter 2013 financial results. For the second quarter 2013, pretax profit excluding net special items was $409 million, the highest in Company history. Net profit excluding net special items was a record $324 million, or $1.58 per diluted share. Net profit excluding net special items for the second quarter 2012 was $321 million, or $1.61 per diluted share. The Company’s 2013 second quarter net profit excluding net special items was negatively impacted by a non-cash provision for income tax of $85 million. There was no provision for income tax recorded in 2012.

On a GAAP basis, the Company reported a net profit of $287 million for its second quarter 2013, or $1.40 per diluted share. This compares to a net profit of $306 million, or $1.54 per diluted share, for the same period in 2012. The Company’s 2013 second quarter net profit was negatively impacted by a non-cash provision for income tax of $67 million.

See the accompanying notes in the Financial Tables section of this press release for a reconciliation of GAAP financial information to non-GAAP financial information.

Revenue and Cost Comparisons

Total revenues in the second quarter were a record $3.9 billion, up 2.9 percent versus the second quarter 2012 on a 3.4 percent increase in total available seat miles (ASMs). Total revenue per ASM was 16.22 cents, down 0.5 percent versus the same period last year driven by a 2.8 percent decrease in passenger yield, offset by a record quarterly load factor of 85.1 percent.

Total operating expenses in the second quarter were $3.4 billion, up 1.0 percent over the same period last year. Mainline cost per available seat mile (CASM) was 12.88 cents, down 2.0 percent on a 4.2 percent increase in mainline ASMs. Excluding special items, fuel and profit sharing, mainline CASM was 8.21 cents, down 0.4 percent versus the same period last year. Express CASM excluding special items and fuel was 14.34 cents, up 1.1 percent on a 0.3 percent decrease in ASMs.

Liquidity

As of June 30, 2013, the Company had a record $4.0 billion in total cash and investments, of which $350 million was restricted. This is up approximately $1.1 billion from the Company’s first quarter 2013 total cash and investments balance of $2.9 billion, of which $352 million was restricted.

During the second quarter, the Company raised approximately $870 million in net incremental cash through a series of financing transactions. These transactions included the refinancing of the Company’s term loan (resulting in approximately $270 million in incremental cash); the issuance of high yield bonds in an aggregate principal amount of $500 million; and a $100 million C-tranche to its 2012-2 EETC.

Special Items

The Company recognized approximately $55 million of net special items before taxes in the second quarter. Operating special items totaled $24 million and were primarily related to merger costs. The Company also recognized approximately $31 million in nonoperating special items primarily related to debt extinguishment charges due to non-cash write offs of debt discount and debt issuance costs in connection with conversions of the Company’s 7.25% convertible senior notes and repayment of the Citicorp North America term loan. The net tax effect of these special items was approximately $18 million.

Merger Update

The Company and its representatives continue to work closely with their counterparts at American in merger integration planning. The Company continues to expect the transaction to close in the third quarter. Recent accomplishments include:

June 10: US Airways and American announced the new Board of Directors and the senior leadership team for the new American Airlines Group Inc.
June 10: The Securities Exchange Commission (SEC) Form S-4 Registration Statement was declared effective by the SEC.
June 19: US Airways’ Chairman and CEO Doug Parker and American Airlines’ Senior Vice President, General Counsel & Chief Compliance Officer Gary Kennedy, jointly testified before the Senate Subcommittee on Aviation, Operations, Safety and Security about the benefits of the new American Airlines to customers, employees, financial stakeholders and communities.
July 12: US Airways’ shareholders approved the proposed merger with 99.8 percent in favor and 0.2 percent against.
To date, leadership teams have been announced for operations, finance, revenue management, marketing, human resources, corporate communications, and legal and labor relations.

Copyright Photo: Bruce Drum/AirlinersGallery.com. Airbus A319-112 N733UW (msn 1205) in the Pittsburgh Steelers motif taxies to the active runway at the Charlotte hub.

US Airways:

Spirit Airlines reports its highest Second Quarter pre-tax margin in its history

Spirit Airlines, Inc. (Fort Lauderdale/Hollywood) today reported second quarter 2013 financial results.

Adjusted net income for the second quarter 2013 increased 29.6 percent to $45.8 million¹($0.63 per diluted share) compared to $35.3 million¹ ($0.49 per diluted share) for the second quarter 2012. GAAP net income for the second quarter 2013 was $42.1 million ($0.58 per diluted share) compared to $34.6 million ($0.48 per diluted share) in the second quarter 2012.
Spirit achieved an adjusted pre-tax margin of 17.8 percent¹ and a GAAP pre-tax margin of 16.4 percent for the second quarter 2013.
Spirit ended the second quarter 2013 with $525 million in unrestricted cash.
Spirit’s return on invested capital (before taxes and excluding special items) for the last twelve months ended June 30, 2013 was 28.8 percent. See “Calculation for Return on Invested Capital” table below for more details.

Revenue Performance

For the second quarter 2013, Spirit’s total operating revenue was $407.3 million, an increase of 17.6 percent compared to the second quarter 2012.

Total revenue per available seat mile (“RASM”) for the second quarter 2013 was 11.91 cents, a decrease of 2.8 percent compared to the second quarter 2012. The calendar shift of Easter occurring in March this year compared to in April in 2012 negatively impacted second quarter 2013 results.

Passenger flight segment (“PFS”) volume for the second quarter 2013 grew 19.1 percent year over year. Average non-ticket revenue per PFS for the second quarter 2013 increased 3.8 percent year over year to $53.43. The growth in non-ticket revenue per PFS was driven primarily by various changes in late 2012 to the pricing structure for optional services.

Cost Performance

Total operating expenses for the second quarter 2013 increased 17.0 percent year over year to $340.6 million on a capacity increase of 21.0 percent.

During the second quarter 2013, the Company entered into lease extensions covering fourteen of its existing A319 aircraft. In addition to extending the lease termination dates, the Company negotiated reduced lease rates resulting in lower rent expense for the remaining term of the leases as well as other benefits. In the second quarter 2012, the Company incurred one-time start-up costs and other related expenses associated with its seat maintenance program. On a per available seat mile basis, the net effect of these items was offset by higher depreciation and amortization expense related to amortization of heavy maintenance events and maintenance expense related to the growth and aging of our fleet, resulting in a second quarter 2013 cost per available seat mile excluding special items and fuel (“Adjusted CASM ex-fuel”) of 6.00 cents, a decrease of 0.8 percent year over year.

Selected Balance Sheet and Cash Flow Items

As of June 30, 2013, Spirit had $525 million in unrestricted cash and cash equivalents, no restricted cash, no debt on its balance sheet, and total shareholders’ equity of $658 million.

For the six months ended June 30, 2013, Spirit incurred capital expenditures of $13.8 million. The Company paid $19.7 million in pre-delivery deposits for future deliveries of aircraft, net of refunds, and recorded a change of $16.6 million in maintenance deposits, net of reimbursements.

Fleet

In the second quarter 2013, Spirit took delivery of one new A320 aircraft, ending the quarter with 50 aircraft in its fleet. The Company also took delivery of one new A320 in July 2013 and has three more new A320 aircraft scheduled for delivery by year-end 2013.

Spirit Airlines:

Delta posts a $844 million net profit in the Second Quarter

Delta Air Lines (Atlanta) today reported financial results for the June 2013 quarter. Highlights from the quarter include:

Delta’s net profit for the June 2013 quarter was $844 million, or $0.98 per diluted share, excluding special items¹. This result is a record June quarter profit excluding special items and is a $258 million improvement year-over-year.
Including $159 million in special items, Delta’s GAAP net income was $685 million, or $0.80 per diluted share.
The company announced a balanced capital deployment plan, targeted at creating up to $5 billion of value for shareholders by 2017 through further debt reduction and the return of more than $1 billion to shareholders over the next three years by means of $200 million of annual dividends and a $500 million share repurchase program.
June quarter results include $118 million of profit sharing expense in recognition of Delta employees’ contributions to the company’s financial performance.
Delta generated $1.3 billion of operating cash flow and $730 million of free cash flow in the June 2013 quarter, and ended the period with adjusted net debt of $10.2 billion.

Revenue Environment

Delta’s operating revenue declined $25 million in the June 2013 quarter compared to the June 2012 quarter. Traffic increased 0.5 percent on a 0.8 percent increase in capacity.

Passenger revenue increased 0.7 percent, or $63 million, compared to the prior year period. Passenger unit revenue (PRASM) was flat year over year with a 0.2 percent improvement in yield.
Cargo revenue decreased 11.4 percent, or $30 million, on declining freight yields.
Other revenue decreased 5.6 percent, or $58 million, as a result of the decision to discontinue a number of low margin-producing third-party maintenance contracts.

Comparisons of revenue-related statistics are as follows:

			Increase (Decrease) 2Q13 versus 2Q12
Passenger Revenue		2Q13 ($M)	Change YOY	Unit Revenue	Yield	Capacity
Domestic	$	3,885	3.7%	0.9%	2.5%	2.8%
Atlantic		1,578	2.5%	1.4%	0.9%	1.0%
Pacific		841	(2.1)%	0.5%	(2.7)%	(2.6)%
Latin America		492	3.6%	1.2%	(2.3)%	2.4%
Total Mainline		6,796	2.7%	1.1%	1.1%	1.6%
Regional carriers		1,698	(6.2)%	(2.3)%	0.9%	(4.0)%
Consolidated	$	8,494	0.7%	(0.1)%	0.2%	0.8%

Cash Flow

Cash from operations during the June 2013 quarter was $1.3 billion, driven by the company’s June quarter profit and the seasonal increase in advanced ticket sales, which was partially offset by $500 million of accelerated pension funding. The company generated $730 million of free cash flow.

Capital expenditures during the June 2013 quarter were $704 million, including $360 million for the acquisition of 49% of Virgin Atlantic and $238 million in fleet investments, including aircraft parts and modifications. During the quarter, Delta’s debt maturities and capital leases were $405 million.

Delta ended the quarter with adjusted net debt of $10.2 billion and the company has now achieved nearly $7 billion in net debt reduction since 2009. This debt reduction strategy produced a $43 million year-over-year reduction in interest expense in the June quarter. As of June 30, 2013, Delta had $5.7 billion in unrestricted liquidity, including $3.9 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities.

Cost Performance

Total operating expense in the quarter decreased year-over-year by $805 million driven by the savings from Delta’s structural cost initiatives and lower mark-to-market adjustments on fuel hedges, partially offset by the impact of operational, service and employee investments.

Consolidated unit cost excluding fuel expense, profit sharing and special items (CASM-Ex²), was 2.5 percent higher in the June 2013 quarter on a year-over-year basis, driven by the impact of wage increases and operational and service investments. GAAP consolidated CASM decreased 9 percent, driven by lower fuel expense.

Fuel expense for the June quarter declined $710 million year-over-year, or $288 million excluding mark-to-market adjustments, as a result of lower fuel prices and prior year hedge losses. Delta’s average fuel price³ was $3.03 per gallon for the June quarter. For the June quarter, operations at the Trainer refinery produced a $51 million loss ($0.05 cents per gallon impact) driven by the elevated price of the Renewable Identification Numbers (RINs) required under the Environmental Protection Agency’s Renewable Fuel Standard.

Balanced Approach to Capital Deployment

In May, Delta announced a five year financial plan and a balanced capital deployment program aimed at creating up to $5 billion of value for shareholders, including returning more than $1 billion to shareholders over the next three years. The company’s financial plan focuses on free cash flow generation through a combination of expected earnings improvements and a disciplined approach to capital investment. Over the next five years, Delta plans to reinvest $2.0 – $2.5 billion annually, or approximately 50 percent of its operating cash flow, into improving the company’s fleet, facilities, products and technology.

The resulting free cash flow will be used to return cash to shareholders, further reduce the company’s debt, and opportunistically address longer-term pension funding needs, driving up to $5 billion of value to Delta’s shareholders. Specifically,

The company expects to achieve an adjusted net debt level of $7 billion by 2017, a $5 billion reduction over 2012. By meeting the $7 billion target, Delta will have reduced its adjusted net debt by $10 billion since 2009, significantly decreasing the company’s balance sheet risk and accreting more than $750 million of interest expense savings for shareowners;
Delta’s Board of Directors initiated a quarterly dividend and declared a $0.06 per share dividend for shareholders of record as of August 9, 2013. This dividend will be paid on September 10, 2013. In addition, the Board authorized a $500 million share repurchase program, to be completed no later than June 30, 2016. Together, these two programs are designed to return more than $1 billion of capital to shareholders over the next three years;
The company also plans to make up to $1 billion of incremental contributions to the company’s defined benefit pension plans over the next five years. These contributions would be in addition to the $650 – $700 million annual contribution requirement.

Special Items

Delta recorded special items totaling a $159 million charge in the June 2013 quarter, including:

a $125 million charge for mark-to-market adjustments for fuel hedges settling in future periods; and
a $34 million charge for facilities, fleet and other items, primarily associated with Delta’s domestic fleet restructuring.

Delta recorded special items totaling a $754 million charge in the June 2012 quarter, including:

a $561 million charge for mark-to-market adjustments on fuel hedges settling in future periods;
$171 million in severance and related costs associated with voluntary early out programs; and
a $22 million charge for facilities, fleet and other items.

End Notes

(1) Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release and provides the reasons management uses those measures.

(2) CASM – Ex: In addition to fuel expense, profit sharing and special items, Delta believes excluding ancillary business costs is helpful to investors because ancillary business costs are not related to the generation of a seat mile. These businesses include aircraft maintenance and staffing services Delta provides to third parties and Delta’s vacation wholesale operations. The amounts excluded were $165 million and $244 million for the June 2013 and 2012 quarters, respectively. The amounts excluded were $350 million and $484 million for the six months ended June 30, 2013 and 2012, respectively. Management believes this methodology provides a more consistent and comparable reflection of Delta’s airline operations.

(3) Average fuel price per gallon: Delta’s June 2013 quarter average fuel price of $3.03 per gallon reflects the consolidated cost per gallon for mainline and regional operations, including contract carrier operations, and includes the impact of fuel hedge contracts with original maturity dates in the June 2013 quarter. On a GAAP basis, fuel price includes $125 million in fuel hedge mark-to-market adjustments recorded in periods other than the settlement period. The net refinery loss for the quarter was $51 million, or 5 cents per gallon. See Note A for a reconciliation of average fuel price per gallon to the comparable GAAP metric.

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Boeing 777-232 LR N702DN (msn 29741) “The Spirit of Atlanta” prepares to land at Tokyo (Narita).

Delta Air Lines:

Despite 787 problems, Boeing reports strong Second Quarter financial results

The Boeing Company (Chicago) reported second-quarter core earnings per share (non-GAAP) increased 13 percent* to $1.67, driven by strong performance across the company’s businesses (Table 1). Second-quarter core operating earnings (non-GAAP) also increased 13 percent* to $2.0 billion from the same period of the prior year. Second-quarter revenue was $21.8 billion, GAAP earnings from operations was $1.7 billion and earnings per share was $1.41. Core earnings per share guidance increased to between $6.20 and $6.40 and GAAP earnings per share guidance increased to between $5.10 and $5.30, reflecting the strong performance. The company also increased its revenue guidance to between $83 and $86 billion on higher Defense, Space & Security revenues, and reaffirmed its 2013 operating cash flow outlook.

Second Quarter Financial Results:

Core EPS (non-GAAP)* rose 13 percent to $1.67 on strong operating performance; GAAP EPS of $1.41
Revenue increased 9 percent to $21.8 billion reflecting higher deliveries on the 787 and 737 programs
Backlog grew to a record $410 billion, including $40 billion of net orders during the quarter
Operating cash flow before pension contributions* more than doubled to $3.5 billion
2013 Core EPS guidance increased to between $6.20 and $6.40; GAAP EPS to between $5.10 and $5.30

* Non-GAAP measures (core operating earnings, core operating margin and core earnings per share) exclude certain components of pension and post retirement benefit expense that the company believes are not reflective of underlying business performance. Complete definitions of Boeing’s non-GAAP measures begin on page 6, “Non-GAAP Measures Disclosures.”