Republic Airways Holdings Inc. (Indianapolis) reported its financial results for the second quarter of 2014. Key points include:
Republic’s pre-tax income from continuing operations for the second quarter of 2014 was $33.3 million, or $0.63 per diluted share, a 23.3% increase over the previous year. Republic’s income from continuing operations for the second quarter of 2014 was $20.1 million, or $0.38 per diluted share. This is a $4.0 million, or $0.08 per diluted share, increase from the previous year.
Republic’s pre-tax income from continuing operations for the six-month period was $56.1 million, or $1.06 per diluted share, a 21.2% increase over the previous year. Republic’s income from continuing operations for the six-month period was $34.1 million, or $0.65 per diluted share. This is a $6.6 million, or $0.12 per diluted share, increase from the same six-month period of the previous year.
On April 7, 2014, Republic’s Board of Directors authorized management to use up to $75.0 million of unrestricted cash to buy back common shares and/or early retire convertible debt during the following 12 months. Pursuant to the authorization, Republic redeemed a $22.3 million convertible note, leaving $52.7 million remaining on the share repurchase and convertible debt retirement authorization. The repayment of the convertible note reduced the Company’s dilutive share count by about 2.2 million shares for the quarter.
“I am pleased we were able to report improved second quarter financial results, as we remain focused on executing on our strategic plan to simplify and streamline our business,” said Republic’s CFO Timothy Dooley.
“Last Friday, Republic celebrated 40 years of commercial passenger service and our long-term success would not be possible without the hard work and dedication of my 6,500 co-workers. I would like to thank them for their diligence and commitment to our mission to provide safe, clean and reliable service to our airline partners and our guests on board,” said Republic’s Chairman, President and CEO Bryan Bedford.
Operating Revenue Highlights
Operating revenues increased $6.3 million, or 1.9%, from the second quarter of 2013 to $343.0 million in the second quarter of 2014. Fixed-fee service revenue increased $20.2 million, or 6.4%, to $337.1 million due to increased Q400 flying with United Airlines and increased E175 flying with American Airlines. Passenger service revenue decreased $13.8 million because of the removal of E190 aircraft operating under pro-rate agreement with Frontier Airlines.
Operating Expense Highlights
The increase in wages and benefits expenses of 8.6% or $7.3 million was primarily due to an increase in E175 operations, an increase in the cost of benefits we provide to our employees and new pilot flight and duty rest regulations (FAR 117).
Fuel expense for the second quarter of 2014 decreased $6.6 million, or 54.1%, to $5.6 million primarily due to a 57.6% decrease in gallons consumed related to the elimination of pro-rate flying for Frontier. Fuel expense is primarily attributable to our fixed-fee charter operations and is a pass-through to our partner.
Landing fees and airport rents decreased $7.8 million, or 54.2%, primarily due to United Airlines beginning to pay all landing fees in June 2013, coupled with the decrease in our small jet operations.
The increase in depreciation and amortization of 16.9%, or $6.1 million, was primarily related to the increase in the E175 fleet.
As of June 30, 2014, Republic operated a fleet of 237 aircraft. Through June, the Company has removed 23 ERJ aircraft from CPA service, and has taken delivery of 11 E175 aircraft and expects to take delivery of 13 E175 aircraft during the remainder of 2014. As of June 30, 2014, within its fixed-fee and charter agreements, the Company operated 45 aircraft with 44-50 seats and 192 aircraft with 69-99 seats.
Balance Sheet and Liquidity
The Company’s total cash balance decreased $14.2 million to $286.5 million as of June 30, 2014, compared to December 31, 2013. Restricted cash increased $0.8 million, to $24.8 million, from December 31, 2013, due to the escrow requirements under fixed-fee charter agreements. The Company’s unrestricted cash balance decreased $15.0 million, to $261.7 million, from December 31, 2013, due to the redemption of the $22.3 million convertible note on April 7, 2014. A consolidated balance sheet and summary cash flow statement have been included in the tables section of this release.
The Company’s debt increased to $2.27 billion as of June 30, 2014, compared to $2.17 billion at December 31, 2013, primarily related to the financing of 11 new E175 aircraft purchased for our American Airlines fixed-fee agreement. As of June 30, 2014, about 97% of the Company’s 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 about $0.53 billion and $0.59 billion as of June 30, 2014, and December 31, 2013, respectively.
Copyright Photo: Michael B. Ing/AirlinersGallery.com. With the sale of subsidiary Frontier Airlines in September 2013, Republic no longer operates Embraer 190s for Frontier as pictured in the past. As a result, revenue dropped by $13.8 million because of the removal of the ERJ 190 aircraft operating under pro-rate agreement with Frontier Airlines. Republic currently operates five E190s for Caesars Entertainment for gambling charters. Now gone, Embraer ERJ 190-100 IGW N175HQ (msn 19000216) climbs away from Los Angeles International Airport in full Frontier colors.