Republic Airways Holdings Inc. (Republic Airways) (Indianapolis) reported its full year 2012 net income of $51.3 million, or $1.02 per diluted share, a $203.1 million improvement from our full year 2011 results of a net loss of $151.8 million, or $3.14 per diluted share. The Company also reported fourth quarter 2012 net income of $12.6 million, or $0.25 per diluted share, a $136.1 million improvement over the fourth quarter 2011 net loss of $123.5 million, or $2.55 per diluted share.

“We’re pleased with the solid financial improvement we experienced in 2012,” said Republic Airways Holdings Chairman, President and CEO Bryan Bedford. “Our restructuring efforts in 2011 laid the foundation for Frontier to return to profitability in 2012, despite higher fuel costs. Our 50-seat RJ restructuring effort completed last October enabled us to return all of our idled aircraft to fixed-fee service with our partners and significantly reduced the financial burden associated with our Chautauqua operation.”

Note: The amounts reported below for pre-tax income (loss) and net income (loss) exclude the impact of the items listed above. Please refer to the schedules at the end of this release for a tabular reconciliation of the Company’s GAAP pre-tax and after tax income (loss) to the ex-tem pre-tax and after-tax income (loss) and diluted earnings per share.

Consolidated Results (ex-items)

Excluding the items listed above, the Company reported 2012 full year net income of $59.0 million, or $1.15 per diluted share, as compared to a 2011 full year net loss of $6.2 million, or $0.13 per diluted share. For the fourth quarter of 2012 the Company reported net income of $18.5 million, or $0.35 per diluted share, as compared to the fourth quarter 2011 net income of $20.7 million, or $0.41 per diluted share.

Business Segment Presentation

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 (ex-items)

Revenues for the year decreased 10.2% to $1,377.4 million. This was a result of a change in the mix of flying between pro-rate and fixed-fee operations and a $48.2 million reduction in fuel-related revenue under Republic’s fixed-fee agreements. Pre-tax income improved nearly 31% to $69.5 million for the year ended December 31, 2012, compared to $53.1 million for the prior year.

For the quarter, revenues decreased 8.9%, or $31.9 million to $327.4 million, compared to the prior year’s fourth quarter, due primarily to a decrease of $23.3 million in fuel reimbursement under Republic’s 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 remainder of the decrease in revenue is due to the increase of Republic’s fixed-fee operations and reduction in pro-rate flying with Frontier.

Income before taxes was $24.1 million for the quarter, compared to pre-tax income of $23.3 million for the prior year’s fourth quarter. Fuel costs for Republic were $21.8 million for the quarter, a decrease of $38.5 million from the prior year’s fourth quarter, due to both the removal of fuel expense under Republic’s fixed-fee agreement with United and a reduction in pro-rate operations with Frontier. The price per gallon increased 9.1% from $3.19 in the fourth quarter of 2011 to $3.48 in the fourth quarter of 2012.

As of December 31, 2012, Republic operated 70 aircraft with 44-50 seats and 143 aircraft with 69-80 seats to support its fixed-fee commercial agreements. Additionally, Republic operated one aircraft with 50 seats and 12 aircraft with 99 seats under pro-rate agreements with Frontier.

Frontier Airlines Segment Summary (ex-items)

Frontier Airlines’ (2nd) (Denver) revenues for the year increased 7.0% to $1,423.7 million. On a 1.1% increase in capacity, unit revenues increased 5.8% to 11.96¢ from 11.30¢. Frontier’s pre-tax income improved $92.6 million to $29.6 million of income for 2012 compared to a pre-tax loss of $63.0 million for 2011.

For the quarter, decreased 1.1% to $334.9 million, compared to $338.5 million for the same period in 2011. Total revenue per ASM (“TRASM”) was 11.88¢, an increase of 2.9% from the same quarter in 2011, while capacity on Frontier decreased 4.0% from the prior year’s fourth quarter. Load factor for the fourth quarter was 88.9%, an increase of 0.7% from the fourth quarter of 2011.

For the quarter, Frontier posted pre-tax income of $7.3 million compared to pre-tax income of $10.1 million for the prior year’s fourth quarter. Fuel costs for Frontier were $128.2 million for the quarter, a decrease of $0.8 million from the prior year’s fourth quarter. The fuel cost per gallon, including into-plane taxes and fees, increased 6.5% to $3.42 for the fourth quarter of 2012, compared to $3.21 for last year’s fourth quarter. The fourth quarter results include an expense on fuel hedges of $0.5 million, or $0.01 per gallon, while the 2011 results include a benefit of $3.5 million, or $0.09 per gallon. Frontier has approximately 15% of its anticipated fuel consumption hedged through the second quarter of 2013.

Frontier’s operating unit cost was 7.03¢ for the quarter, a 3.4% increase compared to 6.80¢ for the same quarter in 2011.

As of December 31, 2012, Frontier operated a total of 55 Airbus aircraft versus 60 Airbus aircraft as of December 31, 2011.

Recent Business Developments

During the fourth quarter of 2012, the Company completed the restructuring of its 50-seat platform, Chautauqua Airlines, Inc. (Indianapolis). As a result of the restructuring, the Company expects to realize, on average, $45.0 million of cash flow improvement per year for the next five years and has reduced its aircraft rent and depreciation expense on its 50-seat aircraft. In addition, in order to finalize the restructuring, the Company issued a $25.0 million convertible note to one of the third parties involved in the restructuring. The note bears interest at a rate of 6.0% per annum and is convertible into 2.5 million shares of Republic Airways Holdings Inc. common stock.

On January 24, 2013, the Company entered into a capacity purchase agreement (“CPA”) with American Airlines which is subject to bankruptcy court approval. American filed a motion for approval of the CPA to be heard before the court on February 14, 2013. The hearing on that motion was subsequently adjourned until February 26, 2013. On February 14, 2013, US Airways and American Airlines announced a merger agreement. On February 21, 2013, the hearing on American’s motion to approve the CPA between the Company and American was adjourned to March 12, 2013.

On February 8, 2013, the Company announced the transition of nine ERJ 145 aircraft flying on Chautauqua Airlines, Inc. from US Airways to Delta Air Lines under separate amendments. The US Airways amendment provides for termination of the current aircraft operating under the Jet Service Agreement by July 2013. The Delta amendment extends the current term for certain aircraft, as well as adds ten aircraft into service during 2013.

Balance Sheet and Liquidity

The Company’s total cash balance increased $23.6 million to $394.3 million as of December 31, 2012, compared to December 31, 2011. Restricted cash decreased $4.3 million, to $147.1 million, from December 31, 2011. The Company’s unrestricted cash balance increased $27.9 million, to $247.2 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 $2.12 billion as of December 31, 2012, compared to $2.36 billion at December 31, 2011. As of December 31, 2012, almost 90% 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 $1.0 billion and $1.2 billion as of December 31, 2012 and 2011, respectively.

Copyright Photo: Bruce Drum. Despite an expanding route map, Frontier’s Airbus fleet actually shrank from 60 aircraft on December 31, 2011 to 55 aircraft on December 31, 2012 as the airline began the phase out of the shorter Airbus A318s (now down to two aircraft). The higher-tail A318 cannot taxi under the Concourse A-Terminal connector at Denver International Airport. Now departed, A318-111 N801FR (msn 1939) arrives at Seattle-Tacoma International Airport from the Denver hub.

Republic Airways: 

Frontier Airlines-Chautauqua Airlines: 

Frontier Airlines (2nd):