With a lower than expected net profit driven by higher expenses, Express Jet (XJT) is continuing to struggle with its decision to retain 69 aircraft after Continental (CAL) slashed XJT's Continental Express operation by one quarter. However, it has gained increasing confidence in its corporate shuttle applications and hopes to be able to sell tickets by February for its own branded service, for a launch some time in the second quarter.

Calyon Analyst Ray Neidl said, while the company's efforts to diversify away from Continental carry high risk, Express Jet will have adequate cash flow and good cash reserves to fund its operations during its transition period if the balance of its Continental Express operations remain intact.

Its corporate shuttle operation - Express Jet Corporate Aviation - has grown from 10 to 15 Embraer ERJ 145XRs but it would not name the companies with which it is working. "It is the perfect fit for companies who have a lot of employees to move outside the airline industry," said CEO Jim Ream.

The airline had planned to reconfigure the aircraft for shuttle operations, which it dubbed Travel Solutions, but said that the 50-seat product meets the needs of the market so little reconfiguration was necessary. However, the aircraft will be in transition for about two weeks for new livery. It is confident it has sold its capacity for the first quarter 2007 but the timing is more complicated for the second and third quarters, since that is when the bulk of the aircraft will be available. Indeed, Ream said that the first three quarters next year will likely be difficult to model because of all the questions that remain outstanding including the fact that few contracts have actually been signed.

It had hoped to name the applications for the balance of the 69 aircraft during last week's investor meeting but said that negotiations were taking longer than expected. It said that conversations should conclude in the near future. "We are bidding on more projects than we have aircraft to allocate," said Ream.

It also said that its hopes for using the aircraft in overseas operations have died for now and would take a back seat throughout 2007 to developing the corporate shuttle model, gaining further network contracts and launching its own branded service. It continues to work on trans-border applications to Mexico and Canada. It has identified markets and worked up schedules for its point-to-point, branded service. It rejected comparisons to FlyI, saying the only similarity was the aircraft size. "You have to have the right applications and we think we've found the best markets for these aircraft and right city pairs," said Ream. "The question is whether you can build a network around them and do it successfully and we think we can."

As to the optimal fleet deployments, the airline said it really depends on the three different markets - network service, corporate shuttles and branded service. The results of those operations will dictate the deployment of aircraft. It also said its relationship with Continental was a very constructive one. Finally, it said that it would not be going to employees for concessions, indicating that the resultant upheaval in the workforce and additional costs in training and recruiting would not be worth it.