Regionals Contribute Strong Results for Partners

Delta Connection, United Express and US Airways Express operations all finished 2007 in profitability, despite intense increases in expenses. This leaves Horizon, Frontier Jet Express/Lynx and American Eagle operations as the loss-making feeder operations reported so far. Continental Express operations...

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Delta Connection, United Express and US Airways Express operations all finished 2007 in profitability, despite intense increases in expenses. This leaves Horizon, Frontier Jet Express/Lynx and American Eagle operations as the loss-making feeder operations reported so far. Continental Express operations posted revenues of approximately $2.2 billion for the year-end 2007 while expenses for the year were flat at 0.1 percent growth to $1.793 billion. Related Story
Continental said, however, it was planning to replace regional jets with mainline aircraft and increase the size of mainline flights. It pointed out it had the newest fleet in the industry, noting manufacturers were sold out and others were still flying high-fuel consumption aircraft. It also noted that, while the economy may be problematic elsehwere, high fuel prices were also boosting the economy at its Houston base, which also houses many oil-producing companies. Surveys of corporate travel departments, conducted before the crisis-oriented hyperbole of the last week, indicated business was not planning to cut travel expenses this year, after increasing slightly last year.
Continentinental is targeting regional costs in its continuing cost-cutting initiatives as well as reductions in its distribution costs. It sees more opportunity to cut costs, particularly at ExpressJet, which has higher costs that its peers, and wants to maintain that considering Continental still holds a golden share in that operation. The higher costs led to the 25 percent, 2005 reduction of ExpressJet's Continental Express flying. In the meantime, it is shedding seven Bombardier CRJ 200s from its Express operations this year in an effort to simplify its fleet to the Embraer 145 and the Bombardier Q400. The CRJ reductions will be offset by Q400 deliveries.
The airline said it is not eager to get into the consolidation game but did say if Delta were to acquire Northwest, which holds a golden share in Continental, that share can be acquired for $100.
Individual regional reports are scheduled to begin February 7 with Republic and February 8 for SkyWest, according to announcements issued to date. Most carriers reported first quarter bookings remained strong, although they expressed cautious optimism about the rest of the year given the current economic crisis.

DL Connections Revenue, Expenses Up
Delta Connection revenues jumped eight percent in the fourth quarter to $1.015 billion, nearly a quarter of the $4.683 billion in operating revenue Delta earned during the quarter. Contract carrier expenses, however, rose 28 percent to $851 million on total Delta consolidated operating expenses of $685 billion. The major carrier incurred a net loss of $70 million in the fourth quarter.
For the year, Delta Connection carriers earned $4.170 billion up from $3.853 billion in the year-ago period as Delta’s consolidated operating revenues rose to $19.1 billion from $17.5 billion. Operating expenses for the regional operations reached $3.152 billion, up from $2.656 billion as total consolidated operating expense for Delta rose from $17.4 billion to $18 billion. Delta’s net income for the year reached $1.6 billion or $418 million excluding reorganization related items, compared to a lost of $6.2 billion in Fiscal 2006 when it was still in bankruptcy.
Delta does not report separate regional airline performance statistics, yield, PRASM, or CASM.
Delta’s 2007 pre-tax income was $1.8 billion. Excluding reorganization related and certain items, pre-tax income was $625 million, a $1.1 billion improvement compared to 2006. Owing to a 26 percent fuel price increase, Delta reported a pre-tax loss for the fourth quarter of $105 million.
Delta ended the year with $3.8 billion in unrestricted liquidity, including $1 billion available under its revolving credit facility. Delta employees will receive $158 million in profit sharing in recognition of their critical role in achieving significant financial improvements in 2007.
Delta’s network restructuring and revenue management initiatives drove positive momentum during the December 2007 quarter. Passenger revenue increased 10 percent compared to the prior year period driven by five percent higher yield and five percent higher traffic. During the fourth quarter, 32 percent of Delta’s capacity operated in international markets, up from 23 percent in the December 2005 quarter. During the same periods, the percentage of Delta’s capacity operating in domestic markets declined to 68 percent from 77 percent. For the December 2007 quarter, Delta’s operating expenses increased 10 percent, or $445 million, over the prior year period. Of this amount, increased fuel price represented almost $370 million, including fuel prices paid under contract carrier arrangements. The remainder of the increase in operating expense was primarily due to higher expenses related to the four percent increase in capacity during the quarter. For the same period, non-operating expenses declined 46 percent, or $88 million, due primarily to lower effective interest rates, improved cash flows and the impact of fresh start reporting.

Lynx, Jet Express Drag on FL Results
Included in Frontier Airlines Holdings, Inc.’s consolidated net loss of $32.5 million, or $0.89 per diluted share for the third fiscal quarter ended December 31, 2007 was a $4.8 million charge for start-up costs and losses for its fledgling regional Lynx Aviation, which was to be expected given the new nature of its feeder. In 2006, Frontier incurred a consolidated net loss of $14.4 million, or $0.39 per diluted share.
Regional partners Horizon (which ended its participation in Frontier Jet Express in November) and Republic contributed $26.6 million in revenues for the quarter, up 17.9 percent and $88.3 million for the year, up 17.8 percent. Lynx had $2.6 million in revenues for the limited period it operated. Expenses for the regional partnerships reached $38.5 million in the quarter compared to $26.1 million in the year-ago period. In addition, year-end expenses for the operation were $109.6 million versus $83.6 million in 2006. Lynx took six Bombardier Q400s in the fourth quarter, ending the year with an eight-aircraft fleet.
Frontier cited the switch from Horizon to Republic for its Frontier Jet Express operations in addition to tapping ExpressJet to serve the Lynx routes which were delayed because of FAA certification. Compounding this were high fuel prices. Frontier's loss was a record for the company.

United Express Revenues Up
Regional affiliates' annual contribution to operating income increased $45 million or 58 percent in 2007 when United Express carriers took in $3.071 billion, up 5.9 percent. For the quarter, the regional operation reported break-even operating income of $765 million, as the 9.6 percent increase in regional affiliate revenue was offset by a 9.3 percent increase in operating expenses at $765 million owing to higher fuel prices.
For 2007, United Express expenses reached $2.941, up 4.1 percent from the year-ago period. Expenses included aircraft rents of $105 million and $107 million for the three months ended December 31, 2007 and 2006, respectively, and $425 million and $437 million for the twelve months ended December 31, 2007 and 2006, respectively.
For the full-year, regional affiliate PRASM, excluding special items, increased 2.0 percent to 18.79 cents on a 3.6 percent increase in capacity to 16.3 billion. Stage length for regional affiliates was up 4.9 percent for the full year compared to 2006. In the fourth quarter of 2007, regional affiliate PRASM improved 9.0 percent to 19.13 cents compared to the fourth quarter of 2006, on a 0.7 percent increase in capacity at 3.999 billion, a 0.8 point decrease in traffic at 3.013 billion, and a 10.6 percent rise in yield to 25.39 cents.
United, meanwhile, reported pre-tax income of $695 million for 2007, the highest since 1999. The company generated net income of $403 million in 2007, the first full-year profit since 2000, excluding reorganization items. Excluding special and reorganization items and severance, 2007 net income of $352 million was $417 million higher than 2006. On a full-year basis, the company reported a pre-tax margin of 3.0 percent compared to a negative 0.3 percent for full-year 2006. The company generated $1.0 billion of operating income for the year, or $948 million excluding special items and severance, $515 million or nearly 120 percent higher than 2006, more than doubling operating margin to 4.7 percent. As a result, the company reported an operating loss of $64 million for the fourth quarter of 2007, a pre-tax loss of $98 million and a net loss of $53 million, $8 million better than the fourth quarter of 2006.
Following most other major carriers who are either limiting domestic growth – including regional operations – or imposing sharp reductions, United is following the latter course, slashing domestic flights, especially at Chicago, in favor of international expansion, which will increase 9.5 percent in Q1 and 5.5 percent for this year. The carrier cut five percent of its Chicago scheduled compared to Q107 schedules during the first quarter, the deepest capacity cuts of any of its hubs, according to a recent study by Credit Suisse. Even though it reduced 2007 domestic capacity substantially, a further 3.5 to 4.5 percent reduction is planned and more if the economic takes a dive.
Regional affiliate ASMs rose 3.6 percent to 16.3 billion and RPMs rose 3.2 percent to 12.6 billion. PRASM rose 2.2 percent to 18.84 cents and yield 2.3 percent to 24.28 cents.

US Airways Express in Profitable Operations
For 2007, the seven US Airways Express carriers earned operating revenues of $2.698 billion, up 1.7 percent while expenses rose two percent to $2.594 billion. Fuel expenses rose only one percent for the year for Express carriers which include US Airways Group's wholly owned regional subsidiaries, Piedmont Airlines and PSA Airlines, US Airways' MidAtlantic regional jet division, through May 27, 2006, as well as operating and financial results from capacity purchase agreements with Mesa Airlines, Chautauqua Airlines, Air Wisconsin Airlines and Republic Airlines.
US Airways Express operators took in operating revenues of $659 million in the fourth quarter, up 1.5 percent from the year-ago period. Operating expenses rose 26 percent in the quarter, largely owing to fuel, to $672 million. Fuel, alone, rose 25 percent to $225 million.
US Airways told investors that if it could get rid of additional Express capacity, it would, but, for now, it was doing all it could contractually to cut Express operations. It also said that while it could introduce regional jets into its successful shuttle operation, it would not be worth the product risk.
US Airways Group reported a full year 2007 net profit of $427 million, or $4.52 per diluted share, which includes net special items of $13 million. Excluding net special items, the company reported a net profit of $440 million, or $4.65 per diluted share.
Net loss for the fourth quarter was $79 million, or ($0.87) per share, compared to a net profit of $12 million, or $0.13 per diluted share for the same period last year. Excluding net special items of $37 million, the company reported a net loss of $42 million, or ($0.45) per share for its fourth quarter 2007. This compares to a net profit excluding special items of $86 million, or $0.91 per diluted share for the fourth quarter of 2006, which included $74 million of net special items.
For the full year 2007, the company reported a net profit of $427 million, or $4.52 per diluted share, which compares to a net profit before cumulative effect of change in accounting principle of $303 million, or $3.32 per diluted share for the full year 2006. Excluding net special items of $13 million, the company reported a net profit of $440 million, or $4.65 per diluted share. This compares to a net profit excluding special items and before cumulative effect of change in accounting principle of $507 million, or $5.47 per diluted share for the same period last year, which included $204 million of net special items.