Regional Aviation News :: Delta, NW, CO Regionals in Black, US & UA Express Post Losses

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Regional affiliates contributing less and are costing more, according to first quarter financial reports showing Delta Connection, Northwest Airlink and Continental Express as net contributors to their mainline partners’ bottom lines, while United and US Airways Express programs followed American Eagle in posting losses. Related Story
While Continental, US Airways and United have yet to announce specifics in reductions in regional service, Delta, as part of its Q108 report revealed it could take as many as 70 regional jets out of service. It is unclear whether the merger with Northwest will force additional regional airline cuts but it is more than likely as the two carriers rationalize their domestic hub networks.
Meanwhile, Airlink regionals are defying the downward capacity trend as the major carrier reverses the massive regional cutbacks experienced during it bankruptcy from which it emerged last year. Continental expects to reduce regional jet capacity beginning this fall but said its plans are fluid as it attempts to negotiate better economics with ExpressJet, and as the CRJs flown by Chautauqua come off lease. Chautauqua is part of Republic Airways Holdings which just lost its Frontier Jet Express program. See related story this issue.
This is the first time in history that U.S. airlines have cut domestic capacity at the cost of market share, according to analysts. Giovanni Bisignani, director-general of the International Air Transport Association (IATA), said, worldwide, the industry's profitability remained minimal, with U.S. companies suffering most because of the downturn in the world's biggest economy.
In a Reuters report, he called for further consolidation, reporting that airline profits last year totaled only $5.6 billion on sales of $480 billion, with profits forecast to fall to $4.5 billion this year, far below the seven percent needed to cover investments.
“The market share of the biggest company does not exceed five percent,” he said noting that IATA has 260 members, accounting for 94 percent of international traffic or 2.2 billion passengers in 2007. “No other industry is as fragmented as that.”
He further indicated that worldwide, the industry added 1,000 new planes in 2007 with another 1,200 planned for this year, at a time when passenger numbers are expected to rise only five percent, down from the 11 percent increased posted last year.

Continental Shrinks Regional Capacity in Wake of Q1 Losses
Regional revenue rose 8.7 percent to $543 million during the first quarter 2008 while revenue per available seat mile for Continental Express/Connection operations rose 9.8 percent and ASMs dropped 0.09 percent. Continental’s regional capacity purchase incurred net costs of $506 million, up 17.7 percent from the year-ago period.
Regional operations carried 4,243,000 passengers during the quarter, up 0.3 percent while revenue passenger miles dropped 0.1 percent to 2.357 billion. Available seat miles dropped 0.9 percent to 3.098 billion and passenger load factor rose 0.6 points to 76.1 percent. Revenue per available seat miles rose 9.8 percent to 17.54 cents and average yield per RPM rose 8.9 percent to 23.05 cents. Regional fuel consumption dropped 1.3 percent to 76 million gallons for the 269 aircraft in operation in the quarter which was up 1.9 percent from the year-ago period.
Continental Airlines reported a first quarter 2008 net loss of $80 million. Excluding a $5 million after-tax gain from the sale of aircraft, Continental recorded a net loss of $85 million. Fuel costs increased 53.2 percent ($364 million) in the first quarter compared to the first quarter of last year, and, in addition to other fuel-related costs, the total year-over-year impact of higher fuel costs on the company for the first quarter was $433 million.
As a result of record high fuel prices, a weakening economy and a weak dollar, Continental plans to reduce domestic mainline capacity five percent on an annual run-rate basis beginning this fall. Continental expects that its 2008 mainline capacity, including international growth, will increase about two percent, and that its 2009 mainline capacity, including international growth, will be approximately flat compared to 2008.
"As the price of fuel continues to skyrocket, in addition to capacity pull downs, we are implementing another round of cost reduction and revenue generating initiatives," said Jeff Misner, Continental's executive vice president and chief financial officer. "These initiatives are expected to result in over $200 million of annual benefits when fully implemented."

DL Regionals in Black, 60+ RJs to Go
Delta Connections contributed $1.039 billion to Delta’s consolidated revenues of $4.7 billion during the first quarter. While regional revenues were up 10 percent and consolidated revenues were up 12 percent, they could not compensate for major carrier’s net loss excluding special items was $274 million compared to a net loss of $6 million in the first quarter of 2007, excluding special and reorganization items. The $268 million year-over-year increase in net loss was driven by a $585 million increase in costs owing to higher fuel prices.
Contract carrier service expenses rose 25 percent to $896 million during the quarter when both contracted and pro-rate carriers included Atlantic Southeast, Freedom, Chautauqua, Shuttle America, SkyWest, ExpressJet and Pinnacle.
As part of its efforts to cut costs it is shedding 60 to 70 regional jets by the end of this year along with 15 to 20 mainline jets. It said it continues to evaluate the fuel and demand environment and will make proactive changes quickly if economic conditions warrant. On March 18, Delta announced that it had aggressively recalibrated its 2008 business plan with a focus on preserving liquidity in light of the significant increase in crude oil prices.
The airline reevaluated its capacity, targeting reductions in or cancellations of unprofitable routes, and has already implemented schedule changes to bring down domestic flying. Delta now expects system capacity for the second half of 2008 to be down 0-2 percent compared to 2007, with domestic capacity down nine to 11 percent.
The Delta/Northwest merger, said the carrier, is expected to create more than $1 billion in sustainable, annual revenue and cost synergies by 2012. Meanwhile, the two carriers posted $465 million in combined losses for the first quarter as fuel costs jumped 50 percent.
Primarily these synergies will be generated by more effective aircraft utilization and a more comprehensive and diversified route system as the combined company reallocates up to 50 percent of its international and 10 percent of its domestic fleet to improve profitability. Based on the most recently available ATA data, Delta’s consolidated length of haul adjusted passenger unit revenue (PRASM) was 101 percent of industry average PRASM (excluding Delta), up from 86 percent in 2005 when the company began its network restructuring, representing the first quarter in eight years that Delta has exceeded industry average.

Northwest Regionals Boom
With an anticipated growth this year of between 45 and 50 percent, Northwest regionals are defying what is happening at other carriers as feeder operations, woefully diminished during bankrtuptcy, recover. Regional revenues were double expenses during the first quarter. Northwest Airlink revenues rose 40.4 percent during the first quarter to $410 million while regional expenses dropped 2.8 percent to $205 million.
The carrier did not release any other separate regional statistics. However, it said that its regional jet fleet grew in the first quarter with the on-schedule delivery of six Bombardier CRJ-900s and eight Embraer EMB-175s, bringing the airline’s quarter-end total to 19 CRJ-900s and 17 EMB-175s. By the end of 2008, Northwest’s scheduled deliveries will bring its regional jet fleet to 36 EMB-175s and 36 CRJ-900s.
Even as its regional service grows, the airline is planning a five percent domestic capacity reduction from planned levels by removing an additional 15 to 20 aircraft from service. Two DC9s will be removed in June and the remainder in the fall to coincide with the planned schedule reductions, bringing the total DC9 fleet to 61 aircraft year-end. The overall fleet reductions include approximately 10 DC9s, and the balance being a mix of Boeing 757s and Airbus A320s and A319s.
Northwest Airlines Corporation reported a first quarter 2008 net loss of $4.1 billion. This compares to the first quarter 2007 when Northwest reported a net loss of $292 million. Excluding non-recurring, non-cash impairment charges and losses associated with marking-to-market out-of-period fuel hedges, Northwest reported a first quarter 2008 net loss of $191 million versus the first quarter 2007 when the airline reported net income of $73 million before the impact of reorganization items and out-of-period fuel hedge gains.

UA Express Posts Losses
United Express carriers posted revenues of $715 million, up 5.9 percent during the first quarter, but expenses rose 12.6 percent to $779 million, contributing to the $542 million in first quarter net loss of UAL Corporation, $305 million higher than the first quarter of 2007, driven primarily by a $618 million increase in consolidated fuel expense.
United continues to cut back on domestic capacity, expecting regional available seat miles to drop 0.5 percent to a growth of 0.5 percent in the second quarter and as much as 2.5 percent for the full year, less than what has been announced at other major carriers such as Delta. The number of aircraft in the United Express fleet dropped 4.8 percent to 275 as fuel expenses rose 43.3 percent to $278 million and fuel consumption was flat at 92 million gallons. The average jet fuel price per gallon for regional affiliates was 302.2 cents, up 44.4 percent.
Regional available seat miles were down 1.2 percent to 388 billion while revenue passenger miles dropped 5.6 percent to 2.809 billion. PRASM was up 7.2 percent to 18.42 cents along with yield, up 12.3 percent to 15.45 cents. Load factor dropped 3.4 points to 72.4 percent. Passengers enplaned were down 5.6 percent to 2.809 billion. RASM was up 7.2 percent to 18.42 cents while CASM rose 14 percent to 20.07 cents.
The company is further shrinking 2008 mainline domestic capacity. By the fourth quarter of 2008 mainline domestic capacity will be down approximately nine percent year-over-year. This reduction follows a five percent reduction in the fourth quarter of 2007. Consolidated capacity will be approximately four percent lower than prior year levels for the fourth quarter of 2008. The company will permanently remove 30 narrow-body aircraft from its operations, 10 to 15 more aircraft than initially announced last month. The aircraft being retired are some of the oldest and least fuel efficient in the company's fleet.
The company is also expanding the scope of its 2008 cost reduction program. It is now targeting $200 million in non-fuel cost savings, in addition to the $200 million announced earlier this year, for a total of $400 million. It is also streamlining its operations and corporate functions in order to match the size of its workforce to the size of its business. The company expects to reduce its salaried and management workforce by 500 employees and its represented workforce by approximately 600 employees by year-end. It is also reducing 2008 capital expenditures by approximately $200 million from $650 million in expenditures previously planned.

US Airways Express Posts Loss
US Airways Express operations contributed $657 million in revenues in the first quarter, up 7.9 percent over the year-ago period, to the mainline carrier’s $2.840 billion in operating revenues. However, both US Airways and its Express operations posted losses. With current regional schedules at contractual minimums, the company is planning only a reduction in utilization for regional starting in September.
Express fuel rose 62.3 percent to $249 million while other expenses rose only 3.9 percent to $485 million for a total of $734 million for the quarter. US Airways is increasing fares to outstations, a move that designed to increase revenues but will hit regional passengers. It is cancelling all non-sale fares that fell below a minimum level based on flight distance. For example, for flights less than 500 miles, the airline is no longer offering non-sale, one-way fares that are less than $69. Similar adjustments have also been made for longer haul flights. This does not mean it cannot put fares on sale but will not be doing any below-cost pricing otherwise.
"The reality is that on a 500-mile flight if you are charging less than $69 with fuel where it is, airlines are guaranteed to lose money," said CEO Doug Parker. "It is the same with long-haul fares under $200, you are guaranteed to lose money. I'm guessing that about 20 percent to 30 percent of tickets sold are at those price points. We have only cancelled the ultra low fares. We can sell fares at those levels on sale but published fares should not be at that level. Even consumer are saying that with oil where it is, they can't believe how cheap it is to fly compared to the cost of driving."
He noted that yields over the past 28 years are down 50 percent. “So flying is still a huge value,” said Parker. “I’m hoping that, in the long term, we will see a fundamental change. The most powerful is consolidation since tremendous value is created there. But there is more the industry must do beyond just enough to get through the next down cycle. It must fix itself fundamentally so it can withstand these types of cycles. It is the only industry that does not do that. It is encouraging what I’m seeing from others."
He called the current crisis is a wake up call for the industry that should finally force all of us to treat airlines as business that must provide adequate return
US Airways Group, Inc. reported a net loss for its first quarter 2008 of $236 million, or ($2.56) per share, an enormous swing from the net profit of $66 million, or $0.70 per diluted share for the same period last year. Excluding net special items of $3 million, the company reported a net loss of $239 million, or ($2.60) per share for its first quarter 2008. This compares to a net profit excluding special items of $34 million, or $0.37 per diluted share for the first quarter of 2007, which included $32 million of net special credits.
Express carriers revenue passenger miles rose 4.3 percent to 2.845 billion while available seat miles rose 4.4 percent to 3.599 billion. Load factor dropped 0.1 points to 69 percent. Yield rose 3.5 percent to 26.46 cents while Express PRASM was 18.27 cents, up 3.4 percent over the first quarter 2007. CASM rose 13.4 percent to 20.39 cents while CASM ex-fuel dropped 0.5 percent to 13.47 cents. Express carriers, which includes US Airways Group's wholly owned regional airline subsidiaries, Piedmont Airlines and PSA Airlines, as well as operating and financial results from capacity purchase agreements with Mesa Airlines, Chautauqua Airlines, Air Wisconsin Airlines and Republic Airlines, carried 6,195,000 million passengers, up four percent even as aircraft dropped 0.7 percent to 291.
To mitigate the impact of a softening economy and fuel, also introduced an a la carter menu of costs which are expected to about $70 million in incremental revenues for the remainder of this year and more than $100 million on an annualized basis going forward. In addition to its a la carte initiatives, US Airways has increased fare levels to further help offset the rise in fuel expense. The company has also taken steps to further reduce capacity in the back half of 2008 and into 2009. Since the previous earnings release on January 24, 2008, the company now plans to return six Boeing 737-300 aircraft upon scheduled lease expiration during the latter part of 2008 and in early 2009. Combined with further aircraft utilization reductions, the company's mainline capacity will be down approximately two to four percent in the second half of 2008.

Delta, NW, CO Regionals in Black, US & UA Express Post Losses

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