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Monday, May 19, 2008

Horizon Re-Evaluating Branded Flying

Everything is being re-evaluated, according to Horizon President Jeff Pinneo at RAA, including the airline’s branded flying which accounts for 63 percent of its operations compared to the capacity purchase agreement it has with parent Alaska Airlines which makes up 37 percent of its business. “We are aggressively addressing every cost center,” he said. “That is what is driving us now. Obviously with these dramatic changes in fuel, everything has to be re-evaluated. In the meantime, it continues to go strong. These are historic times which call for transformational thinking. Our theme will be optimization, economics and appropriate patterns of service in markets that are strategically important to us. We will go down to between 48 and 53 aircraft before the platform is stable enough for us to grow from there.”
During the first quarter, Horizon posted a $17.2 million operating loss before taxes on $177.2 million in operating revenues, which were up 9.7 percent over the year-ago period. Related Story Horizon brand flying revenues increased $15.9 million to $102.7 million or 18.3 percent on a 29 percent increase in brand capacity offset by a 7.9 percent decline in unit revenues. The airline cited an 8.4 percent decline in yield for the decline in unit revenues on flat load factor results. Total operating expenses increased $21.2 million, or 12.5 percent, as compared to the same period in 2007. One of the primary causes of variance from the first quarter of 2007 is the assimilation of the capacity from the Frontier JetExpress flying into Horizon markets. This resulted in increased fuel costs, station costs, landing fees, and other associated operational costs.
Revenue from its Alaska CPA increased by $13.1 million to $70.4 million because of a 21.4 percent increase in passenger traffic and a 7.0 percent increase in unit revenues compared to the prior year. Horizon cited a four point increase in load factor combined with a 1.2 percent yield increase for the unit revenues. Alaska has switched more of its flying to the CPA. Purchased capacity costs increased $9.3 million, or 13.8 percent, from the first quarter of 2007 to $76.7 million in the first quarter of 2008. Of the total, $71.4 million was paid to Horizon under the CPA for 344 million ASMs. The increase was primarily owing to the 15.8 percent capacity increase under the Horizon CPA as Alaska switching more flying to Horizon as well as fuel. During the first quarter, regional flying expenses exceeded regional passenger revenues by $6.3 million, compared to $10.1 million in the first quarter of 2007.
Pinneo also commented on its plans to reduce its three-aircraft fleet to one fleet type centered on the Bombardier Q400. “We used to think several fleet types bought us flexibility,” said Pinneo. “But we have a ton of money tied up in maintenance when you have three independent fleet types. It became more aggregious, particularly in the face of the economics of the Q400. We recently saw a Wall Street Journal article that indicated that fuel would go to $150 a barrel. There is no roadmap for that.”
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