Last week was busy for Express Jet (XJT) as it not only announced a new contract with Delta (DALRQ), but the final service structure for six of its point-to-point markets.
In the final round of placing the aircraft spun off by the cancellation of 25 percent of Continental’s (CAL) business, ExpressJet Holdings, Inc. signed a two-year capacity purchase agreement with Delta  for launch in June in Western ski markets and into Delta’s Los Angeles hub. The deal covers 10 ERJ-145XR aircraft to be place on as-yet-unnamed routes. Delta cited XJT’s strong operating performance and the capabilities of their ERJ-145XR fleet. At press time, ExpressJet had not returned queries as to why the contract is only two years.
Delta will be responsible for scheduling, marketing, pricing and revenue management on the aircraft and will collect all passenger revenues. ExpressJet will operate, maintain and finance the aircraft. ExpressJet will receive a base rate for each completed block hour and departure and be reimbursed for certain pass-through costs. ExpressJet will have the ability to earn incentives for exceeding completion benchmarks and maintaining high Department of Transportation rankings for arrivals within 14 minutes and customer satisfaction.
Meanwhile, XJT released the schedule for the balance of its markets – San Antonio, Louisville, Birmingham, Raleigh, New Orleans, Jacksonville and Kansas City, Mo. The airline will be investing an additional $1.5 million in creating the infrastructure needed to serve them on top of the $9 million announced two weeks ago. That investment includes the additional of nearly 1,000 employees, maintenance bases at Austin and Ontario along with a crew base at Ontario. Related Story 
Calyon Securities said after hosting a management meeting with XJT, it expects the operation to lose money in 2007. However, Analyst Ray Niedl indicated the potential for success should be known by summer. “It is a new concept, at least for current market conditions, and the risk is high,” said Niedl in his report. “If it appears that the new operation is not succeeding and there is no backup plan, we believe the stock price will begin to suffer. On the other hand, if it looks like it is successful, EPS estimates would go up and the market would place a higher multiple on these earnings.”
He noted that independent flying constitutes only 15 to 20 percent of its business, unlike the failed attempt by Independence Air. “It also does not include a high-cost concentrated hub operation and does not directly challenge any single airline, and ticket pricing will not be at a discount, limiting the chances of setting off a fare war,” he said. “Cash flow from ExpressJet's continuing contract with Continental should give the carrier more time and resources to try to make this or any backup plan work.”
The carrier’s greatest challenge, he said, is whether or not there is enough business in the targeted marketplaces for non-stop service to fill the small 50-seat jet. ExpressJet will be dependent on market stimulation as well as on trying to attract some business travelers that would normally use a major carrier's hub operations with the convenience of flight.
Perhaps most interesting is the non-stop flights from Raleigh/Durham International Airport, which includes its largest investment for these markets at $400,000 as well as the addition of 11 employees. It plans to serve New Orleans, San Antonio, Louisville, Kansas City, Mo., Birmingham and Jacksonville, using the 50-seat ERJ 145. With service beginning May 7 and 12, it will be competing against American Eagle’s new service to Louisville, Jacksonville and Kansas City using 37-seat and 44-seat Embraer regional jets. American plans to attract passengers by offering double miles for all nonstop flights. Related Story ExpressJet will also offer one-stop service to Albuquerque and Tucson -- for a total of eight destinations from Raleigh/Durham..
San Antonio flights will include service to Tulsa, Tucson, Albuquerque, Raleigh/Durham, New Orleans and Oklahoma City. Service start is between April 30 and June 12 with two daily departures to each city. ExpressJet will also offer one-stop service to Jacksonville. Including two previously announced cities, Los Angeles/Ontario, Calif. and Sacramento, ExpressJet will serve ten destinations from San Antonio.
The airline will serve Kansas City and Raleigh from Louisville, where it expects to add five incremental employees. It will also offer one-stop service to LA/Ontario and Jacksonville for a total of four destinations and an investment of $240,000.
Birmingham passengers will have nonstop service to New Orleans and Raleigh starting May 14 with two daily departures to each city. XJT’s investment in the market will total $260,000 and include eight incremental employees.
New Orleans, with in investment of $325,000 and 13 new employees, will have nonstop flights to Austin, San Antonio, Kansas City, Birmingham, Jacksonville and Raleigh beginning April 30 and June 4 with two daily departures to each point. It also includes one-stop service to Tucson for a total of seven destinations from New Orleans.
Service from Jacksonville includes nonstops to Austin, Kansas City, New Orleans and Raleigh beginning April 30 and June 4 with two daily departures to each city. JAX residents will also have a one-stop to Louisville and San Antonio for a total of six destinations from the Florida city. The investment there is expected to total $270,000 and 12 employees.
Kansas City will be served to Jacksonville, Raleigh, New Orleans and Louisville starting between April 30 and May 14. ExpressJet previously announced service to Austin, Los Angeles/Ontario, Calif. and Tucson.