Investors hoping to find out what Express Jet (XJT) plans for the 69 regional jets it retained when Continental (CAL) pulled 25 percent of its capacity were disappointed last week. (RAN, May 15, p.1) The airline remains committed to its decision to retain the aircraft as it works to extricate itself from total dependence on Continental.

President and CEO Jim Ream reiterated market conditions exist for the placement of all of the aircraft and reconfirmed the company's decision to keep the aircraft. Express Jet is within 30 days or so of announcing the placement of the first handful of planes, in what Ream described as specialized, structured travel solutions for big organizations. He said negotiations were in critical phases for the rest and wouldn't reveal specifics. However, he indicated that more information would be forthcoming within the next 90 days. The company is still looking at using these aircraft for other capacity purchase agreements for a U.S. or foreign carrier, charter operations, or for its own, branded flying.

Increased costs include expenses incurred in finding homes for the aircraft that will come out of its Continental Express system at year's end. The income target for the aircraft would be what they were earning under the Continental agreement, and transitions would be timed to minimize the downtown required to move them to any new operation.

Ream indicated that the next opportunity Continental has for changing its agreement, which runs until 2020, is in the first part of 2009 for aircraft leaving the system in 2010. Express Jet will soon undergo its annual rate setting process, which usually starts in August and runs through the fall. He indicated that Continental was still locking in the schedule for next year and the process would begin after that. In response to a question, he said that there were four requests for proposals that remain in play, including those for Northwest (NWACQ) and Midwest Air Group (MEH), as well as turboprop proposals from Delta (DALQ) and Continental.

The company earned $23.3 million in net income for the second quarter, a decline of 4.4 percent over the second quarter 2005. Operating revenue, however, increased 7.9 percent to $419.4 million. The airline attributed the increase to a 12 percent increase in block hours and 18 additional aircraft in the fleet.

The airline expanded capacity 11.1 percent during the quarter to 3.4 billion available seat miles. At the same time, revenue passenger miles jumped 21.4 percent to 2.7 billion, resulting in a 6.9 point increase in load factor to 81.1 percent. The airline operated at a 99.8 percent controllable completion factor and had an overall completion rate of 97.8 percent, owing to severe weather in the east.

Express Jet reported an operating margin of 8.5 percent, compared to 10.3 percent in the year-ago quarter. It bested its agreed performance rates and rebated to Continental (CAL) $1.8 million to meet its contractual operating margin of 10 percent. It also reported a cost per available seat mile (CASM) of 11.39 cents, a decline of one percent. Additional expenses unrelated to its Continental contract drove the overall operating margin below 10 percent. It ended the quarter with $253.5 million in cash and equivalents, including $9.2 million in unrestricted cash. During the quarter it completed its firm orders for Embraer (ERJ) 145XRs, by taking delivery of its last four.

Express Jet reported it reached a tentative agreement with the International Association of Machinists representing its 1,200 flight attendants. The ratification vote is set for this month.

For the first half of this year, Express Jet reported net income of $47 million, a drop of 1.3 percent. Operating revenue rose 8 percent to $825.2 million. RPMs totaled 5 billion, a jump of 20.2 percent, while ASMs increased 11.8 percent to 6.4 billion. Load factor rose 5.5 points to 78.3 percent. Cost per available seat mile (CASM) declined two percent to 11.63 cents.