Alaska (ALK) posted a $10 million loss on its regional flying with Horizon posting an adjusted pre-tax loss of $11.2 million for the first quarter 2007, up from the pre-tax loss of $1.6 million for the year-ago period. President Jeff Pinneo explained much was owing to the fleet transition from the Bombardier (BBD) Q200s, 16 of which are being subleased to Commutair, a $7 million fuel increase costs and $7 million in additional maintenance expenses. Horizon expects to retire all 37 of its Q200s by the end of 2009. While the full year loss for Horizon is expected to be more than the $10 million recorded in the first quarter, it will not be a multiple of that, said Alaska.
The simplified fleet augers well for the airline, said Pinneo. While it enables the airlines to double the number of seats at only a 30 percent increase in costs, CASM will drop by 58 percent even as block hours increase 21 percent. On the revenue side, however, he noted the Q200s have limited the airline since they provided insufficient capacity.
“That resulted in yield management taking over and increasing fares beyond what we feel comfortable with in terms of value,” he said. “By getting into the Q400 we have an opportunity to rationalize the fare structure, to stimulate demand and welcome back those who went to other means of travel. That will drive traffic up and, while we may see softness in the load factor, that is to be expected with doubling the capacity. In the next few months we see the load factor as either flat or modestly improved even with a significant increase in capacity. The total on-board revenue will increase and while revenue per available seat mile may go down the CASM drop will be dramatically greater than that. One thing we can be grateful for is we never got into the 50-seat jets. So, as we retire all the Q200s we’ll see a significant reduction in overhead.”
Horizon took delivery of the first of 13 Q400s in the first quarter and transitioned two CRJ700s from its Frontier (FRNT) Jet Express operation to its native network. The remaining seven will be transitioned during the rest of this year. The revenues from Jet Express were down 20 percent on a 22 percent capacity reduction. That line of business now accounts for 6.5 percent of total revenue and 18 percent of total capacity.
Revenues for its branded flying were up 7.2 percent on 12 percent increase in capacity. Yield was steady, increasing at only one percent. When combined with the drop in load factor it produced a fall off in RASM of 3.9 percent. Landing fees at Seattle and Los Anglese increased 21 percent or $2.3 million.
Like many carriers, Horizon is experiencing pilot attrition but not as dramatic as reported by Republic. Related Story Horizon is helped by having the highest pilot pay in the industry. Pinneo also said its investment in working with organizations such as the University of North Dakota which has a pilot development program is paying off. Both Alaska and Horizon are pushing the fact that Horizon has become a great source of pilots for Alaska even without a flow-through agreement
He reviewed the impact of ExpressJet’s (XJT) new branded service and said that it serves Spokane, Boise, Sacramento and Ontario in competition with some of Horizon’s service which is now either one stop or connecting service. Plans call for it to start offering more non-stop service in the markets.
He reported revenues were up 11 percent or $15 million while operating expense increased 16 percent or $24 million on a 5.5 increase in available seat miles to 925 million. Cost per ASM, ex fuel, rose from 14.2 cents to 15.4 cents, slightly higher than previous guidance.
Horizon’s operating revenues increased 10.8 percent to $161.6 million as expenses increased 16.2 percent to $169.5 million, resulting in an operating loss of $1.3 million. Horizon enplanements were flat at 0.9 percent growth to 1,609,000. RPMs rose by 1.1 percent to 627 million. Load factor was down 2.9 points to 67.8 percent. Yield increased 9.6 percent to 25.42 cents. Operating revenue per ASM increased 4.8 percent to 17.47 cents, while PRASM jumped 5.1 percent to 17.23 cents. Operating expenses per ASM increased 10.1 percent to 18.32 cents.
The airline expects Horizon’s cost per available seat mile ex fuel to be 14.8 cents in the second quarter compared to 7.5 cents at the mainline operations. CASM for the year is predicted to be 14.2 cents compared to Alaska’s 7.5-7.6 cents.
The two carriers also explained changes to the capacity purchase agreement which began in the first quarter. Under the new agreement which became effective January 1, Alaska pays Horizon for specified flying based on predetermined rates plus a negotiated margin, regardless of the number of passengers on board or the revenue collected. The arrangement also includes a bonus paid to Horizon if it meets certain operational performance measures. It constituted a change in the reporting format of revenues and costs. Alaska is now recording the actual passenger revenue from Horizon’s operation on behalf of its partner as revenues with payments made to Horizon for contract flying recorded as expenses. For its part, Horizon records Alaska’s payments as revenues. The primary difference will be that the revenue recorded by Horizon from this flying will be the contract amount paid to Horizon by Alaska rather than the actual revenue collected from passengers.
Alaska Air Group, Inc. reported a first quarter net loss of $10.3 million, or $0.26 per share, compared to a net loss of $79.1 million, or $2.36 per share, in the first quarter of 2006. The prior-year results include an impairment charge of $131.1 million ($81.9 million, after tax, or $2.44 per share) resulting from the decision to retire the company's MD-80s earlier than originally planned in order to transition to an all-Boeing 737 fleet. Alaska Airlines' passenger traffic in the first quarter decreased 0.3 percent on a capacity increase of 2.8 percent. Load factor declined 2.3 percentage points to 71.4 percent. Alaska's mainline operating revenue per available seat mile (ASM) increased 0.1 percent and its operating costs per ASM, excluding fuel and the transition-related impairment charge in 2006, decreased 1.3 percent. Alaska's pretax loss for the quarter was $7.5 million, compared to a pretax loss of $124.7 million in 2006. Excluding the fuel hedging adjustments and the fleet transition charge referenced above, Alaska's pretax loss was $14.3 million for the quarter, compared to pretax income of $7.6 million in the first quarter of 2006.