Horizon Posts Profits, Loss for Year to Date
Horizon reported an adjusted pre-tax profit of $12.7 million during the third quarter compared to a $7.5 million profit in the year-ago quarter, excluding special items. Horizon's total pretax loss for the quarter was $25.1 million, compared to pretax income of $8.3 million in 2007.
“While we are pleased to report a profit and improvement over last year’s results,” said President and CEO Jeff Pinneo, in speaking with investors during last week's Alaska Air Group investor's call, “the year-to-date results reflect a loss and business conditions remain very challenging.” He cited fare increases, capacity cuts and non-fuel cost reductions as offsetting the high fuel costs experienced this year.
Pinneo reported that revenues during the quarter grew 3.7 percent on 12.8 percent decline in capacity and a 20.2 percent system yield improvement. He indicated, system-wide, revenue per available seat mile was up 18.9 percent. For its branded capacity was up 1.1 percent, while RASM was up 9.8 percent owing to a 9.5 percent increase in yield and marginal increase in load factor. In addition, ancillary revenues were up $1.3 million, a 70 percent jump from the year-ago period. Capacity purchased by Alaska Air Group was down 1.8 percent, Pinneo said, on a 14 percent decline in departures gained from schedule trimming and the use of larger gauge aircraft.
Horizon Air's passenger traffic in the third quarter declined 13.9 percent on a 12.8 percent capacity decrease. Load factor decreased by 0.9 percentage points to 76.3 percent. Horizon's passenger revenue per ASM increased 18.8 percent, and its operating cost per ASM excluding fuel and the special items mentioned above increased 0.7 percent. Horizon's total pretax loss for the quarter was $25.1 million, compared to pretax income of $8.3 million in 2007. Excluding special items, Horizon's pretax income was $12.7 million for the quarter, compared to pretax income of $7.5 million in the third quarter of 2007.Excluding special items, company reports third quarter profit
As an indicator of just how much Horizon has accomplished, Calyon Securities’ Ray Neidl, who has long urged Alaska Air Group to sell the asset because it was a drain on the results, praised Horizon saying he was glad to see the turn around. He queried Pinneo as to what more needs to be done given the tanking economy. However, Pinneo pointed to the efforts already announced including working toward a single-aircraft fleet.
Neidl also asked if there was an oil price at which Horizon would opt to retain its 20 Bombardier CRJ 700s for longer-haul, lower density routes. Pinneo indicated that the savings gained from the simplicity of a single-aircraft fleet overwhelmed the cost of keeping the jets, adding that the Q400 “represents the greatest protection we have against fuel volatility.”
Efforts to place the CRJ 700s that once flew as Frontier Jet Express, are stalling. Two are in the process of being subleased but Pinneo pointed to the softening market for the aircraft. To that end, he reported he is negotiating with Bombardier to delay deliveries of more Q400s until the regional jets can be retired from the fleet. In the meantime, all but three of the 28 Q200s the airline in spinning out of its fleet, have been placed.
In comparing expense costs from last year, Pinneo reminded investors of the significant cost hit from the Q400 grounding in September 2007 which negatively impacted profitability by several million dollars. On expense side, the $19.8 million increase in fuel was offset by a focus on non-fuel cost management. CASM ex fuel was up 0.07 percent despite a decline in capacity while maintenance costs dropped $5.4 million owing to maintenance timing, streamlining heavy checks and imposing lean processes. Wages and benefits dropped $3.1 million with the furloughs announced earlier this year as full-time equivalent employees (FTE) dropped seven percent. However, with fleet mix changes, productivity increased, up 8.3 percent to 180 passengers per FTE.
Horizon would have been number one among all mainland carriers in July for on-time rankings if it were a DOT reporting carriers, according to Pinneo, who added that the carrier had an 87.3 percent on time performance, up 6.5 points from the year-ago period. As for the 20 CRJ 700s, it is having difficulties placing them as the market softened and is discussing rescheduling Q400 deliveries to coincide with CRJ 700 retirements from the fleet.
Alaska Air Group, Inc. reported a net loss of $86.5 million for the third quarter of 2008, compared to net income of $81.8 million in 2007. Excluding special items, the company reported a third quarter net profit of $39.9 million, or $1.10 per diluted share, compared to $78.8 million, or $1.93 per diluted share, in the third quarter of 2007.
Horizon Air's passenger traffic in the third quarter declined 13.9 percent on a 12.8 percent capacity decrease. Load factor decreased by 0.9 percentage points to 76.3 percent. Horizon's passenger revenue per ASM increased 18.8 percent, and its operating cost per ASM excluding fuel and the special items mentioned above increased 0.7 percent. Horizon's total pretax loss for the quarter was $25.1 million, compared to pretax income of $8.3 million in 2007. Excluding special items, Horizon's pretax income was $12.7 million for the quarter, compared to pretax income of $7.5 million in the third quarter of 2007.
Alaska Airlines' mainline passenger traffic in the third quarter declined 1.1 percent on a capacity decline of 0.8 percent, compared to the third quarter of 2007. Load factor declined 0.2 percentage points to 79.5 percent. Alaska's mainline passenger revenue per available seat mile (ASM) increased 4.4 percent and its operating cost per ASM excluding fuel and the special items mentioned above declined 0.7 percent. Alaska's total pretax loss for the quarter was $107.4 million, compared to pretax income of $127.4 million in 2007. Excluding the special items above, Alaska's pretax income was $56.6 million for the quarter, compared to pretax income of $123.4 million in the third quarter of 2007.

Airlinks in Stunning Growth
The Northwest Airlink program, still recovering from the major carrier’s bankruptcy, posted a 47 percent increase in revenues during the third quarter when it took in $557 million. Expenses, however, were not even half the revenues at $257 million, a growth of 42 percent. The major carrier said regionals are projected to grow 50-55 percent during the fourth quarter and another 45-50 percent next year.
Meanwhile, Northwest Airlines Corporation reported a third quarter 2008 net loss of $317 million, or $1.20 per share. The reported results include a $410 million non-cash charge associated with marking-to-market, out-of-period fuel hedges as required by Statement of Financial Accounting Standard (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities. Excluding this charge, Northwest reported an adjusted net income of $93 million for the quarter, or $0.35 per share. These results compare to the third quarter of 2007 when Northwest reported an adjusted net income of $232 million, excluding charges related to SFAS 133.
Northwest ended the quarter with $3.4 billion in unrestricted liquidity (including $261 million in a funded tax trust that was established in 2002). In addition, Northwest ended the quarter with $185 million in restricted cash. During the quarter, Northwest enhanced its liquidity position by completing a $183 million financing of unencumbered aircraft and engines and successfully amended its existing bank credit facility by making various changes to the agreement that will allow it to remain in place after the merger with Delta is closed.
Northwest continues to run a very reliable airline it said, pointing to the Department of Transportation statistics. Northwest was the industry leader among network carriers for the month of August in on-time performance, fewest mishandled bags, fewest customer complaints and highest completion factor. When measured on a year-to-date basis through August, Northwest ranked first in departure within zero performance, fewest mishandled bags and fewest customer complaints. Northwest also ranked second in completion factor and third in on-time performance.

UA Ex Posts Loss in Q3
United Express operations posted serious losses during the third quarter as dramatically rising expenses conspired to overwhelm revenues. United Express posted passenger revenues of $834 million, up only 1.8 percent compared to expense increases of 17.4 percent to $834 million. The expense calculation includes aircraft rent which dropped from $106 million in 3Q07 to 102 million in this year’s third quarter. However, the Express fleet declined 2.5 percent to 275 aircraft.
Per the guidance supplied last week to analysts during the carrier’s conference call United Express operations are declining for the full year by 1.5 percent to 0.5 percent this year but will rise between 6.5 and 7.5 percent for the full 2009 year. For Q4, United Express ASMs will decline 2.5 percent to 1.5 percent, over the year-ago period.
Regional affiliate PRASM, excluding special items and Mileage Plus accounting impacts, was up 2.4 percent compared to last year, with a 4.9 percent increase in yield and flat capacity; including these items regional affiliate PRASM increased by 0.9 percent. Load factor for regional affiliates decreased 1.9 points in the third quarter of 2008 compared to the third quarter of 2007, while stage length for regional affiliates was up 4.2 percent for the same period.
Meanwhile, Express losses came at a time when UAL Corporation reported a third quarter net loss of $779 million or $252 million, if non-cash, net mark-to-market losses on fuel hedge contracts and certain accounting charges are excluded, despite an increase of $946 million in consolidated fuel expense.
Fuel expenses for United Express rose 60.4 percent during the quarter to $377 million while consumption dropped 3.1 percent to 93 million gallons.
United Express flew 3.205 revenue passenger miles during the quarter, down 2.4 percent, ASM were flat at 4.298 billion, equating to a 1.8 point drop in load factor to 76.3 percent. Revenue per passenger mile rose 3.3 percent to 26.02 cents, while revenue and operating revenue per available seat mile rose only slightly by 0.9 percent to 19.87 cents. Operating expense per ASM rose 17.4 percent to 21.01 cents.

LCC Express Posts Losses
Despite an 11.3 percent increase in revenues to $771 million, the US Airways Express program was overwhelmed by cost increases in which fuel rose 75.4 percent to $349 million and other expenses rose 9.9 percent to $495 million. Total Express expenses were $844 million. Still, bucking the trend of most mainline carriers, US Airways Express added capacity to its Express network during the quarter, joining Northwest as the only other carrier to do so.
Meanwhile, US Airways Group, Inc. reported a net loss for its third quarter 2008 of $242 million or $2.35 per share which excluded special charges that totaled $623 million. Special charges in the third quarter 2008 included $488 million of unrealized losses resulting from mark-to-market adjustments on fuel hedging instruments. On a GAAP basis, the company reported a net loss for its third quarter 2008 of $865 million, or $8.45 per share, compared to a net profit of $177 million, or $1.87 per diluted share for the same period last year. The carrier expects the new, a-la-carte pricing initiatives to contribute between $400 million and $500 million in revenue during 2009.
Express passenger revenue per available seat mile (PRASM) was 19.55 cents, up 1.3 percent over the third quarter 2007 compared to mainline PRASM in the third quarter of 11.32 cents, up 4.4 percent over the same period last year. Total mainline and Express PRASM for US Airways Group was 12.71 cents, which was up 4.6 percent over the third quarter 2007 on a 0.4 percent increase in total available seat miles (ASMs).
Express revenue passenger miles rose 8.8 percent to 2.942 billion during the third quarter when available seat miles also rose at a 9.9 percent rate to 3.943 billion. Load factor dropped by 0.8 points to 74.6 percent. Yield was up 2.3 percent to 26.30 cents. US Airways Express carried 7,117,000 passengers during the quarter, up 6.8 percent. The number of aircraft operating in the Express fleet rose 4.6 percent to 296. Fuel consumption rose 6.4 percent to 91.8 million gallons at an average price of $3.80 per gallon. Operating costs per ASM reached 21.40 cents, up 18.3 percent while ex-fuel it was flat at 12.55 cents.
Through the first eight months of 2008, US Airways ranked number one in on-time performance among the ten largest U.S. airlines as measured by the DOT after ranking tenth on the same measure during 2007. The airline awarded nearly $16 million thus far in 2008 through our Triple Play employee incentive program, and we look forward to additional payouts in the months ahead.