Mesa (MESA) said United (UAUA) is reformatting its slot allocation model that previously disadvantaged small aircraft and has been the subject of complaints by other United Express partners forced to miss performance targets because of the model, which cost millions each quarter. In another effort to improve Mesa's operational performance, United spread some of its flying in the tougher East Coast cities to other regional operators. Mesa used to fly 100 percent of East Coast flying and is now down to 80 percent, said Chair and CEO Jonathan Ornstein in reporting first quarter results. Mesa incurred $2.5 million in passenger-related cost for Northeast flying and is currently in discussions with United about this. United has also helped with smoothing out some of Mesa's internal functions includes dispatch, communications and management of crew resources.

Mesa Air Group, Inc. posted net earnings of $8 million on operating revenues of $347.6 million during its fiscal first quarter ending December 31. Total operating revenues increased $24 million, or 7.4 percent, largely owing to year-over-year increased cost reimbursements under revenue guarantee contracts. During the year-ago quarter it had a net income of $13 million.

"Despite the challenges this quarter's weather presented Mesa's operations, we are satisfied with these results and particularly pleased with our results of go!, whose reliability, as measured by the DOT, was the best of the Hawaiian carriers," said Ornstein.

Total available seat miles (ASMs) for the quarter increased 1.8 percent over the year-ago period despite the addition of aircraft during 2006. The slight rise was attributed to changes in fleet utilization by flying shorter stage lengths. Mesa expects to exceed the predicted one percent growth rate for the regional industry this year by "significant multiples."

As of December 31, 2006, the company's cash, marketable securities and debt investments were approximately $256.3 million, which includes $12 million of restricted cash.

Last year was an aggressive year for the carrier which completed its deal with Shenzhen Airlines to create a Chinese regional airline, expected to launch in 12 months, initially operating 50-seat regional jets on domestic routes including Shenzhen, Beijing, Chongqing, Xiamen, Nanjing, Kunming, Dalian, Shenyang, Xian, Zhengzhou and Nanning. (RAN, January 8, p.7) It sees growth potential for 100 aircraft for the new operation, some of which would be a new Chinese-built RJ due on the market in three to four years. Ornstein indicated that GE holds over $1 billion in Mesa debt and was, in fact, instrumental in focusing Mesa's attention on China. GE is building the engines for the new jet and Mesa sees the provision of current-production RJs as temporary against the purchase of the Chinese regional jet when it comes on line.

Ornstein indicated that Shenzhen has provided strong financial guarantees. Chinese law caps foreign ownership at 49 percent with a 25 percent cap for any individual stockholder. He indicated that the agreement calls for operations to meet Mesa's standards. Mesa has turned over the marketing of the new carrier to Shenzhen, the country's largest privately held carrier, owing to Mesa's lack of experience there.

Freedom Airlines, a wholly owned subsidiary of Mesa Air Group, added the final two Dash 8s under its Delta Connection agreement and placed three CRJ-700 aircraft into service with United as part of its obligation to transition 15 50-seat aircraft with larger 70-seat regional jets. Freedom also placed an additional four ERJ-145 regional jets into operation with Delta.

go!, its interisland Hawaii division, launched go! Vacations and is now selling holiday packages through its website www.iflygo.com. It had planned to increase capacity with CRJ 900s for the summer but the supply of that aircraft is tight and because of the capacity poured into the market by Hawaiian (HA) and Aloha. Consequently, any additional capacity for the fledgling carrier will come from 50-seaters. go! is also looking at additional markets for its service. Ornstein indicated that, given the loads factors, he sees a need for more capacity, even now.

Air Midwest, a wholly owned subsidiary, took a small loss for the quarter but the airline expects profitability for the rest of the year. It added five Essential Air Service markets and one guaranteed minimum revenue market.

With its hands full with go! and China as well as negotiations with its current partners for more flying, Mesa rejected the idea of following Express Jet (XJT) into point-to-point flying. Ornstein doubted there is much of a point-to-point market. "Before the industry had turned around, there may have been an opportunity but not now," he said. "I think that opportunity has come and gone."