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RJET > SEC Filings for RJET > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for REPUBLIC AIRWAYS HOLDINGS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for REPUBLIC AIRWAYS HOLDINGS INC


9-Nov-2012

Quarterly Report


Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements. Republic Airways Holdings Inc. (the "Company") may, from time to time, make written or oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements encompass our beliefs, expectations, hopes or intentions regarding future events. Words such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," or "continue," the negative of such terms or other terminology are used to identify forward-looking statements. All forward-looking statements included in this report are made as of the date hereof and are based on information available to the Company as of such date. The Company assumes no obligation to update any forward-looking statement. Actual results may vary, and may vary materially, from those anticipated, estimated, projected or expected for a number of reasons, including, among others, the risks discussed in our Annual Report on Form 10-K and our other filings made with the Securities and Exchange Commission, which discussions are incorporated into this Quarterly Report on Form 10-Q by reference. As used herein, "unit cost" means operating cost per Available Seat Mile ("ASM").

Overview

We are a Delaware holding company organized in 1996 that offers scheduled passenger service through our wholly-owned operating air carrier subsidiaries:
Chautauqua Airlines, Inc. ("Chautauqua"), Shuttle America Corporation ("Shuttle"), Republic Airline, Inc. ("Republic Airline"), and Frontier Airlines, Inc. ("Frontier"). Unless the context indicates otherwise, the terms the "Company," "we," "us," or "our" refer to Republic Airways Holdings Inc. and our subsidiaries.

As of September 30, 2012, the Company's operating airline subsidiaries offered scheduled passenger service on 1,501 flights daily to 136 cities in 46 states, Bahamas, Canada, Costa Rica, Dominican Republic, Jamaica, Mexico, and the Turks and Caicos islands under scheduled passenger service operations as Frontier Airlines and through fixed-fee code-share agreements with AMR Corp., the parent of American Airlines, Inc. ("American"), Continental Airlines, Inc. ("Continental"), Delta Air Lines, Inc. ("Delta"), United Air Lines, Inc. ("United"), and US Airways, Inc. ("US Airways") (collectively referred to as our "Partners").

Our Frontier network has a regional focus in Denver, CO and is expanding point-to-point service from locations such as Orlando, FL and Colorado Springs, CO. The passenger service operation exposes us to changes in passenger demand, fare competition and fluctuations in fuel prices.

Fleet

During the nine months ended September 30, 2012, our operational fleet decreased from 281 to 269. The Company had seven 37-50 seat aircraft temporarily parked and four Q400 aircraft that were preparing for contract flying. The Company returned to the lessor: two ERJ 135s, two A318s, and two A319s. Three ERJ 170s were contracted out for sublease flying, and the Company took delivery of one A320 aircraft and seven Q400 aircraft.

Separation

The Company continues to make progress with its efforts to sell Frontier, however, we can provide no assurance as to the timing of when such a transaction could be consummated. We do believe any such transaction would have a material impact to our financial position and results of operations, and could have a significant impact to the price of our common stock.

Segments

Based on our continual monitoring of the long-term economic characteristics, airline processes, class of customer, and route operations flown as a part of our operating segments, we identified a change in our operating segments during the first quarter of 2012. The Company has adjusted its presentation of business segments in 2012 and has revised the prior year's information to conform to the current period segment presentation. We believe this segmentation is appropriate based upon operating decisions and performance assessments by our chief operating decision maker.

The Company has identified two reportable segments: Republic and Frontier. Our Republic segment includes all regional flying performed under fixed-fee and pro-rate agreements, subleasing activities, regional charter operations and the cost of any unallocated regional aircraft. The Frontier segment includes passenger service revenues and expenses for operating our Airbus fleet, as well as charter and cargo operations at Frontier.


Under the Company's pro-rate agreements, Republic is allocated an industry standard pro-rata portion of ticket revenue, while Frontier retains all connect revenues as well as ancillary revenues on regional flights. Frontier maintains certain rights to deploy the regional aircraft and maintains control of pricing and revenue management. Frontier also retains responsibility for all customer service expenses, including airport rents. Selling and distribution costs are shared between Republic and Frontier. Republic incurs fuel expense based on gallons consumed flying under the pro-rate agreement.


Results of Operations

Three Months Ended September 30, 2012 Compared to Three Months Ended September
30, 2011

The following table sets forth operational statistics and the
percentage-of-change for the periods identified below:

Operating Highlights - Republic                           Three Months Ended September 30,
                                                        2012               2011          Change
Total revenues (millions)                          $      337.4       $      396.3        (14.9 )%
Total fuel expense (millions)1                     $       25.4       $       79.1        (67.9 )%
Operating aircraft at period end:
  37-50 seats10                                              64                 73        (12.3 )%
  69-99 seats11                                             148                147          0.7  %
Block hours7                                            178,251            185,167         (3.7 )%
Departures                                              104,660            109,749         (4.6 )%
Passengers carried                                    5,333,769          5,449,621         (2.1 )%
Revenue passenger miles ("RPM") (millions) 2              2,691              2,812         (4.3 )%
Available seat miles ("ASM") (millions) 3                 3,424              3,687         (7.1 )%
Passenger load factor 4                                    78.6 %             76.3 %    2.3 pts
Cost per ASM, including interest expense (cents)
5 6                                                        9.49              10.30         (7.9 )%
Cost per ASM, including interest expense and
excluding fuel expense (cents)6                            8.74               8.15          7.3  %
Gallons consumed (footnote add)                       7,923,584         23,581,416        (66.4 )%
Average cost per gallon                            $       3.21       $       3.35         (4.2 )%
Average daily utilization of each aircraft
(hours) 8                                                  10.1               10.0          1.0  %
Average length of aircraft flight (miles)                   462                498         (7.2 )%
Average seat density                                         67                 68         (1.5 )%


Operating Highlights - Frontier                               Three Months Ended September 30,
                                                            2012               2011          Change
Total revenues (millions)                              $      375.7       $      371.6          1.1  %
Total fuel expense (millions)                          $      135.4       $      146.7         (7.7 )%
Operating aircraft at period end:
  120 seats                                                       3                  4        (25.0 )%
  136-138 seats                                                  38                 41         (7.3 )%
  162-168 seats                                                  16                 14         14.3  %
Passengers carried                                        2,847,658          3,049,190         (6.6 )%
Revenue passenger miles ("RPM") (millions) 2                  2,791              2,883         (3.2 )%
Available seat miles ("ASM") (millions) 3                     3,048              3,176         (4.0 )%
Passenger load factor 4                                        91.6 %             90.8 %    0.8 pts
Total revenue per available seat mile (cents)                 12.33              11.70          5.4  %
Operating cost per ASM (cents) 5 6 9                          11.31              11.70         (3.3 )%
Fuel cost per available seat mile (cents) 9                    4.44               4.62         (3.9 )%
Cost per ASM, excluding fuel expense (cents)6                  6.86               7.08         (3.1 )%
Gallons consumed                                         40,915,327         42,941,699         (4.7 )%
Average cost per gallon 9                              $       3.31       $       3.42         (3.2 )%
Block hours7                                                 53,950             58,279         (7.4 )%
Departures                                                   21,884             24,048         (9.0 )%
Average daily utilization of each aircraft (hours) 8           10.8               11.2         (3.6 )%
Average length of aircraft flight (miles)                       967                940          2.9  %
Average seat density                                            144                141          2.1  %

1. Includes $29.3 million of fuel expense reimbursement for the three months ended September 30, 2011. Effective July 1, 2012, United agreed to supply fuel directly to our flights under its code-share agreements and the Company will no longer recognize the cost of fuel and related revenue for fuel used under the United Code-Share Agreement. Only fuel for pro-rate flying is included in the fuel amount for the three months ended September 30, 2012.

2. Revenue passenger miles are the number of scheduled miles flown by revenue passengers.

3. Available seat miles are the number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.

4. Passenger load factor is revenue passenger miles divided by available seat miles.

5. Total operating costs divided by available seat miles.

6. Total operating and interest expenses are not a calculation based on accounting principles generally accepted in the United States of America and should not be considered as an alternative to total operating expenses. Cost per available seat mile utilizing this measurement is included, as it is a measurement recognized by the investing public relative to the airline industry.

7. Hours from takeoff to landing, including taxi time.

8. Average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).

9. Includes mark-to-market fuel hedge expense (benefit) of $(1.6) and $1.8 million for the three months ended September 30, 2012 and 2011.

10. Excludes seven aircraft as of September 30, 2012 that are unassigned.

11. Excludes two aircraft as of September 30, 2012 and 2011 that are unassigned.


The following table sets forth information regarding the Company's revenues and expenses for the three months ended September 30, 2012 and 2011. Individual expense components are also expressed in cents per ASM (in millions unless otherwise indicated).

Three Months Ended                   Republic    Cost per ASM     Republic    Cost per ASM
                     September 30      2012         (cents)         2011         (cents)
TOTAL OPERATING REVENUES            $  337.4                     $  396.3
OPERATING EXPENSES:
  Wages and benefits                    76.3           2.23          72.4           1.96
  Aircraft fuel                         25.4           0.74          79.1           2.15
  Landing fees and airport rents        14.7           0.43          17.2           0.47
  Aircraft and engine rent              29.0           0.85          29.0           0.79
  Maintenance and repair                66.6           1.95          65.3           1.77
  Insurance and taxes                    5.7           0.17           7.2           0.20
  Depreciation and amortization         40.4           1.18          42.4           1.15
  Promotion and sales                    3.3           0.10           6.2           0.17
  Other                                 33.6           0.98          28.7           0.78
Total operating expenses               295.0           8.62         347.5           9.43
OPERATING INCOME                        42.4                         48.8
Total non-operating expense, net       (29.8 )        (0.87 )       (32.1 )        (0.87 )
INCOME BEFORE INCOME TAXES          $   12.6                     $   16.7

Three Months Ended                   Frontier    Cost per ASM     Frontier    Cost per ASM
                     September 30      2012         (cents)         2011         (cents)
TOTAL OPERATING REVENUES            $  375.7                     $  371.6
OPERATING EXPENSES:
  Wages and benefits                    66.3           2.18          69.1           2.18
  Aircraft fuel                        135.4           4.44         146.7           4.62
  Landing fees and airport rents        26.0           0.85          23.3           0.73
  Aircraft and engine rent              32.9           1.08          39.4           1.24
  Maintenance and repair                13.8           0.45          15.2           0.48
  Insurance and taxes                    3.5           0.11           3.9           0.12
  Depreciation and amortization          7.3           0.24           6.9           0.22
  Promotion and sales                   24.2           0.79          27.2           0.86
  Other                                 35.2           1.15          39.8           1.25
Total operating expenses               344.6          11.31         371.5          11.70
OPERATING INCOME                        31.1                          0.1
Total non-operating expense, net        (1.3 )        (0.04 )        (1.6 )        (0.05 )
INCOME (LOSS) BEFORE INCOME TAXES   $   29.8                     $   (1.5 )

Republic

Operating Revenues

Operating revenue in 2012 decreased 14.9%, or $58.9 million, to $337.4 million from $396.3 million. The decrease is primarily due to fuel expense for our fixed-fee flying no longer being included in revenue and expense as a pass through cost, which was effective July 1, 2012. Only fuel for pro-rate flying is included in the fuel expense. Total operating and interest expenses, excluding fuel expense, decreased 0.4%, or $1.1 million, to $299.4 million in 2012 compared to $300.5 million in 2011.


Factors relating to significant changes in operating expenses are discussed below.

Aircraft fuel expense decreased 67.9%, or $53.7 million, to $25.4 million for 2012 compared to $79.1 million for 2011, due primarily to United paying fuel costs for partner flying in the third quarter, coupled with the decrease in gallons consumed because of a reduction in pro-rate flying. The unit cost decreased to 0.74 in 2012 compared to 2.15 in 2011.

Promotion and sales expenses decreased by 46.8%, or $2.9 million, to $3.3 million in 2012 compared to $6.2 million for 2011 due mainly to a decrease in pro-rate operations. The unit cost decreased to 0.10 in 2012 compared to 0.17 in 2011.

Other expenses increase by 17.1%, or $4.9 million, to $33.6 million in 2012 compared to $28.7 million in 2011. The increase is primarily due to the Company reaching an agreement to sell five E190 aircraft and 11 DCA slots to US Airways. The Company recorded a gain on sale of slots of $8.3 million and a loss on sale of the E190 aircraft of $11.2 million. The unit cost increased to 0.98 in 2012 compared to 0.78 in 2011.

Frontier

Operating Revenues

Operating revenue in 2012 increased 1.1%, or $4.1 million, to $375.7 million from $371.6 million, on a 4.0% decrease in available seat miles that was more than offset by an improvement in Frontier's unit revenue. Total operating and interest expenses, excluding fuel expense, decreased 7.0%, or $15.9 million, to $210.5 million in 2012 compared to $226.4 million in 2011.

Factors relating to significant changes in operating expenses are discussed below.

Aircraft fuel expense decreased 7.7%, or $11.3 million, to $135.4 million for 2012 compared to $146.7 million for 2011, due primarily to a decrease in the average price per gallon to $3.31 in 2012 from $3.42 per gallon in 2011. The unit cost decreased to 4.44 in 2012 compared to 4.62 in 2011.

Landing fees and airport rents expense increased 11.6%, or $2.7 million, to $26.0 million for 2012 compared to $23.3 for 2011, due primarily to increased costs for landing fees at Denver International Airport ("DIA"). The unit cost increased to 0.85 in 2012 compared to 0.73 in 2011

Aircraft and engine rent expenses decreased by 16.5%, or $6.5 million, to $32.9 million in 2012 compared to $39.4 million for 2011 due mainly to lower aircraft rent expense on restructured leases, which became effective in the fourth quarter of 2011. The unit cost decreased to 1.08 in 2012 compared to 1.24 in 2011.

Consolidated

We recorded an income tax expense of $16.6 million or 39.2% effective tax rate in the current quarter compared with an income tax expense of $6.2 million or 40.8% effective tax rate in the prior year quarter. The effective tax rate for the current and prior quarter are higher than the statutory rate due to state income taxes.


Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

The following table sets forth operational statistics and the percentage-of-change for the periods identified below:

Operating Highlights - Republic                           Nine Months Ended September 30,
                                                        2012             2011          Change
Total revenues (millions)                          $    1,050.0     $    1,174.7        (10.6 )%
Total fuel expense (millions)1                     $      139.6     $      243.0        (42.6 )%
Operating aircraft at period end:
  37-50 seats10                                              64               73        (12.3 )%
  69-99 seats11                                             148              147          0.7  %
Block hours7                                            524,961          557,379         (5.8 )%
Departures                                              306,396          327,226         (6.4 )%
Passengers carried                                   14,949,272       15,861,037         (5.7 )%
Revenue passenger miles ("RPM") (millions) 2              7,560            8,217         (8.0 )%
Available seat miles ("ASM") (millions) 3                10,143           11,091         (8.5 )%
Passenger load factor 4                                    74.5 %           74.1 %    0.4 pts
Cost per ASM, including interest expense (cents)
5 6                                                        9.93            10.32         (3.8 )%
Cost per ASM, including interest expense and
excluding fuel expense (cents)6                            8.56             8.13          5.3  %
Gallons consumed                                     42,569,841       72,954,235        (41.6 )%
Average cost per gallon                                    3.28             3.33         (1.5 )%
Average daily utilization of each aircraft
(hours) 8                                          $       10.0     $       10.0            -  %
Average length of aircraft flight (miles)                   465              501         (7.2 )%
Average seat density                                         68               68            -  %


Operating Highlights - Frontier                                Nine Months Ended September 30,
                                                             2012              2011          Change
Total revenues (millions)                              $     1,088.8      $      992.0          9.8  %
Total fuel expense (millions)                          $       404.1      $      390.4          3.5  %
Operating aircraft at period end:
  120 seats                                                        3                 4        (25.0 )%
  136-138 seats                                                   38                41         (7.3 )%
  162-168 seats                                                   16                14         14.3  %
Passengers carried                                         8,104,148         7,852,132          3.2  %
Revenue passenger miles ("RPM") (millions) 2                   8,075             7,683          5.1  %
Available seat miles ("ASM") (millions) 3                      9,090             8,845          2.8  %
Passenger load factor 4                                         88.8 %            86.9 %    1.9 pts
Total revenue per available seat mile (cents)                  11.98             11.22          6.8  %
Operating cost per ASM (cents) 5 6 9                           11.69             11.98         (2.4 )%
Fuel cost per available seat mile (cents) 9                     4.45              4.41          0.9  %
Cost per ASM, excluding fuel expense (cents)6                   7.24              7.57         (4.4 )%
Gallons consumed                                         120,758,047       119,399,700          1.1  %
Average cost per gallon 9                              $        3.35      $       3.27          2.4  %
Block hours7                                                 163,832           165,116         (0.8 )%
Departures                                                    64,741            65,836         (1.7 )%
Average daily utilization of each aircraft (hours) 8            11.1              11.4         (2.6 )%
Average length of aircraft flight (miles)                        985               965          2.1  %
Average seat density                                             142               139          2.2  %


1. Includes $48.2 million and $79.2 million for the nine months ended September 30, 2012 and 2011, respectively, which is passed-through under our fixed-fee agreements with our Partners. Effective July 1, 2012, United agreed to supply fuel directly to our flights under its code-share agreements and the Company will no longer recognize the cost of fuel and related revenue for fuel used under the United Code-Share Agreement.

2. Revenue passenger miles are the number of scheduled miles flown by revenue passengers.

3. Available seat miles are the number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.

4. Passenger load factor is revenue passenger miles divided by available seat miles.

5. Total operating costs divided by available seat miles.

6. Total operating and interest expenses is not a calculation based on accounting principles generally accepted in the United States of America and should not be considered as an alternative to total operating expenses. Cost per available seat mile utilizing this measurement is included, as it is a measurement recognized by the investing public relative to the airline industry.

7. Hours from takeoff to landing, including taxi time.

8. Average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).

9. Includes mark-to-market fuel hedge expense of $1.7 and a benefit of $0.2 million for the nine months ended September 30, 2012 and 2011.

10. Excludes seven aircraft as of September 30, 2012 that are unassigned.

11. Excludes two aircraft as of September 30, 2012 that are unassigned.


The following table sets forth information regarding the Company's revenues and expenses for the nine months ended September 30, 2012 and 2011. Individual expense components are also expressed in cents per ASM. (In millions unless otherwise indicated).

Nine Months Ended                    Republic     Cost per ASM     Republic     Cost per ASM
                     September 30      2012          (cents)         2011          (cents)
TOTAL OPERATING REVENUES            $ 1,050.0                     $ 1,174.7
OPERATING EXPENSES:
  Wages and benefits                    219.5           2.16          219.7           1.98
  Aircraft fuel                         139.6           1.38          243.0           2.19
  Landing fees and airport rents         47.0           0.46           50.8           0.46
  Aircraft and engine rent               86.1           0.85           88.1           0.79
  Maintenance and repair                178.1           1.76          182.9           1.65
  Insurance and taxes                    18.6           0.18           21.3           0.19
  Depreciation and amortization         121.7           1.20          130.6           1.18
  Promotion and sales                    10.2           0.10           19.8           0.18
  Other                                  94.8           0.93           90.1           0.81
Total operating expenses                915.6           9.03        1,046.3           9.43
OPERATING INCOME                        134.4                         128.4
Total non-operating expense, net        (91.9 )        (0.91 )        (98.6 )        (0.89 )
INCOME BEFORE INCOME TAXES          $    42.5                     $    29.8

Nine Months Ended                    Frontier     Cost per ASM     Frontier     Cost per ASM
                     September 30      2012          (cents)         2011          (cents)
TOTAL OPERATING REVENUES            $ 1,088.8                     $   992.0
OPERATING EXPENSES:
  Wages and benefits                    201.0           2.21          206.2           2.33
  Aircraft fuel                         404.1           4.45          390.4           4.41
  Landing fees and airport rents         82.6           0.91           75.2           0.85
  Aircraft and engine rent              100.0           1.10          105.7           1.20
  Maintenance and repair                 47.3           0.52           45.9           0.52
  Insurance and taxes                    12.1           0.13           11.1           0.13
  Depreciation and amortization          21.6           0.24           21.0           0.24
  Promotion and sales                    76.5           0.84           85.9           0.97
  Other                                 117.2           1.29          118.5           1.34
Total operating expenses              1,062.4          11.69        1,059.9          11.99
. . .
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