SkyWest Airlines

Republic and SkyWest move aggressively to avert the fate of their fellow US regional carriers

The two remaining largest US regional airline groups Republic Airways Holdings and SkyWest are working furiously to maintain a reversal of fortunes in order to avoid the fate of their peers American Eagle, Comair and Pinnacle. Eagle and Pinnacle are attempting to formally restructure through Chapter 11 while Comair parent Delta has opted to shutter the carrier in Sep-2012. As both Republic and SkyWest work to whittle down their cost structures to remain competitive, the companies are also looking for ways to make the remaining undesirable 50-seat jets in their fleets viable platforms for their partners – an unenviable but essential undertaking each carrier must complete successfully in order to remain relevant in the changing US regional paradigm.

Both Republic and SkyWest faced significant challenges in 2011. Republic began cost overhaul at its branded subsidiary while SkyWest recorded some of the most disappointing financial results in the company’s history, posting a loss of USD27.3 million - its first annual loss in 23 years. The US regional industry did not adapt quickly enough to the changing business landscape ushered in by the major consolidation of US legacy carriers during the last decade.

SkyWest pledges to buy 100 Mitsubishi jets as it attempts to recover from stinging financial losses

SkyWest has announced at the Farnborough Airshow a fleet replacement plan involving a tentative commitment to order up to 100 Mitsubishi MRJ regional jets. While the order may be seen as a boost for the programme, which has only 70 firm orders, it comes as SkyWest struggles to return to profitability after losing money during 2011 and recording a loss in 1Q2012. As Mitsubishi celebrates securing a high-profile US customer for the MRJ, SkyWest is basing its fleet plans on tenuous scope clause relief to create a small amount of growth in the stagnant US regional market.

Integration challenges created by its acquisition of ExpressJet in 2010 resulted in SkyWest missing its financial results target in each quarter for 2011, which culminated in the company’s first annual loss in 23 years. While the carrier shrank its 1Q2012 losses and promises a return to profitability in 2012, the carrier is embarking on a fleet revamp with little visible growth on the horizon for US regional carriers. The market must undergo change if SkyWest is to receive all 100 aircraft – or even a notable amount.

US airlines to report increasing revenue and strong demand

The distressing economic news this summer made September important in signaling how the US airline industry is performance. Judging from the early operational reports and 3Q2011 guidance issued, traffic and demand are defying the gloom offered by Wall Street and Washington. Indeed, air travel demand is expected to remain strong, which bodes well for the industry's bottom line given the fact capacity continues to tighten.

Still, US airlines are not sanguine about the state of the industry, with most not only pulling capacity in the fourth quarter but signaling the same for 2012 when a number of carriers will be taking delivery of new aircraft but keeping capacity flat. That capacity discipline, in evidence since early Spring when fuel continued its climb, meant the USD6-10 fare hike imposed in mid-September stuck and will likely segue into future hikes as demand remains strong on increasingly tight capacity. For now the hike applies to last minute tickets.

So you think you know your airline market capitalisation: Part 3

The first part of this three-part report on airline market capitalisations described how Air China is valued more on the stock exchange than US carriers United-Continental, JetBlue, Hawaiian Air, AirTran, US Airways, American Airlines, Republic Airways and Skywest combined. In this final section, CAPA reviews some further interesting facts from the equity investment world.

Airbus decision deferred on the A320 NEO, Ryanair and Southwest pushing the debate

The much-anticipated decision by Airbus on whether it will proceed with fitting new engines to the A320 has been delayed until the end of the year. With the company still sorting out A380 production issues and in full-swing developing the A350 XWB, the question of engineering resources has forced Airbus’ executive committee to defer the decision.