Airlines and Republic Airways and Transportation, Distribution & Logistics

Republic to cut Chautauqua costs to counter fuel prices

March 1, 2012

Republic Airways Holdings Inc. plans to seek reduced rates from aircraft lessors and vendors in order to cut expenses at its Chautauqua Airlines, where higher fuel prices have made the unit’s smaller jets too costly to operate.

Company executives discussed the effort on a conference call Thursday, without giving a cost-cut target. Republic, based in Indianapolis, undertook a similar $120 million restructuring last year at its Frontier Airlines unit that resulted in a return to annual profit.

Jet-fuel spot prices in New York have averaged $3.12 a gallon during the past 12 months, boosting operating costs above what can be recovered from the industry’s smallest jets. Chautauqua flies 37- to 50-seat regional jets, ferrying passengers from smaller cities to hub airports for larger carriers such as UAL Corp.’s United Continental Holdings Inc.

“We have 65 aircraft we need to return to a productive, cost-efficient basis,” Republic CEO Bryan Bedford said. “We certainly are not expecting our network partners to fix our problems. We’re going to have to fix it ourselves.”

The Frontier results “should be some indication of the team’s ability to make positive progress” on the Chautauqua effort, Bedford said.

The reductions discussed Thursday may take about six months, similar to the time it took to negotiate new agreements with Frontier employees, lessors and vendors, said Peter Kowalchuk, a company spokesman.

Republic is working to pick an adviser for the divestiture of Denver-based Frontier, which it bought out of bankruptcy in 2009, Bedford said last month. The carrier plans to further reduce operations in Milwaukee and Kansas City, where it has cut flights and jobs, and to expand in Denver.

Frontier also will add six seats to each of its 14 Airbus SAS A320 aircraft, bringing the total to 168. The work will begin in mid-April and finish by mid-May, before the summer travel season, Kowalchuk said.

“We’re seeing consistent high demand for our product,” he said. “People want to fly Frontier. The additional seats will allow more people to do so.”

The change follows a similar move by Southwest Airlines Co., which said in January that the addition of six seats to most of its Boeing Co. 737s would boost revenue by at least $250 million a year.

Republic shares rose 1.7 percent, to $5.40 each, in early-afternoon trading. The shares have gained 55 percent this year through Wednesday.

Republic said Wednesday night that fourth-quarter profit, excluding costs to reduce the value of some aircraft and return others, rose to $17 million, or 34 cents a share, from $7.4 million, or 18 cents, a year earlier. That exceeded the 33-cent average of five analysts’ estimates on that basis compiled by Bloomberg.

Including the one-time costs, Republic posted a net loss of $123.5 million, or $2.55 a share.
 

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