ASA's profit margin puts it at head of the regional pack
Fourth-quarter report: Analysts are impressed with the carrier's figures, which some say will grow
By Paul Beebe
The Salt Lake Tribune
Salt Lake Tribune
SkyWest Inc. may have acquired a cash cow when it bought Atlantic Southeast Airlines from Delta Air Lines last September.
ASA, which like SkyWest Airlines flies as Delta Connection for Delta, generated an operating profit margin of 13.1 percent in the fourth quarter - the best financial performance of the seven biggest regional carriers in the United States, according to a U.S. Transportation Department report released Monday.
"It's very good. It's significantly better than the industry average, which in that [segment] seems to be running about 10 percent," said Helane Becker, an airline analyst with Benchmark Co. in New York.
An airline's operating margin measures how profitable its business is before paying taxes. The margin is calculated by dividing operating profits by sales.
ASA's operating profit was $42 million in the final three months of 2005, according to the transportation report. Revenue totaled $320 million.
By contrast, SkyWest Airlines, the St. George-based cousin of Atlanta-based ASA, earned an operating profit of $43 million - just $1 million more. SkyWest's profit was on revenue of $422 million, producing a still-healthy margin of 10.3 percent.
Whether ASA can continue producing strong financial results is uncertain. The company has a poor on-time record that could alienate travelers. Its operating costs are higher than SkyWest Airlines', something CEO Jerry Atkin has pledged to reduce.
"I assume [ASA's] operating margins will come down to that 10 percent [industry average] level. Delta is trying to lower its costs to return to profitability," Becker said.
SkyWest executives were unavailable for comment Monday.
During a speech in Salt Lake City last month, the company's top financial officer, Bradford Rich, joked that it would take a couple of years to determine whether the ASA acquisition justified the attention it has received on Wall Street lately.
Earlier this month, Calyon Securities analyst Ray Neidl predicted SkyWest shares would reach $34 in the next year. On Monday, shares closed at $23.91, down 35 cents.
Mike Boyd, president of the Boyd Group, an Evergreen, Colo.-based airline consulting company, thinks ASA's performance will weaken in the future.
"ASA is a [provider] of service for Delta," Boyd said. "That 13 percent is based on what Delta agreed to pay them, not on what they did on their own. That's probably going to change going forward."
SkyWest bought ASA for $425 million. The deal closed Sept. 7, a week before Delta filed for Chapter 11 bankruptcy protection, raising cash for the nation's third-biggest airline.
Delta is using the money, as well as millions more, to overhaul itself and, it hopes, to emerge from bankruptcy in 2007.
The Transportation Department report underscored the financial problems major airlines like Delta are having. As a group, big airlines produced a $1.3 billion operating loss in the fourth quarter, resulting in a -8.4 percent operating loss margin.
By contrast, regional carriers, including ASA and SkyWest, earned a total of $211 million, producing an 8.7 percent profit margin.
[email protected]
Fourth-quarter report: Analysts are impressed with the carrier's figures, which some say will grow
By Paul Beebe
The Salt Lake Tribune
Salt Lake Tribune
SkyWest Inc. may have acquired a cash cow when it bought Atlantic Southeast Airlines from Delta Air Lines last September.
ASA, which like SkyWest Airlines flies as Delta Connection for Delta, generated an operating profit margin of 13.1 percent in the fourth quarter - the best financial performance of the seven biggest regional carriers in the United States, according to a U.S. Transportation Department report released Monday.
"It's very good. It's significantly better than the industry average, which in that [segment] seems to be running about 10 percent," said Helane Becker, an airline analyst with Benchmark Co. in New York.
An airline's operating margin measures how profitable its business is before paying taxes. The margin is calculated by dividing operating profits by sales.
ASA's operating profit was $42 million in the final three months of 2005, according to the transportation report. Revenue totaled $320 million.
By contrast, SkyWest Airlines, the St. George-based cousin of Atlanta-based ASA, earned an operating profit of $43 million - just $1 million more. SkyWest's profit was on revenue of $422 million, producing a still-healthy margin of 10.3 percent.
Whether ASA can continue producing strong financial results is uncertain. The company has a poor on-time record that could alienate travelers. Its operating costs are higher than SkyWest Airlines', something CEO Jerry Atkin has pledged to reduce.
"I assume [ASA's] operating margins will come down to that 10 percent [industry average] level. Delta is trying to lower its costs to return to profitability," Becker said.
SkyWest executives were unavailable for comment Monday.
During a speech in Salt Lake City last month, the company's top financial officer, Bradford Rich, joked that it would take a couple of years to determine whether the ASA acquisition justified the attention it has received on Wall Street lately.
Earlier this month, Calyon Securities analyst Ray Neidl predicted SkyWest shares would reach $34 in the next year. On Monday, shares closed at $23.91, down 35 cents.
Mike Boyd, president of the Boyd Group, an Evergreen, Colo.-based airline consulting company, thinks ASA's performance will weaken in the future.
"ASA is a [provider] of service for Delta," Boyd said. "That 13 percent is based on what Delta agreed to pay them, not on what they did on their own. That's probably going to change going forward."
SkyWest bought ASA for $425 million. The deal closed Sept. 7, a week before Delta filed for Chapter 11 bankruptcy protection, raising cash for the nation's third-biggest airline.
Delta is using the money, as well as millions more, to overhaul itself and, it hopes, to emerge from bankruptcy in 2007.
The Transportation Department report underscored the financial problems major airlines like Delta are having. As a group, big airlines produced a $1.3 billion operating loss in the fourth quarter, resulting in a -8.4 percent operating loss margin.
By contrast, regional carriers, including ASA and SkyWest, earned a total of $211 million, producing an 8.7 percent profit margin.
[email protected]
