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Republic Airways Holdings Inc. (RJET), SkyWest, Inc. (SKYW): A New Business Strategy

inflightboi175

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Southwest Airlines Co. (NYSE:LUV) is another company that is leasing aircraft as opposed to financing them. The company is a customer to Air Lease Corp (NYSE:AL), and its net income will be favored due to lower payments on interest rates. Also, the carrier has the advantage of being able to break any leasing contract (with a penalty fee) if passenger traffic becomes unfavorable.
Delta Airlines, Inc. (NYSE:DAL) is also switching from owning to leasing. The carrier manages a fleet of 719 aircraft, of which 155 are leased, or 21%.
I believe these carriers are taking the necessary measures to increase their net income. Leasing future aircraft will help the airlines reduce their operating expenses and debt.
The underperformer
SkyWest, Inc. (NASDAQ:SKYW) has not fared as well as Republic Airways. The carrier has barely outperformed the S&P 500 by rallying 17%. Nonetheless, it is trading with a P/E of 13.7, and a forward P/E of 10.1. The company?s revenues declined $117 million to $803 million for the first quarter of 2013. Its net income declined $5 million to $15.5 over the same period.
The company?s cash and cash equivalents totaled $631 million, down from $709 million in Dec. 31, 2012. According to the company, the $78 million was used for debt repayment. However, its debt decreased only by $30 million.
I do not feel comfortable with the SkyWest, Inc. (NASDAQ:SKYW) purchase order of 100 new aircraft from Mitsubishi. If things do not go as they planned, it will end up with a massive amount of debt. Even if the company?s load factor remains unchanged after the huge addition in available seat miles, the company will have to pay enormous amounts of cash due to high interest rates, and it will see substantial losses in its net income. I believe it is a risky strategy from the carrier, and it may be riskier for its investors.
The foolish conclusion
Republic Airways and Skywest, Inc. (NASDAQ:SKYW) have rallied this year. Even though Republic Airways has rallied 90%, I believe the carrier offers a higher potential for capital appreciation than Skywest, Inc. (NASDAQ:SKYW). The company is decommissioning aircraft to reduce its operational expenses, and it uses leasing agreements to gain access to newer, more fuel-efficient, and comfortable aircraft.
On the other hand, Skywest, Inc. (NASDAQ:SKYW) will pay a substantial amount of cash in interest rates. Its revenue declined, as well as its net income, and I fear the acquisition of 100 new aircraft might not end up well. For these reasons, I recommend Republic Airways as a long position.
The article A New Business Strategy for Airlines to Increase Profits originally appeared on Fool.com.

Airline stocks have outperformed the market after a long curse. It was not uncommon to think about airline companies as the worst possible investment ever. However, most of them have been rallying this year, easily outperforming the S&P 500. Republic Airways Holdings Inc. (NASDAQ:RJET) and SkyWest, Inc. (NASDAQ:SKYW) are two regional airlines of roughly the same valuation by market capitalization.

However, Republic Airways Holdings Inc. (NASDAQ:RJET) has rallied 90% year-to-date, while SkyWest, Inc. (NASDAQ:SKYW) has rallied 17%. We should discuss which airline may be positioned for bigger gains in the near future taking into account several metrics, most importantly aircraft- leasing contracts.

Regional airlines act as little giants

Regional airlines such as Southwest Airlines Co. (NYSE:LUV) have outperformed major airlines such as Delta Air Lines, Inc. (NYSE:DAL). However, Republic Airways Holdings Inc. (NASDAQ:RJET) has almost doubled its price per share in 2013. What?s more is that the company is trading with a P/E of 9.1, and a forward P/E of approximately 6.0, which could be considered cheap on valuation terms. Southwest Airlines Co. (NYSE:LUV) is trading with a P/E of 28.2, and Delta Air Lines, Inc. (NYSE:DAL) is trading with a P/E of 17.6.

I believe the Republic Airways Holdings Inc. (NASDAQ:RJET) should continue to bring capital appreciation to its shareholders. The company had a strong first quarter in 2013 according to its most recent earnings report. Although its total revenue declined 9% to $635 million in the period, a 31% decrease in fuel-related expenses offset the losses in revenue. Its net income rose 35% to $30 million. It was the first time in four years that the company had a profitable first quarter.

Further, it is important to mention that the company was able to decrease its debt load by $80 million on a year-over-year basis. The company finished the first quarter with approximately $1.8 billion in debt, or a debt/equity ratio of 3.4.

Looking ahead, the carrier is reducing costs of operation by selling aircraft. The company sold five airplanes and returned two more to lessors. Personally, I like Republic Airways Holdings Inc. (NASDAQ:RJET)'s business model because it is returning unnecessary aircraft, and this strategy saves enormous amounts of fuel. Its load factor will increase, and the revenue per flight will jump significantly.

In addition, Republic Airways Holdings Inc. (NASDAQ:RJET) is leasing aircraft as opposed to financing new aircraft. Financing aircraft is dangerous because usually the airlines get unfavorable interest rates due to the amount of debt they carry. However, Republic Airways should not have this issue, and it makes it more competitive against other companies. Hence, this company should offer substantial value in the future.
 

fastback

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In addition, Republic Airways Holdings Inc. (NASDAQ:RJET) is leasing aircraft as opposed to financing new aircraft. Financing aircraft is dangerous because usually the airlines get unfavorable interest rates due to the amount of debt they carry. However, Republic Airways should not have this issue, and it makes it more competitive against other companies. Hence, this company should offer substantial value in the future.

The author neglected to point out that Skywest gets favorable finance rates to those of RJet due to higher cash on hand.

Also, doesn't seem to understand that the MRJ are not a commitment.

Also, referring to LUV as a regional airline?

Fool just lets anybody contribute these days,
 

s.o.sJTB

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Who is this clueless "analyst". Skywest stock was trading as low as $6 last summer and shot to $14 now, went as high as $16.

No mention of the 40 E175's ordered, the 60 more when the flying is a acounted for (AMR) and the 100 other options. Everyone knows the the MRJ's aren't likely to happen at SKYW.

No mention of the labor strife at RJET and no mention of SKYW's ability to secure very favorable financing terms on its aircraft, woke RJET and BB are all over the place in over their head.

This guy is clueless, I bet Rjet stock tanks within the next year.
 

General Lee

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This part was interesting:


"I do not feel comfortable with the SkyWest, Inc. (NASDAQ:SKYW) purchase order of 100 new aircraft from Mitsubishi. If things do not go as they planned, it will end up with a massive amount of debt. Even if the company?s load factor remains unchanged after the huge addition in available seat miles, the company will have to pay enormous amounts of cash due to high interest rates, and it will see substantial losses in its net income. I believe it is a risky strategy from the carrier, and it may be riskier for its investors."




As I have stated before, I talked to an FAA jumpseater to Nagoya, Japan (where the manufacturer HQ is located) from Honolulu. He said he makes periodic checks on that facility to look at new manuals, checklists, and compliance issues with a new type and the eventual certification process. I asked him how it was all going, and after a long pause, he stated "it was interesting."

Sounds like that thing will be really neat to see, all of them in SKW colors, going...??????? Are any of them scheduled to fly feed for legacies? Will there be an "Indy Air" operation for them? It will be interesting to watch, no doubt.


Bye Bye---General Lee
 
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1.3XVso

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This part was interesting:


"I do not feel comfortable with the SkyWest, Inc. (NASDAQ:SKYW) purchase order of 100 new aircraft from Mitsubishi. If things do not go as they planned, it will end up with a massive amount of debt. Even if the company?s load factor remains unchanged after the huge addition in available seat miles, the company will have to pay enormous amounts of cash due to high interest rates, and it will see substantial losses in its net income. I believe it is a risky strategy from the carrier, and it may be riskier for its investors."




As I have stated before, I talked to an FAA jumpseater to Nagoya, Japan (where the Mitsubishi HQ is located) from Honolulu. He said he makes periodic checks on that facility to look at new manuals, checklists, and compliance issues with a new type and the eventual certification process. I asked him how it was all going, and after a long pause, he stated "it was interesting."

Sounds like that thing will be really neat to see, all of them in SKW colors, going...??????? Are any of them scheduled to fly feed for legacies? Will there be an "Indy Air" operation for them? It will be interesting to watch, no doubt.


Bye Bye---General Lee

I wonder if that FAA guy knew that you are genital pee at flight info! I need to find out who that fed guy was to find out who you are to plant my size 11 foot in your arse for being a tool bag.
 

General Lee

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I wonder if that FAA guy knew that you are genital pee at flight info! I need to find out who that fed guy was to find out who you are to plant my size 11 foot in your arse for being a tool bag.

Ahahaha! Good luck with the MRJs!!!


Bye Bye---General Lee
 

AntiJedi

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This part was interesting:


"I do not feel comfortable with the SkyWest, Inc. (NASDAQ:SKYW) purchase order of 100 new aircraft from Mitsubishi. If things do not go as they planned, it will end up with a massive amount of debt. Even if the company?s load factor remains unchanged after the huge addition in available seat miles, the company will have to pay enormous amounts of cash due to high interest rates, and it will see substantial losses in its net income. I believe it is a risky strategy from the carrier, and it may be riskier for its investors."

As I have stated before, I talked to an FAA jumpseater to Nagoya, Japan (where the manufacturer HQ is located) from Honolulu. He said he makes periodic checks on that facility to look at new manuals, checklists, and compliance issues with a new type and the eventual certification process. I asked him how it was all going, and after a long pause, he stated "it was interesting."

Why are you comparing an analyst's interpretation of eventual financial debt and risk with the MRJ order, to the process of building and certifying the MRJ? They have absolutely nothing in common aside from the name of the plane!

Also, I just love how you quote, and requote the same anecdote from nearly 2 years ago, as if it's fresh off-the-press news. Granted, press releases are few and far between about the MRJ, but it's not like they're just sitting there, twittling their thumbs doing nothing to improve the product or their processes.
 
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General Lee

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Why are you comparing an analyst's interpretation of eventual financial debt and risk with the MRJ order, to the process of building and certifying the MRJ? They have absolutely nothing in common aside from the name of the plane!

Also, I just love how you quote, and requote the same anecdote from nearly 2 years ago, as if it's fresh off-the-press news. Granted, press releases are few and far between about the MRJ, but it's not like they're just sitting there, twittling their thumbs doing nothing to improve the product or their processes.

Well, first off I don't think it is a proven aircraft, so that was risky in itself to even consider buying one or 100 when the plane was still in the planning stage. I don't think that was smart, and neither did the analyst.(he did state "if things don't go as planned") Remembering what the FAA jumpseater told me enforced that idea also. You are welcome for the insight, and hopefully that plane will be everything your management wanted it to be.


Bye Bye---General Lee
 

AntiJedi

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Well, first off I don't think it is a proven aircraft

Of course it's not proven! The first plane's not even built yet!

The 787 was still in the planning stage when it got plenty of orders. Lack of an airplane certainly didn't stop anyone from ordering more, either!

I'd be welcome of your "insight" if what you heard was more recent, and thus more relevant.
 

General Lee

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Of course it's not proven! The first plane's not even built yet!

The 787 was still in the planning stage when it got plenty of orders. Lack of an airplane certainly didn't stop anyone from ordering more, either!

I'd be welcome of your "insight" if what you heard was more recent, and thus more relevant.

More relevant? Please show me a current pic of the MRJ? Looks like it's at the same stage, the stage of nowhere. And are you comparing the 787 to the MRJ? Really? Boeing has a proven track record for building commercial aircraft. How about Mitsubishi? I'm waiting.....but hey, order 100 of something that hasn't been built, or has any previous models to compare SOMETHING to....anything....

I can't wait to see it, really.


Bye Bye---General Lee
 

AntiJedi

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More relevant? Please show me a current pic of the MRJ? Looks like it's at the same stage, the stage of nowhere. And are you comparing the 787 to the MRJ? Really? Boeing has a proven track record for building commercial aircraft. How about Mitsubishi? I'm waiting.....but hey, order 100 of something that hasn't been built, or has any previous models to compare SOMETHING to....anything....

I can't wait to see it, really.


Bye Bye---General Lee

And that entire argument is IRrelevant. It has NOTHING to do with your inability to provide a more recent anecdote.
 

wms

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Well, first off I don't think it is a proven aircraft, so that was risky in itself to even consider buying one or 100 when the plane was still in the planning stage. I don't think that was smart, and neither did the analyst.(he did state "if things don't go as planned") Remembering what the FAA jumpseater told me enforced that idea also. You are welcome for the insight, and hopefully that plane will be everything your management wanted it to be.


Bye Bye---General Lee

It's not a proven aircraft, and will not be purchased by Skywest. It's a foolish idea of a possible leap into aircraft that are scoped out of CPAs and a lame attempt to get leverage on Embraer.
 

Data

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Personally, I like Republic Airways Holdings Inc. (NASDAQ:RJET)'s business model because it is returning unnecessary aircraft, and this strategy saves enormous amounts of fuel.

Good thing they don't pay for their fuel, that'd really throw this analyst off. :rolleyes:
 

PBRstreetgang

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Well, first off I don't think it is a proven aircraft, so that was risky in itself to even consider buying one or 100 when the plane was still in the planning stage. I don't think that was smart, and neither did the analyst.(he did state "if things don't go as planned") Remembering what the FAA jumpseater told me enforced that idea also. You are welcome for the insight, and hopefully that plane will be everything your management wanted it to be.


Bye Bye---General Lee
Rich,
Do you speed up the MS flt sim get the cruise done or do you take a nap in your bed and wake up early to finish the sim flight. I do know who the Fed was, it was your cat, Mr Bigglesworth, he "ENFORCED that idea". Did you bump you head getting into your apartment? A FAA inspector in your jumpseat that said anything except meow, is laughable, and is believable only while high on LSD.
Good one Genny!
BTW, A "Letter of Intent" is nothing more than a press release, but you knew that, right?
 
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General Lee

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Rich,
Do you speed up the MS flt sim get the cruise done or do you take a nap in your bed and wake up early to finish the sim flight. I do know who the Fed was, it was your cat, Mr Bigglesworth, he "ENFORCED that idea". Did you bump you head getting into your apartment? A FAA inspector in your jumpseat that said anything except meow, is laughable, and is believable only while high on LSD.
Good one Genny!
BTW, A "Letter of Intent" is nothing more than a press release, but you knew that, right?

Pasquale,


So, are you and "uncle" Steve going to go camping today? You guys going to go hike together up to that secluded waterfall that you were bragging about before? Cool, you guys have fun!


Bye Bye---General Lee
 

PBRstreetgang

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Pasquale,


So, are you and "uncle" Steve going to go camping today? You guys going to go hike together up to that secluded waterfall that you were bragging about before? Cool, you guys have fun!


Bye Bye---General Lee
Poor Genny,
Too bad you are transposing your own homoerotic fantasies on the Internet.
Don't worry there is someone out there for you, Hellen Keller comes to mind, but feel free to pick according to whatever your persuasion might be.
Don't worry you will find someone someday.
 

Erlanger

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This part was interesting:


"I do not feel comfortable with the SkyWest, Inc. (NASDAQ:SKYW) purchase order of 100 new aircraft from Mitsubishi. If things do not go as they planned, it will end up with a massive amount of debt. Even if the company?s load factor remains unchanged after the huge addition in available seat miles, the company will have to pay enormous amounts of cash due to high interest rates, and it will see substantial losses in its net income. I believe it is a risky strategy from the carrier, and it may be riskier for its investors."




As I have stated before, I talked to an FAA jumpseater to Nagoya, Japan (where the manufacturer HQ is located) from Honolulu. He said he makes periodic checks on that facility to look at new manuals, checklists, and compliance issues with a new type and the eventual certification process. I asked him how it was all going, and after a long pause, he stated "it was interesting."

Sounds like that thing will be really neat to see, all of them in SKW colors, going...??????? Are any of them scheduled to fly feed for legacies? Will there be an "Indy Air" operation for them? It will be interesting to watch, no doubt.


Bye Bye---General Lee

Everybody at SkyWest knows that this MRJ order was a ploy. But know one outside of the company realizes this or knows how SkyWest operates. SkyWest has done stuff like this before. The MRJs will never ever be flown by any SkyWest, Inc company. They never intended to.
 

General Lee

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Everybody at SkyWest knows that this MRJ order was a ploy. But know one outside of the company realizes this or knows how SkyWest operates. SkyWest has done stuff like this before. The MRJs will never ever be flown by any SkyWest, Inc company. They never intended to.


Do the people in Japan realize this? Are they mad? I think I will wait until they actually cancel the order.... Until then, I can't wait to see them in SKW colors!


Bye Bye---General Lee
 

General Lee

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Poor Genny,
Too bad you are transposing your own homoerotic fantasies on the Internet.
Don't worry there is someone out there for you, Hellen Keller comes to mind, but feel free to pick according to whatever your persuasion might be.
Don't worry you will find someone someday.

So, how was the waterfall? Did you and "Uncle" Steve have fun? Did you ride up there on his motor scooter? Sure you did.


Bye Bye---General Lee
 
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