inflightboi175
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http://www.centreforaviation.com/ne...st-vision-yet-of-consolidation-strategy/page1
Republic Airways Holdings (RJET) CEO Bryan Bedford and CFO Hal Copper provided the clearest vision yet of the evolving company since its acquisition of Frontier and Midwest Airlines, at this week’s Next Generation Equity Research (NGER) Airline conference in New York City.
Outlining a new chapter in the US airline industry, Bedford said one of the biggest benefits of the acquisitions was to build solid brands to mitigate any counter-party risk and take advantage of any market opportunities expected from the changes in the US mainline and regional airline industry.
Speaking before analysts, Bedford said he was often peppered with questions as to what he would do should one of the five mainline partners his company flies for “go away.” He noted the rumors of bankruptcies amongst the majors were rampant earlier in the year and began his answer by saying he does not think that would happen given efforts this year to increase liquidity and cover debt payments coming due.
“If that does happen,” Bedford told investors, “and it creates a real void in the market, we have unique assets that allow us to go in. Our branded service creates an essential hedge on counter-party risk with our partners and it puts us in a better position today than we were, quite frankly, a year ago. Today our fixed fee partners have the ability to honor their obligations and our partners are continuing their capacity restraint, their restructuring and capital raising. We don’t think we have risk but this is the airline industry.”
Mover and shaker
While questions have arisen about Republic’s acquisition moves which were considered risky at the outset, Bedford pointed out the company has been profitable in 33 of its 35-years and is enjoying 31 consecutive profitable quarters, consistent growth, and a diverse set of flying partners. His moves have shaken the industry, according to NGER, who described Bedford as one of the airline industry’s most creative strategic thinkers, and as he laid out plans for 2010, analysts were left with nothing to do but agree.
He frankly said that not only would Frontier have survived without Republic’s acquisition, but it would have remained a strong competitor in its home-town Denver market. Its consolidation with Midwest Airlines will make it an even stronger competitor giving it access to the all-important business traveler while Midwest gains access to leisure travelers, both critical changes given changes in the low-cost-carrier industry which has been aggressively pursuing the higher yield traffic. Most want to see a 50/50 split between leisure and business and the consolidation of Frontier and Midwest Airlines fits the new business model.
Republic, said Bedford, is anticipating a USD2.7 billion in group revenues for 2010 split between its fixed fee operations with regionals Shuttle America, Republic Airlines and Chautauqua at USD1 billion and the Frontier/Midwest combination at USD1.7 billion. Its major challenges next year would be continued consolidation of back office functions as well as repairing the negative good will resulting from buying the two franchises at such low prices. “That will impact our GAAP earnings next year and we’ll have to amortize these intangibles,” he said.
The biggest question he received early on was whether Republic was trying to be the next ExpressJet or Independence Air which failed when it launched its own branded service in new, point-to-point markets. ExpressJet would have likely followed were it not for its substantial Continental Express operations. However, its bid straddled the fuel crisis which put paid to what were some very promising results.
“We weren’t developing de novo brands,” said Bedford. “We aren’t repositioning 50-seat regional jets or competing against big jets at established hubs. And we were not going into markets that are untried and untested. We bought two brands that have been in business for 15 and 25 years, respectively with existing revenue streams. And we bought at the bottom of the market. In the case of Midwest, we were buying a revenue stream that was hostage to an uncompetitive cost structure which we’ve now liberated. With Frontier we now have a very competitive cost structure that, we think, will make an even better competitor.”
Bedford said he was also questioned on whether the company had the ability to run both a fixed fee and branded services and whether or not its fixed-fee contracts were solid. “These are long-term contracts,” he responded. “The first contract doesn’t come for renewal until 2012 and that is with Continental for 15 50-seat regional jets. Then the contracts segment all the way through 2020 and our larger-capacity aircraft are under eight-plus-year contracts. There are no loopholes or openings that would create disruptions but we are always cognizant of the counter-party risk.”
He pointed out its lucrative core business provides low cost, high quality jet service at the lowest costs in its peer group. “The low cost gives us the ability to get a premium margin, splitting it between the 50-, 70-, and 90-seat aircraft. We are also a different airline in that we are the only regional using the E-jets.” He noted that Air Canada and JetBlue are using them in mainline service as is US Airways, saying being the only regional to use the ERJ 190 is “a core advantage for us.”
However, the sweetheart contracts regionals enjoyed in the immediate post-9/11 period when mainline airlines were dramatically cutting capacity in favour of their regional partners, are unlikely to continue. Mainline carriers have been comparing their negative profitability and weak margins in even the best of times to regional profitability and eight- to 10% margins. Early this year, both Delta, which is thought to have far too many partners, and US Airways declared that regionals would have to assume more risks in the next-generation mainline/regional deals.
Republic Airways Holdings (RJET) CEO Bryan Bedford and CFO Hal Copper provided the clearest vision yet of the evolving company since its acquisition of Frontier and Midwest Airlines, at this week’s Next Generation Equity Research (NGER) Airline conference in New York City.
Outlining a new chapter in the US airline industry, Bedford said one of the biggest benefits of the acquisitions was to build solid brands to mitigate any counter-party risk and take advantage of any market opportunities expected from the changes in the US mainline and regional airline industry.
Speaking before analysts, Bedford said he was often peppered with questions as to what he would do should one of the five mainline partners his company flies for “go away.” He noted the rumors of bankruptcies amongst the majors were rampant earlier in the year and began his answer by saying he does not think that would happen given efforts this year to increase liquidity and cover debt payments coming due.
“If that does happen,” Bedford told investors, “and it creates a real void in the market, we have unique assets that allow us to go in. Our branded service creates an essential hedge on counter-party risk with our partners and it puts us in a better position today than we were, quite frankly, a year ago. Today our fixed fee partners have the ability to honor their obligations and our partners are continuing their capacity restraint, their restructuring and capital raising. We don’t think we have risk but this is the airline industry.”
Mover and shaker
While questions have arisen about Republic’s acquisition moves which were considered risky at the outset, Bedford pointed out the company has been profitable in 33 of its 35-years and is enjoying 31 consecutive profitable quarters, consistent growth, and a diverse set of flying partners. His moves have shaken the industry, according to NGER, who described Bedford as one of the airline industry’s most creative strategic thinkers, and as he laid out plans for 2010, analysts were left with nothing to do but agree.
He frankly said that not only would Frontier have survived without Republic’s acquisition, but it would have remained a strong competitor in its home-town Denver market. Its consolidation with Midwest Airlines will make it an even stronger competitor giving it access to the all-important business traveler while Midwest gains access to leisure travelers, both critical changes given changes in the low-cost-carrier industry which has been aggressively pursuing the higher yield traffic. Most want to see a 50/50 split between leisure and business and the consolidation of Frontier and Midwest Airlines fits the new business model.
Republic, said Bedford, is anticipating a USD2.7 billion in group revenues for 2010 split between its fixed fee operations with regionals Shuttle America, Republic Airlines and Chautauqua at USD1 billion and the Frontier/Midwest combination at USD1.7 billion. Its major challenges next year would be continued consolidation of back office functions as well as repairing the negative good will resulting from buying the two franchises at such low prices. “That will impact our GAAP earnings next year and we’ll have to amortize these intangibles,” he said.
The biggest question he received early on was whether Republic was trying to be the next ExpressJet or Independence Air which failed when it launched its own branded service in new, point-to-point markets. ExpressJet would have likely followed were it not for its substantial Continental Express operations. However, its bid straddled the fuel crisis which put paid to what were some very promising results.
“We weren’t developing de novo brands,” said Bedford. “We aren’t repositioning 50-seat regional jets or competing against big jets at established hubs. And we were not going into markets that are untried and untested. We bought two brands that have been in business for 15 and 25 years, respectively with existing revenue streams. And we bought at the bottom of the market. In the case of Midwest, we were buying a revenue stream that was hostage to an uncompetitive cost structure which we’ve now liberated. With Frontier we now have a very competitive cost structure that, we think, will make an even better competitor.”
Bedford said he was also questioned on whether the company had the ability to run both a fixed fee and branded services and whether or not its fixed-fee contracts were solid. “These are long-term contracts,” he responded. “The first contract doesn’t come for renewal until 2012 and that is with Continental for 15 50-seat regional jets. Then the contracts segment all the way through 2020 and our larger-capacity aircraft are under eight-plus-year contracts. There are no loopholes or openings that would create disruptions but we are always cognizant of the counter-party risk.”
He pointed out its lucrative core business provides low cost, high quality jet service at the lowest costs in its peer group. “The low cost gives us the ability to get a premium margin, splitting it between the 50-, 70-, and 90-seat aircraft. We are also a different airline in that we are the only regional using the E-jets.” He noted that Air Canada and JetBlue are using them in mainline service as is US Airways, saying being the only regional to use the ERJ 190 is “a core advantage for us.”
However, the sweetheart contracts regionals enjoyed in the immediate post-9/11 period when mainline airlines were dramatically cutting capacity in favour of their regional partners, are unlikely to continue. Mainline carriers have been comparing their negative profitability and weak margins in even the best of times to regional profitability and eight- to 10% margins. Early this year, both Delta, which is thought to have far too many partners, and US Airways declared that regionals would have to assume more risks in the next-generation mainline/regional deals.
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