Ellen

Interesting Regional Airline article
http://news.morningstar.com/article/....asp?id=175416


Declining Profitability Is Inevitable
So, what does all this mean? For one thing, we expect operating margins to continue to fall for the regional group. For example, our long-term operating margin assumptions for Mesa Air (MESA) and ExpressJet are significantly lower than their 2005 levels. Additionally, we think SkyWest and Republic will experience reduced profitability in coming years, as legacy carriers continue to seek out the lowest-cost regional service provider. Our long-term margin forecasts would be even lower for these regional carriers if we excluded the positive impact from declining fuel costs, which are direct pass-through expenses.

What's more, due to the fragility of regional carrier contracts and the "musical chairs" the industry has experienced in recent years, we have little confidence in the sustainability of a regional carrier's future free cash-flow streams. Though we expect the number of code-share feeders to decline as carriers with bloated cost structures fail or team up with better operators, we do not think this change will be enough to stifle cutthroat competition among the regional clique. As investors may have gathered by now, we think regional airlines represent poor long-term investment opportunities.

smoke

whoopeee ellen

ryane946

Bought Skywest stock in March 2003 at $10.00 a share and sold it at $24.00 a share. Nice little $1,400 gain for a teenager.
Who says you can't make money investing in regional airlines.

freezingflyboy

Heres a little business 101 Ellen:
The regional carriers will not continue to lower the bar to the point that they can't make money. There will come a point where the management at the regionals will take a stand and say to the mainline carriers "look, if we do it cheaper, we will lose our shirts. This is our offer, take it or leave it." Even if the pilots and FAs worked FOR FREE airplanes, gas, facilities, equipment, etc. cost money. Bottom line: the regional airlines are in business to make money. They aren't providing a service because they get a kick out of flying around little metal tubes full of people.

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When present tense gets strangled in the woes made of our future FOe scenarios

mike734

Don't be so sure. From my experience airline presidents are very fond of being an airline president. Profit or no profit, these guys are all about ego.

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freezingflyboy

I agree in principle But shareholders are who really hold the cards and if the airline is bleeding money then its gonna be awful hard to hold on to that sweet CEO job. And its awful hard for a CEO to pay off his mistress with red ink

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When present tense gets strangled in the woes made of our future FOe scenarios

hatetobreakit2u

um managment at the majors never had enough brains to say this, why do you think managment at regionals are any smarter

its all a big crapshoot as to picking the cheapest regional that will be around for enough time for me to get my PIC and get out, by that equation it almost makes sense for me to pick MESA

Ellen

Way to go! You did what most people do not do. SELL after a GAIN. Most hold for bigger gains only to watch the stock plummet past the point of entry.

freezingflyboy

Ummm, mainline carriers sell their own tickets... Almost all regionals operate on a fee for departure basis. The are 2 reasons a mainline carrier sells its product below cost: 1) They are trying to gain or protect market share (NWA flying 757s from Fargo, ND to Las Vegas) and 2) Their business plan is fundamentally flawed and they are not able to accurately and effectively manage yeild (Independence Air with their 106% break even load factor). You don't need me to tell you how well those endeavors worked out. If regional A says to mainline B "hey guys, the bare bones, absolute minimum cost to us is $600 per block hour but we are willing to charge you $400 per block hour just to have the business." If regional A is flying 40,000 block hours per month and losing $200 per block hour then the VERY BEST that airline can do is LOSE almost $100 million per year. AT THE VERY BEST!!! How long do you think a board of directors and a shareholder group are willing to stand for that? Despite popular belief, airlines do NOT print their own money. You can't pay CEOs, managers, board member fees all the way down to the lav dumber with red ink.

And hatetobreakit2u, what do you care who the cheapest regional is? That should be at the bottom of list just after which airline's crewroom has the most comfortable chairs. You should be more concerned with with upgrade time, QOL, pay, work rules, company fundamentals, etc. If you think Mesa is the best place to get quick PIC I think you may be in for a surprise.

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When present tense gets strangled in the woes made of our future FOe scenarios

Ellen

I agree with freezingflyboy . . . specifically the Company fundamentals. The longer a company is around the more opportunity for everything else to fall into place.