Boneman

United deal to boost ExpressJet revenue by 10 pct-CEO
Tue Dec 8, 2009 7:21pm EST
Stocks

UAL Corporation
UAUA.O
$9.87
+0.04+0.41%
12:00am EST

ExpressJet Holdings, Inc.
XJT.N
$3.95
-0.02-0.50%
12:00am EST

Continental Airlines, Inc.
CAL.N
$15.91
+0.01+0.06%
12:00am EST
*Regional carriers' competition heating up

*Shares ended up 2 cents

By Deepa Seetharaman

NEW YORK, Dec 8 (Reuters) - The contract with UAL Corp's (UAUA.O) United Airlines could boost ExpressJet Holdings Inc's (XJT.N) revenue by 10 percent, the regional airline's outgoing CEO said on Tuesday.

Jim Ream, who is leaving ExpressJet at the end of this month, said the contract he signed will leave the company in a more competitive position. [ID:nN0151000]

"It gives us (ExpressJet) an opportunity to really diversify what we do for a living," he said in a telephone interview.

Last month, ExpressJet, once a subsidiary of Continental Airlines (CAL.N), announced a deal with United to fly 22 planes under the United Express banner starting in May 2010.

Such contracts are the bread and butter for regional, or commuter, airlines and can offer between 5 percent and 12 percent operating margins.

Ream said on a run-rate basis, revenue could increase 10 percent due to the United contract.

"When all the aircraft are in place and flying, if you look at that point in time and if you look at where we were in the previous year, that would be a 10 percent increase," he said.

ExpressJet had revenue of $179.2 million in the third quarter ended Sept. 30.

Six other carriers were vying for the United contract, underscoring the growing competitiveness of the industry, he said.

"These agreements...are going to be few and far between and they're going to be very competitive in trying to win that business," Ream said.

He will be starting at AMR Corp's (AMR.N) American Airlines on Jan. 1 as head of global maintenance operations. ExpressJet has named one of its board members, T. Patrick Kelly as interim CEO.

ExpressJet was also dealt a blow when a flight it was operating for Continental sat on a tarmac loaded with passengers for seven hours in an airport in Rochester, Minn. on Aug. 8. The incident sparked the ire of U.S. transportation officials and passengers alike.

Last month, ExpressJet and Continental were fined $100,000 for the incident. [ID:nN24308284]

The announcement of the United deal also boosted ExpressJet's stock and prompted on analyst to upgrade its shares and project a profitable 2010.

Ream struck a more measured tone about the regional carrier's profit outlook, projecting a return to profit by mid-2010.

"Buried in that analysis is an assumption that the majors are flying back to the (prior) utilization levels," Ream said. "I'm going to wait to see how 2010 is going to be."

ExpressJet shares closed at $3.95 on the New York Stock Exchange during Tuesday trading.

The Juice

I don't understand the meaning of the thread title, how did they get Reamed?

Seems to me like Ream left on a positive note in securing more flying for the near future, which is a good for XJet.

As far as a return to profit by mid-2010, well that depends on oil now doesn't it

Fly2lunch

lol....

goaround2000

Not under the terms of the CPA. This is not a pro-rate operation, so UA gets the bill.

The Juice

Who then pays for the "go juice" for your charter flying?

Also, dont think for a second that just because you are in a CPA that the price of oil does not affect your ops. When oil goes up north of $100 the 50 seat market does not look that great to mainline operators looking for regional partners.

goaround2000

Clearly you don't understand the terms of the agreement, nor the fact that we're signed on for a specific amount of time with our partners. Oil is not a factor, as mentioned earlier both UA and CAL will pay the bill for the fuel and Charter passes the cost on to the customer.

Seems to me, you guys got better things to worry about over at Colgan other than the terms of CPA's at XJT, which have no impact on your contract negotiations.

The Juice

You are so confused. "Pass the cost to the customer," has limits. If you continue to pass it the customer will say "no more" at one point and fly something other than charter.

And trust me, I am not worried at all about the xjet CPA. Why are you so hostile? You are going to end up on Santa's naughty list if you keep it up

dojetdriver

True, it would come to a point in charter would become cost prohibitive. But one thing about the charter side is the cost of the leases on those airframes.

trip

The Express bid was so substantially lower than the rest of the field it has raised some eyebrows in the industry. Whats is CO's role in this? Do they or will they hold the leases on Express Jets planes??

dojetdriver

Of course, a bid was put out and the cheapest one got it. It's UAL afterall.

Who knows what CAL's role may have been in this whole thing, if any at all. CAL holds the leases on the airframes, THEN subleases them to XJT. Part of the new CPA with CAL is that the planes that XJT flies that are OTHER THAN COEX are only charged 1/2 the lease rate.

That's what makes the price on charter, and anything else competitive.

People seem to think that XJT is doing it at a loss, doubtful. XJT's cash position wouldn't be able to hold out 2/3 years at a loss. Some people like to cry foul about how XJT must have undercut the other carriers and are lowering the bar. Again, not the case. The reason is that XJT is competitive on price due to the restructure of the CPA with CAL and how it freed them up to do things with those non COEX airframes.

The previous CPA has a ton or restrictions on what they couldn't do with the 69 airplanes that were pulled from the COEX system and used in Branded, Delcon, and charter operations.