Planes not full but Mesa still optimistic
The CEO accuses Hawaiian and Aloha of being "predatory"
Mesa Air Group Inc.'s top executive acknowledged yesterday that go!'s planes aren't as full as he had expected, but that the new interisland airline is not going away.
Jonathan Ornstein, chairman and chief executive of the Phoenix-based carrier, said on a conference call that he had expected go!'s load factor to be in the mid-70 percent range but instead have been running in the mid-60s.
He added that if Hawaiian Airlines
and Aloha Airlines
had not added more seating capacity after go! entered the market that go!'s percentage of seats filled would have been in the range he had been expecting.
"There's been a lot of additional capacity put into the market in an effort to thwart competition," Ornstein said. "If there hadn't been that capacity, which was clearly irrational, (the mid-70s) is where we would be. I think their view may be that they can throw up barriers and that we may be chased out, but that's not going to happen. I think, ultimately, our existence will be accepted and our operations will work the way we expected it."
Ornstein said go! has about 8 percent of the Hawaii market and that the primary reason there has been nearly an 8.4 percent increase in interisland air traffic is largely due to go!'s presence.
"A lot of people talk about the fact that there's a lot of direct flying to the neighbor islands (from the mainland)," he said. "What's happening, too, is, because of our low fares, you can fly to Kauai or Maui for less money connecting through Honolulu. In some cases, you can save up to $200 round trip by making that connection."
Ornstein said he expects the overall seat capacity in the interisland market to eventually go down. Then, turning the tables on Hawaiian and Aloha, he accused the two incumbent carriers of operating in a "predatory" manner.
"Is there room for three carriers? Sure there is," Ornstein said. "Is there room for three carriers with the existing capacity, maybe not. When we entered the market, (Hawaiian and Aloha) decried there wasn't room, there was too much capacity. And what did they do? They added more capacity. If anybody is operating in a predatory or anticompetitive manner, it would be them."
Separately, Ornstein and Mesa's finance chief, Peter Murnane, said discussions with two Chinese carriers are moving along quickly and that they expect to begin operations in that country by the middle to end of next year.
Prior to the conference call, Mesa announced that its fiscal fourth-quarter earnings tumbled 68.3 percent due to pilot training expenses and maintenance costs that both exceeded expectations.
Mesa, which triggered a fare war in Hawaii after beginning service between the islands on June 9, ended the quarter with $238.8 million in cash and equivalents, down from $282.4 million at the end of its fiscal third quarter.
Murnane said the lower cash position was related to the timing of lease payments and that he expected Mesa's cash position at the end of the fiscal year to be about $300 million.
Mesa, which came up far short of analysts' earnings estimates, had net income of $4.7 million, or 12 cents a share, compared with $15 million, or 36 cents a share, a year earlier.
Analysts were forecasting net income of 23 cents a share, according to Thomson Financial.
The company said factors contributing to its lower earnings were pilot training expenses related to its Delta Freedom operation that were $2.5 million higher than planned, and engine overhauls that were $7.8 million higher than anticipated. Fuel costs rose 43.2 percent to $129.6 million from $90.5 million.
Revenue increased 17.3 percent to $362.5 million from $309.1 million due to higher cost reimbursements under its revenue guarantee contracts.
Mesa flies under contract as Delta Connection, United Express and US Airways.