New carrier go! losing about $300 a flight
The company says it can turn a profit by bringing in bigger jets
Mesa Air Group Inc., whose new interisland carrier go! has outperformed its expectations, said yesterday it hopes to bring larger regional jets to Hawaii before the beginning of next summer and no later than the end of 2007.
The Phoenix-based regional carrier made the announcement in conjunction with releasing its fiscal third-quarter earnings, which fell 36.2 percent after the carrier was plagued by bad June weather on the East Coast and additional expenses from shifting planes to other airline systems.
Jonathan Ornstein, chairman and chief executive of Mesa, said on a conference call after the earnings release that go! is losing less than $300 a flight, excluding startup costs. He said go! generates more than $1,700 in revenue a flight with the five 50-seat Bombardier CRJ-200s it flies in Hawaii and go!'s break-even level is less than $2,000 a flight.
He said go! had an operating loss of less than $1 million in the quarter that ended June 30. Go! began service on June 9.
"If we can maintain these load factors (of 82.5 percent of the seats filled), given the way the market operates on peaks, and with the existing fare, the company would be profitable with larger regional jets today," Ornstein said. He noted that go! is performing better this month than it did in June.
Net income for go!'s parent company Mesa fell last quarter to $10.9 million, or 25 cents a share, from $17.1 million, or 40 cents a share, a year ago. Revenue rose 13.5 percent to $339 million from $298.6 million. The company said it had $600,000 in net investment losses during the quarter, but that was more than offset by $9.7 million it received from a US Airways bankruptcy settlement.
Ornstein has previously said go! plans to bring in eight to 12 aircraft into the Hawaii market as early as next year. He said the aircraft, which would replace go!'s five 50-seat Bombardier CRJ 200s, either would be 90-seat CRJ 900s or Embraer 195s, which can seat up to 116 passengers.
"While our focus remains domestic, given our experience with go!, we believe we can operate a remote operation cost effectively and reliably, allowing us to explore international opportunities," said Ornstein, who has said Mesa is looking at flying regionally in China.
Mesa said the larger jets planned for its Hawaii operation will allow it to operate profitably at today's fare structure, in which go! offers flights for as low as $39 one way and weekday flights for as low as $59 round trip.
The lower prices have sparked a fare war in Hawaii with incumbents Hawaiian Airlines and Aloha Airlines forced to match those prices. Go!'s arrival also has triggered a legal fight with Hawaiian, which has sued Mesa for damages and is seeking a preliminary injunction that would prevent go! from selling new tickets for a year.
Hawaiian alleges Mesa used proprietary information for its Hawaii operation that was obtained when Mesa was a potential bidder for Hawaiian during Hawaiian's bankruptcy. Mesa has denied the charge and has countersued Hawaiian for trying to restrain competition.
Go! also has been accused by both Hawaiian and Aloha of keeping prices artificially low to possibly drive one of the existing carriers out of business.
Ornstein has denied the charge and said go! has just a small part of the market and will become profitable when it brings in larger aircraft.
Ornstein said Mesa can absorb go!'s startup costs because of the parent company's cash holdings. At the end of June, Mesa had $269.7 million in cash and equivalents, including $11.7 million in restricted cash.
Go! had no flight cancellations during the quarter, an on-time arrival rate of 88.9 percent and filled 82.5 percent of its available seats. Go! started with three aircraft in its fleet, using one as a spare, and at the end of June added two additional aircraft.
"With almost 6 million passengers traveling a year interisland, we think there's a huge upside," Ornstein said. "The numbers in Hawaii are very exciting and we're trending above our expectations."