Mesa’s delays plan to swap its fleet for larger aircraft

The airline's CEO is still optimistic about Hawaii despite losses here

Mesa Air Group Inc. said yesterday it expects to bring in a sixth 50-seat, Bombardier CRJ-200 aircraft by summer for its Hawaii go! operation, but that a plan to swap its fleet for larger 90-seat planes has been delayed.

Jonathan Ornstein, chairman and chief executive of Mesa, said on a conference call following the release of the company's earnings that he expects go! ultimately to be "very profitable" but that the operation lost money last quarter.

"We didn't expect to be profitable within the first year, but it's well within our expectations," he said. "Ultimately, as we continue to gain market share and add frequent-flier members, it ultimately will be a very profitable operation for us. That's why we're doing it."

Ornstein declined to break out the loss, but said in an interview after the conference call that the operating costs for go! are about $2.5 million and $3.5 million a month, or $30 million to $42 million a year.

Mesa, which operates 201 aircraft nationwide and in Canada and Mexico, said net income in its fiscal first quarter fell 38.3 percent to $8 million, or 20 cents a share, from $13 million, or 20 cents a share, a year ago. Revenue rose 7.4 percent to $347.6 million from $323.6 million.

The Phoenix-based company, which said Hawaii represents less than 2 percent of the carrier's available seat miles, has been able to absorb the losses from go! because of the success of its other routes and its strong financial position. Mesa ended the quarter with $256.3 million in cash and equivalents, including $12 million in restricted cash.

Ornstein said his oft-repeated remark about go! being able to afford losing $25 million a year and fly the planes empty is "simple math" but has been misconstrued.

"We're actually about 65 percent full," he said. "When you have a company with a huge base of business that's profitable, we have the ability to sustain losses (with go!) and continue to build our market share. We're moving in the right direction and ultimately feel we'll be profitable. We could afford to lose $25 million, but not forever if we ultimately felt it wouldn't be profitable -- because we are business people. But we have staying power."

Ornstein said go! has been tweaking its operation, such as moving a plane overnight from Hilo to Honolulu because of the market for people who want to see the volcano on the Big Island. He also said go! soon will be adding flights connecting neighbor islands, but declined to disclose the city pair.

Ornstein said plans to bring in the 90-seat aircraft in time for the summer season was pushed back because of a limited supply of the planes and demand for them from Mesa's flying partners.

In addition, Ornstein said go!Express, which will be operated by Mokulele Airlines and fly to the smaller interisland airports, is planning now to start in April. Initially, it was to have begun service in mid-December.

"We have a long-term commitment to Hawaii, and if it takes us six months or one year or two years, we feel and remain confident this will be a very profitable operation for us long term," he said. "It's critically important strategically that we can demonstrate to the industry our ability to operate an independent profitably."

Go!'s load factor, or percentage of seats filled, was 64.2 percent last quarter with the four planes it had in service. A fifth aircraft is kept as a spare.

Ornstein said the load factor is lower than Mesa expected when it entered the market, but said the decreased number was a result of Hawaiian Airlines adding capacity.

"I don't believe this situation will continue as we penetrate the market and continue to add passengers from Hawaii and coming from the mainland," he said.

CORRECTION Saturday, January 27, 2007 » Go! -- the interisland carrier owned by Mesa Air Group Inc. -- has operating costs of between $2.5 million and $3.5 million a month, or $30 million to $42 million a year. Jonathan Ornstein, chairman and chief executive of Mesa, said he supplied outdated numbers in a story that appeared on Page C1 of the Thursday afternoon and Friday morning editions. Please see the applicable Corrections page for more information.