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Mesa Air Group

(MESA) - Get Free Report

said Wednesday that its quarterly net income fell 51% because of debt-conversion costs, start-up outlays for a new operation in Hawaii and expenses for recently signed partnerships with legacy carriers.

Phoenix-based Mesa said its earnings declined to $5.3 million, or 14 cents a share, in the second quarter ended March 31. The company earned $10.8 million, or 26 cents a share, a year earlier. The latest results included a $7.5 million charge associated with converting a series of notes to stock.

Excluding items, Mesa would have earned $12.9 million, or 30 cents a share. Revenue was $312.1 million, up 18%, primarily because the size of Mesa's fleet increased. Analysts polled by Thomson Financial had predicted a profit of 30 cents on revenue of $295.5 million.

On a conference call, CEO Jon Ornstein said the response to the planned June 9 startup of service from Honolulu to four island destinations, using 50-seat regional jets, has been strong. Fares on the new carrier, called "go!" start at $39.

"When you cut fares in half, you get a response pretty quickly," Ornstein said. If traffic warrants, Mesa will put in larger, more efficient regional jets in a year or two. He added that Mesa has minimized its risk by flying just four planes, accounting for only 2% of its capacity.

During the quarter, Mesa moved 11 regional jets to its new partners. In total, 59 planes are being moved from the

US Airways


fleet to


( UAUA) United Airlines, which now has 31, and

Delta Air Lines

( DALRQ), which has 20. Ornstein said bankruptcy restructurings by the legacy carriers are creating new opportunities for regionals like Mesa.

"Who would have thought 19 months ago that


(JBLU) - Get Free Report

(would be) a sell and US Airways a buy?" he said. "I think there's been a huge turn in the industry, and there will be a significant opportunity for regional carriers. It was never the hub-and-spoke system that was in question; it was the cost structure."

Ornstein indicated that he had bid for a contract, recently won by

Republic Airways Holdings


, to fly for

Continental Airlines

(CAL) - Get Free Report


"It was their turn to win," he said. Ornstein said he's also interested in flying regional jets in China, which has just 40 operating regional jets.

For the second quarter, Mesa said its revenue per available seat mile was 14.3 cents, up 10%, while costs per available seat mile was 13 cents, up 12.1%. CASM except fuel was 8.3 cents, down 1.2%. Mesa's regional jet fleet grew to 144, up from 136 a year earlier. As of March 31, Mesa had about $282 million in cash.