wigstheone
Apr 6, 02, 8:12 am
One of the many ironies of the airline business is that while the industry incurred record losses of $9 billion last year, independent operators of regional jets such as Atlantic Coast Airlines and Skywest posted strong profits.
This odd occurrence reflects the unusual contractual relationship between the major airlines and their regional partners that largely insulates the regionals from the brutal economics of the industry, including revenue shortfalls and fuel-price swings. These favorable contracts, combined with rising traffic, have enabled the regionals to post solid profits at a time when the major airlines have experienced highly volatile results.
There's some concern on Wall Street, however, that the lucrative arrangements that the regionals have enjoyed with such carriers as United Airlines and Delta Air Lines may change for the worse, if not in 2002, then when annual contracts are set later this year for 2003.
That would be bad news for the regionals, which command relatively high valuations by depressed airline standards. Atlantic Coast, at 24, trades for 19 times projected 2002 profit of $1.25 a share, while Skywest, at 24, fetches 18 times projected 2002 profit of $1.35 a share. Atlantic Coast posted a record profit of $42 million from operations, or 93 cents a share last year, on revenues of $583 million. Skywest netted 94 cents a share in 2001, or $54 million, on revenue of $601 million.
http://online.wsj.com/barrons/article/0,4298,SB1018061087478367120,00.html?mod=this%5Fwe eks%5Fbarrons%5Ffeatures%5Fhs
This odd occurrence reflects the unusual contractual relationship between the major airlines and their regional partners that largely insulates the regionals from the brutal economics of the industry, including revenue shortfalls and fuel-price swings. These favorable contracts, combined with rising traffic, have enabled the regionals to post solid profits at a time when the major airlines have experienced highly volatile results.
There's some concern on Wall Street, however, that the lucrative arrangements that the regionals have enjoyed with such carriers as United Airlines and Delta Air Lines may change for the worse, if not in 2002, then when annual contracts are set later this year for 2003.
That would be bad news for the regionals, which command relatively high valuations by depressed airline standards. Atlantic Coast, at 24, trades for 19 times projected 2002 profit of $1.25 a share, while Skywest, at 24, fetches 18 times projected 2002 profit of $1.35 a share. Atlantic Coast posted a record profit of $42 million from operations, or 93 cents a share last year, on revenues of $583 million. Skywest netted 94 cents a share in 2001, or $54 million, on revenue of $601 million.
http://online.wsj.com/barrons/article/0,4298,SB1018061087478367120,00.html?mod=this%5Fwe eks%5Fbarrons%5Ffeatures%5Fhs