Frontier Airlines 2007 Annual Report Download - page 43

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Overview
Republic Airways Holdings Inc. is a Delaware holding company organized in 1996 that owns three regional airlines:
Chautauqua Airlines, Inc., (“Chautauqua Airlines”), our operator of 37 to 50 seat aircraft; Shuttle America Corporation (“Shuttle
America”), our operator of 70-seat aircraft; and Republic Airline Inc. (“Republic Airline”), our operator of aircraft with more than 70
seats. As of December 31, 2007, our subsidiaries offered scheduled passenger service on approximately 1,250 flights daily to 119
cities in 39 states, Canada, Mexico, Jamaica and the Bahamas pursuant to code-share agreements with AMR Corp., the parent of
American Airlines, Inc. (“American”), Continental Airlines, Inc. (“Continental”), Delta Air Lines, Inc. (“Delta”), Frontier Airlines,
Inc. (“Frontier”), US Airways, Inc. (“US Airways”) and United Air Lines, Inc. (“United”), collectively referred to as our (“Partners”).
We began flying for Continental and Frontier in January and March 2007, respectively. Currently, we provide our Partners with
regional jet service, operating as AmericanConnection, Continental Express, Delta Connection, Frontier Airlines, US Airways
Express, or United Express, including service out of their hubs and focus cities in Atlanta, Boston, Denver, Chicago, Cincinnati,
Cleveland, Columbus, Houston, Indianapolis, New York, Philadelphia, Pittsburgh, St. Louis and Washington, D.C. (Dulles and
National).
Unless the context indicates otherwise, the terms “the Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings
Inc. and its subsidiaries.
We have long-term, fixed-fee regional jet code-share agreements with each of our Partners that are subject to our maintaining
specified performance levels. Pursuant to these fixed-fee agreements, which provide for minimum aircraft utilization at fixed rates, we
are authorized to use our Partners' two-character flight designation codes to identify our flights and fares in our Partners' computer
reservation systems, to paint our aircraft in the style of our Partners, to use their service marks and to market ourselves as a carrier for
our Partners. In addition, in connection with a marketing agreement among Delta, Continental and Northwest Airlines, certain of the
routes that we fly using Delta's and Continental’s flight designator codes are also flown under Northwest's designator code. Our
fixed-fee agreements eliminate our exposure to fluctuations in fuel prices, fare competition and passenger volumes. Our development
of relationships with multiple major airlines has enabled us to reduce our dependence on any single airline, allocate our overhead more
efficiently among our Partners and reduce the cost of our services to our Partners.
During 2007 we increased our operational fleet by 48 aircraft for a total operational fleet as of December 31, 2007 of 219
aircraft. Our operational fleet is comprised of 101 ERJ-170/175, 70-86 seat aircraft, 94 ERJ-145 family, 37-50 seat aircraft, and 24
CRJ-200, 50 seat aircraft. During 2007 we added 44 aircraft into service for Continental by transitioning 20 ERJ-145 aircraft from our
US Airways operation and leasing 24 CRJ-200 aircraft. We added five ERJ-170 aircraft to Frontier by transitioning five ERJ-170
aircraft from our US Airways operation. We also added 25 ERJ-175 aircraft for US Airways and removed the five ERJ-170 aircraft
and 20 ERJ-145 aircraft from the US Airways operation. We also removed one ERJ-145 aircraft from our charter service and
subleased the aircraft to an airline in Mexico.
Currently, we have agreed to place into service an additional 29 ERJ-175 aircraft for our Partners through March 2009. These
29 aircraft are covered by firm orders that we have with Embraer. We expect to place 16 of these 29 aircraft into service with Delta
during the second half of 2008 and the first quarter of 2009, which will replace the 16 ERJ-170 aircraft currently in operation with
Delta. Ten of the ERJ-170 aircraft removed from Delta will transition to our United operation during the fourth quarter of 2008 and
the first quarter of 2009; five of the ERJ-170 aircraft removed from Delta will transition to our Frontier operation during 2008; and
one of the aircraft removed from Delta is currently unallocated to our Partners. We expect to place the remaining 13 of the 29
ERJ-175 aircraft into service with US Airways during 2008. Three of these aircraft will replace three ERJ-170 aircraft that will
transition to Frontier during 2008. The Company has options for 74 ERJ-170 aircraft, which may be converted to options for
ERJ-175, ERJ-190 or ERJ-195 aircraft, which range in size from 78 seats to 110 seats.
Under our amended Delta agreement, we agreed to remove from service all 15 of our ERJ-135 at a rate of two aircraft per
month beginning in September 2008. We expect to sell these aircraft to Embraer or another party as the aircraft are removed from
service. Under our Continental agreement, we expect all 24 CRJ-200 aircraft to be removed from service and returned to the
lessor. Currently, we anticipate removing seven aircraft in the fourth quarter of 2008, 10 aircraft in 2009 and seven aircraft in 2010.
For the years ended December 31, 2007, 2006 and 2005 respectively, Delta accounted for approximately 33%, 35% and 34%,
United accounted for approximately 24%, 30% and 32%, US Airways accounted for approximately 22%, 24% and 21% and American
accounted for approximately 9%, 11% and 13% of our regional airline services revenues. Continental and Frontier accounted for
approximately 10% and 2%, respectively, of our regional airline services revenues for the year ended December 31, 2007.
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 21, 2008 Powered by Morningstar® Document Research℠