Frontier Airlines 2008 Annual Report Download - page 43

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Overview
We are a Delaware holding company organized in 1996 that owns three regional airlines: Chautauqua Airlines, Inc.,
(“Chautauqua Airlines”), our operator of 44 to 50 seat aircraft; Shuttle America Corporation (“Shuttle America”), our operator of 70
to 76 seat aircraft; and Republic Airline Inc. (“Republic Airline”), our operator of 76 to 86 seat aircraft. As of December 31, 2008,
our subsidiaries offered scheduled passenger service on approximately 1,250 flights daily to 109 cities in 35 states, Canada, Mexico,
and Jamaica pursuant to code-share agreements with AMR Corp., the parent of American Airlines, Inc. (“American”), Continental
Airlines, Inc. (“Continental”), Delta Air Lines, Inc. (“Delta”), Midwest Airlines, Inc. (“Midwest”), Mokulele Flight Service, Inc.
(“Mokulele”), United Air Lines, Inc. (“United”), and US Airways, Inc. (“US Airways”), (collectively referred to as our “Partners”).
We began flying for Midwest and Mokulele in October and November 2008, respectively. Currently, we provide our Partners with
regional jet service, operating as AmericanConnection, Continental Express, Delta Connection, Midwest Connect, Mokulele Airlines,
United Express, or US Airways Express, including service out of their hubs and focus cities.
Unless the context indicates otherwise, the terms “the Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings
Inc. and our 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.
In January 2007, we entered into a fixed-fee code-share agreement with Frontier Airlines, Inc. (“Frontier”). In April 2008,
Frontier rejected the agreement. Frontier's rejection of the agreement was prompted by its filing for Chapter 11 bankruptcy protection
on April 11, 2008. As of the bankruptcy date, we were operating 12 of the 17 E170 aircraft to be provided under the terms of the
agreement. All 12 E170 aircraft were removed from service with Frontier during the second quarter of 2008.
During 2008 we increased our operational fleet by two aircraft from 219 to 221 aircraft. Our operational fleet is comprised of
127 E170/175, 70-86 seat aircraft, 77 E140/145, 44-50 seat aircraft, and 17 CRJ-200, 50 seat aircraft. During 2008, we took delivery
of 26 E175 aircraft. Thirteen were placed into service for US Airways and 13 were placed into service for Delta. Twenty-four aircraft
were removed from operations during the year. Fifteen 37 seat E135 aircraft were removed from Delta operations, two E135 aircraft
were removed from charter service and seven 50 seat CRJ-200 aircraft were removed from Continental operations. All 24 of the
aircraft removed from service are under agreement to be sold or will be returned to the lessor in 2009.
Also during 2008, we transitioned 12 E170 aircraft from Frontier to Midwest and two E170 aircraft from Delta to Mokulele.
As of December 31, 2008, four E170 aircraft were not operating for our Partners. Of these four aircraft, two are scheduled to go into
operation for Mokulele in 2009 and two are under short-term agreement to operate for Delta between March and September 2009.
As of December 31, 2008, we have agreed to place into service an additional three, new E175 aircraft for Delta during the
first quarter of 2009. These aircraft are covered by firm orders with the aircraft manufacturer. The Company has options for 54 E170
aircraft, which may be converted to options for E175, E190 or E195 aircraft, which range in size from 78 seats to 110 seats.
We expect to reduce our E140/145 and CRJ-200 fleets by a total of 19 aircraft in 2009. Under our Continental agreement, we
expect ten of the 17 remaining CRJ-200 aircraft to be removed from service and returned to the lessor during 2009. The final seven
CRJ-200 aircraft are under leases that expire during the first quarter of 2010. Under our United agreement, seven E145 aircraft are
scheduled to be removed in December 2009. We intend to sell or otherwise sublease these aircraft. In October 2008 we and American
reached an agreement to amend our airline services agreement. A key term of this agreement calls for the removal of two of the 15
E140 aircraft currently operating for American to be removed from service by June 2009. American will continue to reimburse us for
the two aircraft as spares unless we sell, sublease or otherwise place the aircraft.
For the years ended December 31, 2008, 2007 and 2006 respectively, Delta accounted for approximately 29%, 33% and 35%,
US Airways accounted for approximately 25%, 22% and 24%, United accounted for approximately 21%, 24% and 30% and American
accounted for approximately 10%, 9% and 11% of our regional airline services revenues. For the years ending December 31, 2008 and
2007 Continental accounted for approximately 12% and 10% and Frontier accounted for approximately 2% and 2% of our regional
airline services revenues. Midwest accounted for approximately 1% and Mokulele accounted for less than 1% of our regional airline
services revenues for the year ended December 31, 2008.
Fleet Transition and Growth
The following table sets forth the number and type of aircraft in service and operated by us at the dates indicated:
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 16, 2009 Powered by Morningstar® Document Research℠