Mesa Air Group generated a $14 million operating profit for its fiscal second quarter, a 41% drop year-over-year, even as the coronavirus crisis has caused a significant drop air travel demand in the USA.
The parent company of Mesa Airlines, which operates flights through capacity purchase agreements with American Airlines and United Airlines, is taking steps to reduce costs including deferring heavy maintenance.
“We believe we are at cash flow break even today,” Mesa chief executive Jonathan Ornstein says during an earnings call on 11 May. “We don’t believe we are suffering from negative cash burn.”
Operating revenue rose to $180 million, up slightly from $177 million during the same quarter in 2019. Operating expenses also inched higher year-over-year to $53 million, rising from $49 million, driven mainly by maintenance costs.
“The losses for most regionals are staggering, but since regionals are paid by the mainline not the passenger it looks different, as the losses are generally the reduction in flying from the major partner rather than the reduction in passengers buying tickets,” Regional Airline Association president Faye Malarkey Black tells Cirium.
Mesa’s capacity purchase agreements with American and United award fixed payments for operating flights even if there are few people on each trip. Most regional carriers at the start of 2020 had been increasing staff to help mainlines meet the growth in travel demand that had been projected before the global spread of coronavirus, says Black. That demand has evaporated amid the health crisis.
At 31 March, the Phoenix-based regional carrier had $52 million in unrestricted cash and equivalents. During the quarter it drew down $23 million from its credit facility and paid $43 million in scheduled principal payments on aircraft and engine debt.
Mesa will receive $92.5 million grants from the federal CARES Act assistance through 30 September to support the pay and benefits for its workers. It will not have to provide collateral to the US Treasury Department because it is receiving less than $100 million. The carrier has also applied for a loan through a separate pool of CARES Act funding but is awaiting more details from Treasury.
If it becomes necessary to downsize in October after CARES payroll support expires, the carrier will reduce administrative staff by less than 100 people and cut crew, including pilots and flight attendants, proportional to how operations are scaled, chief operating officer Brad Rich says.
REARRANGING FLEET
Mesa and mainlines are making changes within their contract parameters to save costs, including providing reduced rates through the end of September and deferring aircraft deliveries. Before the coronavirus travel downturn in the USA began in March, Mesa was operating 630 flights per day, which dropped to 194 flights per day in April, before ticking up slightly to 240 flights per day in May.
United will postpone taking 20 Embraer E175s “until late 2020 and early 2021”, which were initially scheduled to deliver in May, Ornstein said during the call. Mesa will keep 20 Bombardier CRJ-700s through its capacity purchase agreement until the E175s are delivered. After the Embraer jets arrive, the CRJs will be leased to another United Express carrier.
The regional carrier is working to extend its capacity purchase agreement with American, and has, so far, been assured it “will continue to be part of the American portfolio of carriers”, Rich says. Three aircraft that were previously deferred will be removed from the American agreement. Assuming the contract is not extended, 49 of the 56 aircraft in the agreement would expire between January 2021 and April 2022, he adds.
Mesa plans to enter the cargo business before the end of the 2020, which has returned to profitability despite the coronavirus downturn. It will start by operating up to three aircraft that will be provided to them by a cargo operator and plans to eventually expand cargo operations, Ornstein says.
