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Republic Airways


Out of the spotlight, Indy's "Other" airline soaring

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May 12, 2008

ATA Airlines may have crashed and burned. But the other Indianapolis carrier is flying high.

Republic Airways Holdings Inc. earned $83 million in 2007, and profit might approach $100 million this year, according to the investment firm Raymond James. Revenue cracked $1 billion in 2006 and might surpass $1.5 billion this year.

This at a time analysts are wringing their hands over which airline might be next to go bankrupt and cease operations. Skybus, Aloha Airlines and the hometown airline ATA all shut down the first week of April.

"Republic continues to do well, and has grown and prospered in good times and bad," said Warren Wilkinson, a company vice president.

Now is about as bad as it gets. As Calyon Securities analyst Ray Neidl said in a recent report, The U.S. industry domestically has too many airlines offering too many seats through too many expensive hub operations. This has led to ticket prices below the cost of producing the product, particularly with oil at $100 a barrel."

Here's the good news. Republic is all about helping the lumbering giants compete. The big airlines hire Republic and other smaller operators to ferry passengers on smaller jets to regional destinations.

The commuter airlines have cheaper cost structures than the airline partners they serve, and none is more efficient than Republic's, Raymond James analyst James D. Parker said in a report.

That's partly because Republic pilots are represented by the Teamsters, which have more flexible work rules than the Air Line Pilots Association. That Republic flies for six carriers - more than any of its rivals - also reduces pilots' down time.

The upshot: Republic pilots average 61 hours of flying per month, compared with 54 for SkyWest and 48 for Comair, Raymond James says.

And here's the kicker: Republic and other commuter carriers arc shielded from much of the industry's tumult. The commuters receive fixed fees for their flights from their partners, which shoulder the risks associated with fluctuating fuel prices, fluctuating fares and whether jets fly almost full or almost empty.

That's not to say Republic won't feel turbulence as the airline industry goes through wrenching change. It could lose business if one of the airlines it flies for lands in bankruptcy and folds, or uses bankruptcy court to renegotiate contracts.

But it successfully weathered the last round of bankruptcies, following the Sept. 11, 2001, terrorist attacks, as CEO Bryan Bedford noted on a conference call with analysts in February.

Back then, "the very real fear [was] that our margins would be eliminated or, perhaps worse, our business would be eliminated and certainly there would be no growth. And for some high-cost, inefficient operators, that turned out to he true," Bedford, 46, said on the call.

"But it was always our opinion that for high-quality, low-cost regional operators, we thought we'd come out on the other side of these bankruptcy processes both in good financial shape and with new opportunities."

The big scare this time around is that airlines desperate to cut costs will merge, putting at risk their contracts with regional operators. But Bedford calls that a non-issue. Merged carriers would be obligated to live up to their contracts, unless they shed them through bankruptcy.

Strong stock, large work force

Republic's strong performance has been a boon for central Indiana, where it now has 1,700 employees. That includes workers at the company's headquarters near the Pyramids. its Indianapolis airport maintenance center and a Plainfield training center, as well as locally based crew members.

Investors also have fared well. Since the company's May 2004 initial public offering, shares have appreciated 57 percent. That compares to a 22-percent advance in the same span for the S&P 500 index.

Not had, but the hard-charging Bedford, who's led the airline since 1999, isn't a rest-on-your-laurels guy.

As some of his larger airline brethren hold on for their lives. Bedford is gunning for continued growth.

"We are going to look for ways to make sure that our business strategically is getting stronger," he told analysts, "making sure that were able to respond to opportunities that our partners might have for us."

redorbit.com

Out of the spotlight, Indy's "Other" airline soaring
republicairways.net



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