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Midwest Air Group Reports First Quarter Results 4/27/2007 MILWAUKEE, April 26 /PRNewswire-FirstCall/ -- Midwest Air Group, Inc. (AMEX:MEH) today reported first quarter results for its Midwest Airlines and Skyway Airlines (dba Midwest Connect) operations. "While the first quarter of 2007 was positive on several levels, overall it fell short of our expectations," said Timothy E. Hoeksema, chairman and chief executive officer. "The first quarter is historically weak for Midwest and this year was no exception." Hoeksema noted that Midwest has been encouraged by continuing improvements in load factor and yield, leading to solid revenue per available seat mile performance that compared favorably to the domestic airline industry in the quarter. Comparing first quarter 2007 to first quarter 2006, operating revenue increased 10.0% to $165.8 million. Operating income improved to $6.7 million from a $9.3 million loss in the first quarter of 2006, while net income improved to $8.0 million from an $8.7 million loss. Due to accumulated losses, Midwest Air Group discontinued recording federal income tax benefit on losses in second quarter 2004 and state income tax benefit on losses in second quarter 2005. Diluted earnings per share were $0.31, compared with a $0.49 loss in the same quarter a year earlier. The revenue increase reflects a 9.5% increase in passenger traffic, due to strong customer demand in response to competitive pricing, as well as schedule and service enhancements. A 0.7% increase in revenue yield was driven by industrywide price increases and improvements in the company's revenue management processes. Total operating expenses decreased 0.6%, due primarily to the recording of a $19.9 million gain for the fair value of fixed fuel contracts entered into in first quarter 2007. This was largely offset by an increase in operating expenses resulting from the 6.3% increase in capacity and increased flight operations, which led to increases in fuel expense; salary, wages and benefits; station rental, landing and other fees; aircraft maintenance; and commissions. Fuel expense increased $5.7 million, or 10.8% - including $1.9 million of unfavorable price impact (calculated by applying 2006 prices to actual gallons consumed in 2007 and comparing the result to actual 2007 expense). The company ended the quarter with $171.3 million in cash, of which $110.2 million was unrestricted. Total cash was up from $157.7 million at December 31, 2006; unrestricted cash was down from $118.1 million in the same period largely due to deposits required to support the expanded fuel hedging program. Capital spending -- net of credits used to fund such spending -- resulted in a cash outlay of $2.0 million for the quarter and consisted primarily of refurbishment costs for two recently acquired Fairchild 328JETs, an onboard products payment system and additional spare parts for the Boeing 717 fleet. Midwest continues to post sizeable gains in market share in its Milwaukee and Kansas City hubs. In February 2007: -- Midwest Airlines and Midwest Connect carried 52.7% of all passengers
departing from Milwaukee, up from 49.8% the same month a year earlier.
In February 2007, the airlines transported 143,604 Milwaukee
passengers, up 5.3% from 136,388 passengers in February 2006.
-- In Kansas City, Midwest Airlines market share rose to 11.0% for
February from 10.0% in the same month a year earlier. In February 2007,
Midwest Airlines carried a total of 42,585 Kansas City passengers, up
17.3% from 36,314 passengers in February 2006.
Midwest Airlines
At Midwest Airlines, passenger revenue per scheduled service available seat mile increased 5.3% to 9.37 cents in first quarter 2007 compared with the same quarter a year earlier. Load factor increased 2.1 percentage points to 74.3% due to a 10.2% increase in passenger traffic on a 7.1% increase in scheduled service capacity. Revenue yield increased 2.3%. Into-plane fuel prices increased 3.4% in first quarter 2007, averaging $2.08 per gallon versus $2.01 per gallon in first quarter 2006, and resulted in a $1.7 million unfavorable price impact. Fuel consumption increases resulted in a $4.0 million unfavorable impact in the quarter, primarily as a result of the increase in operations. In the first quarter, cost per available seat mile (unit costs) at Midwest Airlines decreased $0.0076 to $0.1006, or 7.0%, compared with first quarter 2006. Excluding fuel, cost per available seat mile decreased $0.0099 to $0.0613, or 13.9%. Excluding fuel and the fair value gain for fixed fuel contracts, cost per available seat mile increased by $0.0051 to $0.0763, or 7.2%. Defense costs relating to AirTran Holdings' unsolicited exchange offer represented an adverse impact of $0.0020. Note: Cost per available seat mile excluding fuel expense is an industry measurement that provides management and investors the ability to track changes in cost absent fuel-related expenses. Midwest Connect At Midwest Connect, passenger revenue per scheduled service available seat mile increased 2.3% to 24.17 cents in the first quarter. Passenger traffic decreased 1.1% on a 4.1% decrease in capacity, with a 2.0 percentage point improvement in load factor to 64.0%, while revenue yield decreased 0.8%. Cost per available seat mile increased $0.0308 to $0.3300, or 10.3% (excluding fuel, increased $0.0276 to $0.2594, or 11.9%) compared with first quarter 2006. Excluding fuel, the increase was due primarily to an increase in aircraft maintenance, materials and repairs resulting from a major engine rebuild. Into-plane fuel prices increased 2.4% in first quarter 2007, averaging $2.10 per gallon versus $2.05 per gallon in first quarter 2006. Fuel consumption decreases resulted in a $0.1 million favorable impact quarter over quarter. Highlights and Outlook
In the first quarter of 2007:
-- Midwest Air Group announced that holders of its remaining $21.6 million
of senior secured convertible debt completed the conversions of their
respective positions to equity. This resulted in a $21.6 million
reduction in Midwest Air Group debt at December 31, 2006 and a
corresponding increase in shareholders' equity. Midwest Air Group had
raised a total of $25 million of convertible debt in an offering in
late 2003; all other debt holders had previously converted their
holdings to equity.
-- Midwest Airlines debuted MyMidwest, its new inflight magazine. The
larger magazine includes engaging feature articles, useful guides to
the airline's destinations and expanded onboard service information,
packaged in a fresh, new design. The magazine can also be accessed
online at http://mymidwestmagazine.com/ . MyMidwest is part of the
airline's ongoing efforts to improve its customers' onboard experience;
other recent enhancements include the SkyMall catalog and an onboard
credit card processing system.
-- Midwest Airlines announced that its signature chocolate chip cookies
would be sold at Milwaukee Brewers games at Miller Park during the 2007
season. Also, the first 30,000 fans attending Midwest Airlines Night on
May 19 will receive a folding seat cushion imprinted to look like the
airline's leather seats. These new elements enhance the airline's
position as the Official Airline of the Brewers and are part of a
larger sponsorship that includes Miller Park signage, as well as radio
and television sponsorships.
-- In conjunction with its plan to phase out its Beech 1900 turboprop
fleet, Skyway Airlines announced it would not renew its bid to provide
service to four cities served under Essential Air Service contracts.
The Department of Transportation subsequently awarded the contracts to
Great Lakes Aviation. Midwest is currently working with Great Lakes to
establish a codeshare agreement for those markets, which would provide
revenue opportunities.
The first quarter also saw the implementation of the first in a series of service expansions that are part of Midwest's 2007 strategic plan, which includes new destinations and new routes, and increased frequency and equipment upgrades in existing markets. Recently launched and already announced 2007 schedule enhancements include: Started March 4:
-- Milwaukee-Des Moines. Increased frequency.
-- Milwaukee-Duluth/Superior. New destination.
-- Milwaukee-St. Louis. Equipment upgrade to 32-seat regional jets.
Started April 1:
-- Milwaukee-Columbus. Equipment upgrade to 50-seat regional jets.
-- Milwaukee-Flint. Increased frequency, equipment upgrade to 32-seat
regional jets.
-- Kansas City-Seattle/Tacoma. New destination.
Beginning May 1:
-- Milwaukee-Dayton. Increased frequency.
-- Milwaukee-Duluth/Superior. Increased frequency.
-- Milwaukee-Louisville. Equipment upgrade to 32-seat regional jets.
-- Milwaukee-Pittsburgh. Equipment upgrade to 50-seat regional jets.
-- Milwaukee-San Francisco. Expanded seasonal service through October 31,
2007.
-- Milwaukee-Tampa. Increased frequency.
-- Kansas City-Boston. Increased frequency.
-- Kansas City-Columbus. New route.
-- Kansas City-Ft. Myers. Now year-round service.
-- Kansas City-Los Angeles. Increased frequency.
-- Kansas City-Orlando. Increased frequency.
-- Kansas City-San Diego. Increased frequency.
-- Omaha-Los Angeles. New route.
Beginning June 1:
-- Milwaukee-Baltimore. Equipment upgrade to 50-seat regional jets.
-- Milwaukee-Des Moines. Equipment upgrade to 32-seat regional jets.
-- Milwaukee-Marquette. Increased frequency seasonally through September
8, 2007.
-- Milwaukee-Raleigh/Durham. New destination.
-- Milwaukee-Wausau/Stevens Point. Equipment upgrade to 32-seat regional
jets.
-- Kansas City-San Francisco. Increased frequency through November 16,
2007.
Beginning June 18:
-- Milwaukee-Seattle/Tacoma. New route.
Beginning July 1:
-- Milwaukee-Flint. Equipment upgrade to 32-seat regional jets.
-- Milwaukee-Green Bay. Equipment upgrade to 32-seat regional jets.
-- Milwaukee-Hartford. Increased frequency, equipment upgrade to 50-seat
regional jets.
-- Milwaukee-Los Angeles. Increased frequency seasonally through
September 30, 2007.
-- Kansas City-Colorado Springs. New destination.
-- Kansas City-Madison. New route.
-- Kansas City-Pittsburgh. Increased frequency.
-- Kansas City-San Antonio. Increased frequency.
In the second quarter of 2007:
-- On April 1, Midwest Airlines launched its new 50-seat regional jet
program, a significant component of its 2007 growth plan. Flying as
Midwest Connect, the Canadair regional jets are operated by SkyWest
Airlines under a five-year agreement that includes a minimum of 15 and
up to 25 aircraft.
-- On April 13, the Midwest Air Group Board of Directors unanimously
recommended that Midwest's shareholders reject AirTran Holdings, Inc.'s
revised offer to acquire all outstanding shares of Midwest and advised
shareholders not to tender their shares to AirTran. Citing the long-
term value of the company's strategic plan, the board said it believes
Midwest's future holds great promise and that the best interests of all
stakeholders lie in Midwest continuing to execute its plan. The board
also established a May 11, 2007 record date for its Annual Meeting of
Shareholders and a June 14, 2007 meeting date.
-- On April 25, Midwest Airlines announced the expansion of its existing
codeshare agreement with Air Midwest, Inc. to include six additional
cities. Beginning May 6, Midwest Airlines passengers will be able to
connect in Kansas City to and from Columbia/Jefferson City, Joplin, and
Kirksville, Mo. and Grand Island, McCook and Omaha, Neb.
Going forward, Hoeksema said Midwest is on track to achieve its 2007 strategic plan, which provides significant opportunities to improve profitability through aggressive route expansion, frequency increases and equipment upgrades. He added that Midwest remains committed to meeting its revenue and earnings projections for the year, consistent with the company's recent guidance. Management of Midwest Air Group will discuss the company's financial results in a conference call with industry analysts and institutional investors at 2 p.m. Eastern time today. The discussion will be available simultaneously in a listen-only mode and for the following 30 days at http://phx.corporate-ir.net/phoenix.zhtml?c=88626&p=irol-irhome . Midwest Airlines features jet service throughout the United States, including Milwaukee's most daily nonstop flights and best schedule to major destinations. Catering to business travelers and discerning leisure travelers, the airline earned its reputation as "The best care in the air" by providing passengers with impeccable service and onboard amenities at competitive fares. Both Skyway Airlines, Inc. -- a wholly owned subsidiary of Midwest Airlines -- and SkyWest Airlines operate as Midwest Connect and offer service to and connections through Midwest Airlines' hubs. Together, the airlines offer service to 51 cities. More information is available at http://www.midwestairlines.com/ . This news release contains forward-looking statements about the results expected under the company's strategic plan and that otherwise may state the company's or management's intentions, hopes, beliefs, expectations or predictions for the future. Words such as "planned," "projecting," "expect," "should," "anticipate," "believe," "estimate," "goal," "plan," "objective" or similar words are intended to identify forward-looking statements. It is important to note that the company's actual results could differ materially from the projected results contained in these forward-looking statements. Factors that may cause such a difference to occur include, but are not limited to, fees and expenses incurred in connection with AirTran's unsolicited exchange offer and the risk factors described in "Item 1A. Risk Factors" in the company's "Annual Report on Form 10-K" for the year ended December 31, 2006. Important Additional Information Midwest has filed a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") and amendments thereto regarding AirTran's exchange offer, which sets forth the reasons for the board's recommendation and related information. MIDWEST AIR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2007 2006
Operating revenues:
Passenger service $144,802 $131,286
Cargo 3,116 1,934
Other 17,858 17,529
Total operating revenues 165,776 150,749
Operating expenses:
Salaries, wages and benefits 45,001 38,990
Aircraft fuel and oil 58,532 52,824
Adjustment to fair value of
fixed fuel contracts (19,906) -
Commissions 4,495 3,996
Dining services 2,361 2,047
Station rental, landing and
other fees 15,084 13,943
Aircraft maintenance, materials
and repairs 15,189 12,709
Depreciation and amortization 3,754 3,836
Aircraft rentals 13,853 15,369
Other 20,725 16,315
Total operating expenses 159,088 160,029
Operating income/(loss) 6,688 (9,280)
Other (expense)/income:
Interest income 2,237 1,448
Interest expense (929) (851)
Total other (expense)/income 1,308 597
Income/(loss) before income tax 7,996 (8,683)
Income tax - -
Net income/(loss) $7,996 $(8,683)
Income/(loss) per common share - -
basic: $0.34 $(0.49)
Income/(loss) per common share - -
diluted: $0.31 $(0.49)
OPERATING STATISTICS
Three Months Ended
March 31,
2007 2006
Midwest Air Group
Scheduled Service Revenue Passenger
Miles (000s) 1,033,906 944,291
Scheduled Service Available Seat
Miles (000s) 1,403,545 1,319,867
Total Available Seat Miles (000s) 1,416,220 1,348,334
Load Factor (%) 73.7% 71.5%
Revenue Yield $0.1401 $0.1390
Passenger Revenue per Schd. Svc. ASM $0.1032 $0.0995
Total Revenue per Total ASM $0.1171 $0.1118
Total Cost per Total ASM $0.1123 $0.1187
Total Cost per Total ASM (ex-fuel
cost) (1) $0.0710 $0.0795
Total Cost per Total ASM (ex-fuel
cost, ex-FMV) (1) $0.0851 $0.0795
Number of Flights 27,056 27,083
Into-plane Fuel Cost per Gallon $2.08 $2.01
Full-time Equivalent Employees at End
of Period 3,076 2,959
Aircraft in Service at End of Period 55 56
Midwest Airlines Operations
Origin & Destination Passengers 895,225 827,674
Scheduled Service Revenue Passenger
Miles (000s) 976,305 886,035
Scheduled Service Available Seat
Miles (000s) 1,313,498 1,225,977
Total Available Seat Miles (000s) 1,326,173 1,254,077
Load Factor (%) 74.3% 72.3%
Revenue Yield $0.1260 $0.1231
Passenger Revenue per Schd. Svc. ASM $0.0937 $0.0890
Total Revenue per Total ASM $0.1092 $0.1032
Total Cost per Total ASM $0.1006 $0.1082
Total Cost per Total ASM (ex-fuel
cost) (1) $0.0613 $0.0712
Total Cost per Total ASM (ex-fuel
cost, ex-FMV) (1) $0.0763 $0.0712
Average Passenger Trip Length (miles) 1,091 1,071
Number of Flights 14,104 12,964
Into-plane Fuel Cost per Gallon $2.08 $2.01
Full-time Equivalent Employees at End
of Period 2,143 1,954
Aircraft in Service at End of Period 36 36
Midwest Connect Operations
Origin & Destination Passengers 190,074 192,502
Scheduled Service Revenue Passenger
Miles (000s) 57,601 58,256
Scheduled Service Available Seat
Miles (000s) 90,047 93,890
Total Available Seat Miles (000s) 90,047 94,257
Load Factor (%) 64.0% 62.0%
Revenue Yield $0.3779 $0.3809
Passenger Revenue per Schd. Svc. ASM $0.2417 $0.2363
Total Revenue per Total ASM $0.2776 $0.2674
Total Cost per Total ASM $0.3300 $0.2992
Total Cost per Total ASM (ex-fuel
cost) (1) $0.2594 $0.2318
Average Passenger Trip Length (miles) 303 303
Number of Flights 12,952 14,119
Into-plane Fuel Cost per Gallon $2.10 $2.05
Full-time Equivalent Employees at End
of Period 933 1,005
Aircraft in Service at End of Period 19 20
(1) Non-GAAP measurement. See non-GAAP disclosures.
Note: All statistics exclude charter operations except the following:
Total Available Seat Miles ("ASMs"), Total Cost per Total ASM, Total Cost
per ASM (ex-fuel cost), Total Cost per ASM (ex-fuel cost, ex-FMV), Into-
plane Fuel Cost, Number of Employees and Aircraft in Service. Aircraft
acquired but not yet placed into service are excluded from the aircraft in
service statistics.
Numbers in this table may not be recalculated due to rounding.
MIDWEST AIR GROUP, INC.
NON-GAAP FINANCIAL MEASURES
Pursuant to Item 10 of Regulation S-K, the Company is providing disclosure
of the reconciliation of reported non-GAAP financial measures to the
Company's most directly comparable financial measures reported on a GAAP
basis. The non-GAAP financial measures provide the Company the ability to
measure and monitor its performance both with and without the cost of
aircraft fuel or fair market value of fixed fuel contracts ("FMV").
Because the cost and availability of aircraft fuel are subject to many
economic and political factors beyond the Company's control, it is the
Company's view that the measurement and monitoring of performance without
the volatility of fuel is important.
The following table reconciles operating expenses excluding fuel and
operating expenses per ASM excluding fuel as well as FMV.
Three Months Ended
March 31,
2007 2006 Change %
Midwest Air Group
Total GAAP operating expenses
($000) $159,088 $160,029 $(941) (0.6%)
ASMs (000) 1,416,220 1,348,334 67,885 5.0%
CASM $0.1123 $0.1187 $(0.0064) (5.4%)
Total GAAP operating expenses
($000) $159,088 $160,029 $(941) (0.6%)
Less: aircraft fuel ($000) (58,532) (52,824) (5,709) 10.8%
Operating expenses excluding fuel
($000) $100,555 $107,205 $(6,650) (6.2%)
Add: FMV ($000) 19,906 - $19,906 NA
Operating expenses excluding fuel
and FMV ($000) $120,461 $107,205 $13,256 12.4%
ASMs (000) 1,416,220 1,348,334 67,885 5.0%
CASM excluding fuel $0.0710 $0.0795 $(0.0085) (10.7%)
CASM excluding fuel and FMV $0.0851 $0.0795 $0.0055 7.0%
Midwest Airlines Operations
Total GAAP operating expenses
($000) $133,450 $135,737 $(2,287) (1.7%)
ASMs (000) 1,326,173 1,254,077 72,095 5.7%
CASM $0.1006 $0.1082 $(0.0076) (7.0%)
Total GAAP operating expenses
($000) $133,450 $135,737 $(2,287) (1.7%)
Less: aircraft fuel ($000) (52,179) (46,478) $(5,701) 12.3%
Operating expenses excluding fuel
($000) $81,271 $89,259 $(7,988) (8.9%)
Add: FMV ($000) 19,906 - $19,906 NA
Operating expenses excluding fuel
and FMV ($000) $101,177 $89,259 $11,918 13.4%
ASMs (000) 1,326,173 1,254,077 72,095 5.7%
CASM excluding fuel $0.0613 $0.0712 $(0.0099) (13.9%)
CASM excluding fuel and FMV $0.0763 $0.0712 $0.0051 7.2%
Midwest Connect Operations
Total GAAP operating expenses
($000) $29,715 $28,200 $1,515 5.4%
ASMs (000) 90,047 94,257 (4,210) (4.5%)
CASM $0.3300 $0.2992 $0.0308 10.3%
Total GAAP operating expenses
($000) $29,715 $28,200 $1,515 5.4%
Less: aircraft fuel ($000) (6,354) (6,346) $(8) (0.1%)
Operating expenses excluding fuel
($000) $23,361 $21,853 $1,508 6.9%
ASMs (000) 90,047 94,257 (4,210) (4.5%)
CASM excluding fuel $0.2594 $0.2318 $0.0276 11.9%
Note: Numbers and totals in this table may not be recalculated due to
rounding and intercompany eliminations.
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