Summary: Second Quarter 2007 vs. Second Quarter 2006
– Operating revenue increased 10.0% to $194.5 million
– Scheduled service revenue passenger miles increased 15.8% to 1.3 billion on a 13.1% increase in capacity, resulting in a 2.0 percentage point increase in load factor to 83.3%
– Net income decreased 44.6% to $4.9 million
– Diluted earnings per share were $0.19 vs. $0.39
– Revenue per available seat mile decreased 2.5% to 12.73 cents
– Lower fuel prices favorably impacted operating results by $3.0 million, or $0.12 per share – diluted
– Adjustment to fair value of fixed fuel contracts unfavorably impacted operating results by $1.5 million, or $0.06 per share – diluted
– Defense costs were $2.9 million, or $0.11 per share – diluted, relating to AirTran Holdings’ unsolicited exchange offer
MILWAUKEE, July 26 /PRNewswire-FirstCall/ — Midwest Air Group, Inc. (AMEX:MEH) today reported second quarter results for its Midwest Airlines and Midwest Connect operations. Both Skyway Airlines, Inc. — a wholly owned subsidiary of Midwest Airlines — and the 50-seat regional jet program with SkyWest Airlines, Inc. operate as Midwest Connect.
“While the pricing environment was challenging, demand for travel remained strong in the second quarter,” said Timothy E. Hoeksema, chairman and chief executive officer. He noted that the company reported all-time record traffic and load factors for the quarter and first half.
Comparing second quarter 2007 to second quarter 2006, operating revenue increased 10.0% to $194.5 million. Operating income decreased to $2.6 million from $7.5 million, while net income declined to $4.9 million from $8.8 million. Diluted earnings per share were $0.19, compared with $0.39 in the same quarter a year earlier.
The revenue increase reflects a 15.8% increase in passenger traffic, due to strong customer demand in response to competitive pricing, as well as ongoing schedule and service enhancements. This was partially offset by a 5.3% decrease in revenue yield, the result of industrywide pricing weakness and a 2.0% increase in passenger trip length. Total operating expenses increased 13.4%, driven by a 13.1% 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. Regional carrier expenses were $4.2 million for the new regional jet program launched in April, not including the cost of services provided by Midwest. Fuel expense increased $5.8 million, or 9.5% — including $8.8 million of unfavorable consumption impact (calculated by applying 2006 prices to the actual change in gallons consumed in 2007 relative to 2006) as a result of a 10.1% increase in block hours.
The company ended the quarter with $187.0 million in cash, of which $148.4 million was unrestricted. Total cash was up from $157.7 million at December 31, 2006; unrestricted cash was up from $118.1 million in the same period largely due to a decrease in the cash holdback percentage by a credit card processor. Capital spending — net of credits used to fund such spending — resulted in a cash outlay of $3.8 million for the quarter and consisted primarily of costs related to the Boeing 717 fleet and Midwest Connect ground equipment.
In the first six months of 2007, operating revenue increased 10.0% to $360.3 million. Operating income improved to $9.3 million from a $1.7 million loss in 2006, while net income improved to $12.9 million from $0.1 million in the first six months last year. Diluted earnings per share rose to $0.50 from $0.01.
Midwest continues to post sizeable gains in market share in its Milwaukee and Kansas City hubs. In May 2007:
— Midwest Airlines and Midwest Connect carried 56.2% of all passengers
departing from Milwaukee, up from 51.1% the same month a year earlier.
In May 2007, the airlines transported 178,527 Milwaukee passengers, up
16.8% from 152,823 passengers in May 2006.
— In Kansas City, Midwest Airlines market share rose to 12.4% for May
from 10.6% in the same month a year earlier. In May 2007, Midwest
Airlines carried a total of 65,900 Kansas City passengers, up 27.4%
from 51,745 passengers in May 2006.Midwest Airlines
At Midwest Airlines, passenger revenue per scheduled service available seat mile decreased 3.2% to 10.30 cents in second quarter 2007 compared with the same quarter a year earlier. Load factor increased 2.2 percentage points to 84.3% due to a 12.9% increase in passenger traffic on a 9.9% increase in scheduled service capacity. Revenue yield decreased 5.8%, due in part to a 4.7% increase in passenger trip length.
Into-plane fuel prices decreased 4.3% in second quarter 2007, averaging $2.15 per gallon versus $2.25 per gallon in second quarter 2006, resulting in a $2.5 million favorable price impact. Fuel consumption increases resulted in a $6.0 million unfavorable impact in the quarter, primarily as a result of the increase in operations.
In the second quarter, cost per available seat mile (unit costs) at Midwest Airlines increased $0.0002 to $0.1153, or 0.2%, compared with second quarter 2006. Excluding fuel, cost per available seat mile increased $0.0015 to $0.0741, or 2.0%. Excluding fuel and the fair value loss for fixed fuel contracts, cost per available seat mile increased by $0.0003 to $0.0730, or 0.5%. Defense costs relating to AirTran Holdings’ unsolicited exchange offer represented an adverse impact on cost per available seat mile of $0.0021.
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 decreased 17.6% to 22.06 cents in the second quarter. Passenger traffic increased 58.8% on a 53.7% increase in capacity, with a 2.3 percentage point improvement in load factor to 73.9% as a result of the new 50-seat regional jet program. Revenue yield decreased 20.2%, due in part to a 13.9% increase in passenger trip length. Cost per available seat mile decreased $0.0488 to $0.2472, or 16.5% (excluding fuel, decreased $0.0384 to $0.1828, or 17.3%), compared with second quarter 2006. Excluding fuel, the decrease was primarily driven by the additional capacity provided by the new regional jet program. Into-plane fuel prices decreased 5.4% in second quarter 2007, averaging $2.18 per gallon versus $2.31 per gallon in second quarter 2006. Fuel consumption increases resulted in a $2.9 million unfavorable impact quarter over quarter.
Highlights and Outlook
In the second quarter of 2007:— Midwest Airlines announced it will form a strategic partnership with
Northwest Airlines that will greatly expand the networks of both
carriers by adding 250 city pairs and more than 1,000 new flight
options for customers. The codeshare, which is expected to begin in
third quarter 2007, is an expansion of a reciprocal frequent flyer
relationship between the airlines.
— Midwest Airlines announced the next phase of its strategic plan,
offering customers the choice of Signature and Saver seating on all
flights. The dual-seating option, representing an innovative approach
for configuring single-class aircraft for domestic travel, is expected
to be available this fall on flights on scheduled service MD-80
aircraft and in mid-2008 on the airline’s Boeing 717 fleet. The move is
expected to significantly boost revenue and reduce unit costs.
— Midwest Airlines launched 50-seat regional jet service under an
agreement with SkyWest Airlines. The program allows Midwest to cost-
effectively add new destinations, increase frequency on existing routes
and upgrade regional routes to all-jet service.
— Midwest Airlines expanded its codeshare agreement with Air Midwest to
include six additional cities. Passengers can now connect in Kansas
City to and from Columbia/Jefferson City, Joplin, and Kirksville, Mo.
and Grand Island, McCook and Omaha, Neb.
— Midwest Airlines’ popular frequent flyer program — Midwest Miles —
earned the Freddie Award for Best Customer Service at the 19th Annual
Freddie Awards — the second consecutive year the airline has won the
coveted award. In addition to its first place win, Midwest Airlines
also placed in the top four in five other categories: Best Award, Best
Award Redemption, Best Member Communications, Best Web Site and Program
of the Year.
— Readers of Travel+Leisure magazine recognized Midwest Airlines as “Top
Domestic Airline for Service” in its 2007 World’s Best Awards readers’
choice survey. The magazine’s subscribers have named Midwest the top
service provider three of the four years this award has been given.
— Midwest Air Group shareholders elected John M. Albertine, Jeffrey H.
Erickson and Charles F. Kalmbach to three-year terms on the company’s
nine-member board of directors.
The second quarter also saw the implementation of a number 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:
April:
— 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.May:
— Milwaukee-Dayton. Increased frequency, equipment upgrade to 32-seat
regional jets.
— 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.
— Expansion of existing codeshare with Air Midwest, Inc. to include six
additional cities.June:
— Milwaukee-Baltimore. Equipment upgrade to 50-seat regional jets.
— Milwaukee-Des Moines. Equipment upgrade to 32-seat regional jets.
— Milwaukee-Marquette. Increased frequency seasonally.
— Milwaukee-Raleigh/Durham. New destination.
— Milwaukee-Seattle/Tacoma. New route.
— Milwaukee-Wausau/Stevens Point. Equipment upgrade to 32-seat regional
jets.
— Kansas City-San Francisco. Increased frequency through November 16,
2007.July:
— 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.August:
— Milwaukee-Appleton. Schedule enhancement.
— Milwaukee-Minneapolis/St. Paul. Increased frequency.September:
— Milwaukee-Charlotte. New destination.
— Milwaukee-Nashville. Increased frequency.
— Kansas City-Austin. New destination.October:
— Milwaukee-Las Vegas. Increased frequency.In the third quarter of 2007:
— On July 10, Travel+Leisure named Midwest Airlines “Best Domestic
Airline” in its 2007 World’s Best Awards readers’ choice survey. The
magazine’s subscribers have selected the world’s best services and
places annually since 1996; Midwest has won the title eight of the 12
years it has been awarded.
“Going forward, we are continuing to roll out our wide-ranging 2007 strategic plan, which includes aggressive route expansion, frequency increases and equipment upgrades,” concluded Hoeksema. The plan is expected to enhance the value of the company for shareholders by significantly improving profitability as a result of offering customers more choice, more value and more ways to easily reach their favorite cities.
Conference Call With Analysts and Investors
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, Inc. operate as Midwest Connect and offer service to and connections through Midwest Airlines’ hubs. Together, the airlines offer service to 53 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.
Editor’s note: Tables followMIDWEST AIR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006Operating revenues:
Passenger service $173,796 $158,457 $318,598 $289,744
Cargo 2,336 2,025 5,452 3,958
Other 18,389 16,389 36,247 33,918
Total operating
revenues 194,521 176,871 360,297 327,620Operating expenses:
Salaries, wages and
benefits 42,915 41,781 87,944 80,771
Aircraft fuel and oil 66,359 60,599 124,891 113,424
Adjustment to fair
value of fixed fuel
contracts 1,523 — (18,383) —
Commissions 5,359 4,836 9,853 8,832
Dining services 2,633 2,235 5,069 4,281
Station rental, landing
and other fees 13,712 12,616 28,796 26,559
Aircraft maintenance,
materials and repairs 15,114 12,014 30,303 24,725
Depreciation and
amortization 3,801 3,732 7,555 7,568
Aircraft rentals 15,820 15,833 29,673 31,201
Regional carrier 4,153 — 4,153 —
Other 20,561 15,687 41,186 32,002
Total operating
expenses 191,950 169,333 351,040 329,363
Operating income/(loss) 2,571 7,538 9,257 (1,743)Other Income/(expense):
Interest income 2,599 2,088 4,835 3,536
Interest expense (297) (823) (1,226) (1,673)
Total other
income/(expense) 2,302 1,265 3,609 1,863Income before income tax 4,873 8,803 12,866 120
Income tax — — — —Net income $4,873 $8,803 $12,866 $120
Income per common share
– basic: $0.20 $0.49 $0.54 $0.01
Income per common share
– diluted: $0.19 $0.39 $0.50 $0.01See notes to unaudited condensed consolidated financial statements.
MIDWEST AIR GROUP, INC.
OPERATING STATISTICSThree Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Midwest Air Group
Scheduled Service
Revenue Passenger
Miles (000s) 1,263,872 1,091,136 2,297,778 2,035,427
Scheduled Service
Available Seat
Miles (000s) 1,517,436 1,341,943 2,920,981 2,661,810
Total Available
Seat Miles (000s) 1,528,170 1,355,156 2,944,390 2,703,490
Load Factor (%) 83.3% 81.3% 78.7% 76.5%
Revenue Yield $0.1375 $0.1452 $0.1387 $0.1424
Passenger Revenue
per Schd. Svc. ASM $0.1145 $0.1181 $0.1091 $0.1089
Total Revenue per
Total ASM $0.1273 $0.1305 $0.1224 $0.1212
Total Cost per
Total ASM $0.1256 $0.1250 $0.1192 $0.1218
Total Cost per
Total ASM
(ex-fuel cost) (1) $0.0822 $0.0802 $0.0768 $0.0799
Total Cost per
Total ASM
(ex-fuel cost,
ex-FMV) (1) $0.0812 $0.0802 $0.0831 $0.0799
Number of Flights 29,217 28,091 56,273 55,174
Into-plane Fuel Cost
per Gallon $2.15 $2.25 $2.12 $2.14
Full-time Equivalent
Employees at
End of Period 3,144 2,984 3,144 2,984
Aircraft in Service
at End of Period 62 56 62 56Midwest Airlines
Operations
Origin & Destination
Passengers 1,045,492 969,396 1,940,717 1,797,070
Scheduled Service
Revenue Passenger
Miles (000s) 1,153,510 1,021,628 2,129,815 1,907,663
Scheduled Service
Available Seat
Miles (000s) 1,368,121 1,244,802 2,681,618 2,470,779
Total Available
Seat Miles (000s) 1,378,855 1,258,015 2,705,027 2,512,092
Load Factor (%) 84.3% 82.1% 79.4% 77.2%
Revenue Yield $0.1221 $0.1297 $0.1239 $0.1266
Passenger Revenue
per Schd. Svc. ASM $0.1030 $0.1064 $0.0984 $0.0978
Total Revenue per
Total ASM $0.1178 $0.1208 $0.1136 $0.1120
Total Cost per
Total ASM $0.1153 $0.1151 $0.1081 $0.1116
Total Cost per
Total ASM
(ex-fuel cost) (1) $0.0741 $0.0727 $0.0678 $0.0719
Total Cost per
Total ASM
(ex-fuel cost,
ex-FMV) (1) $0.0730 $0.0727 $0.0746 $0.0719
Average Passenger
Trip Length (miles) 1,103 1,054 1,097 1,062
Number of Flights 14,017 13,662 28,121 26,626
Into-plane Fuel Cost
per Gallon $2.15 $2.25 $2.11 $2.13
Full-time Equivalent
Employees at
End of Period 2,180 2,006 2,180 2,006
Aircraft in Service
at End of Period 37 36 37 36Midwest Connect
Operations
Origin & Destination
Passengers 300,681 215,626 490,755 406,857
Scheduled Service
Revenue Passenger
Miles (000s) 110,362 69,508 167,963 127,764
Scheduled Service
Available Seat
Miles (000s) 149,316 97,141 239,363 191,031
Total Available
Seat Miles (000s) 149,316 97,141 239,363 191,398
Load Factor (%) 73.9% 71.6% 70.2% 66.9%
Revenue Yield $0.2984 $0.3740 $0.3257 $0.3771
Passenger Revenue
per Schd. Svc. ASM $0.2206 $0.2676 $0.2285 $0.2522
Total Revenue per
Total ASM $0.2416 $0.2989 $0.2552 $0.2834
Total Cost per
Total ASM $0.2472 $0.2960 $0.2783 $0.2975
Total Cost per
Total ASM
(ex-fuel cost) (1) $0.1828 $0.2212 $0.2116 $0.2264
Average Passenger
Trip Length (miles) 367 322 342 314
Number of Flights 15,200 14,429 28,152 28,548
Into-plane Fuel Cost
per Gallon $2.18 $2.31 $2.15 $2.18
Full-time Equivalent
Employees at
End of Period 964 978 964 978
Aircraft in Service
at End of Period 25 20 25 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 MEASURESPursuant 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
June 30,
2007 2006 %
Midwest Air Group
Total GAAP operating expenses
($000) $191,950 $169,333 13.4%
ASMs (000) 1,528,170 1,355,156 12.8%
CASM $0.1256 $0.1250 0.5%Total GAAP operating expenses
($000) $191,950 $169,333 13.4%
Less: aircraft fuel ($000) (66,359) (60,599) 9.5%
Operating expenses excluding fuel
($000) $125,591 $108,734 15.5%
Less: FMV ($000) (1,523) — NA
Operating expenses excluding fuel
and FMV ($000) $124,068 $108,734 14.1%
ASMs (000) 1,528,170 1,355,156 12.8%
CASM excluding fuel $0.0822 $0.0802 2.4%
CASM excluding fuel and FMV $0.0812 $0.0802 1.2%Midwest Airlines Operations
Total GAAP operating expenses
($000) $158,963 $144,737 9.8%
ASMs (000) 1,378,855 1,258,015 9.6%
CASM $0.1153 $0.1151 0.2%Total GAAP operating expenses
($000) $158,963 $144,737 9.8%
Less: aircraft fuel ($000) (56,747) (53,332) 6.4%
Operating expenses excluding fuel
($000) $102,216 $91,405 11.8%
Less: FMV ($000) (1,523) — NA
Operating expenses excluding fuel
and FMV ($000) $100,693 $91,405 10.2%
ASMs (000) 1,378,855 1,258,015 9.6%
CASM excluding fuel $0.0741 $0.0727 2.0%
CASM excluding fuel and FMV $0.0730 $0.0727 0.5%Midwest Connect Operations
Total GAAP operating expenses
($000) $36,907 $28,750 28.4%
ASMs (000) 149,316 97,141 53.7%
CASM $0.2472 $0.2960 (16.5%)Total GAAP operating expenses
($000) $36,907 $28,750 28.4%
Less: aircraft fuel ($000) (9,612) (7,267) 32.3%
Operating expenses excluding fuel
($000) $27,295 $21,483 27.1%
ASMs (000) 149,316 97,141 53.7%
CASM excluding fuel $0.1828 $0.2212 (17.3%)Six Months Ended
June 30,
2007 2006 %
Midwest Air Group
Total GAAP operating expenses
($000) $351,040 $329,363 6.6%
ASMs (000) 2,944,390 2,703,490 8.9%
CASM $0.1192 $0.1218 (2.1%)Total GAAP operating expenses
($000) $351,040 $329,363 6.6%
Less: aircraft fuel ($000) (124,891) (113,424) 10.1%
Operating expenses excluding fuel
($000) $226,149 $215,939 4.7%
Less: FMV ($000) 18,383 — NA
Operating expenses excluding fuel
and FMV ($000) $244,532 $215,939 13.2%
ASMs (000) 2,944,390 2,703,490 8.9%
CASM excluding fuel $0.0768 $0.0799 (3.8%)
CASM excluding fuel and FMV $0.0831 $0.0799 4.0%Midwest Airlines Operations
Total GAAP operating expenses
($000) $292,417 $280,474 4.3%
ASMs (000) 2,705,027 2,512,092 7.7%
CASM $0.1081 $0.1116 (3.2%)Total GAAP operating expenses
($000) $292,417 $280,474 4.3%
Less: aircraft fuel ($000) (108,925) (99,811) 9.1%
Operating expenses excluding fuel
($000) $183,492 $180,663 1.6%
Less: FMV ($000) 18,383 — NA
Operating expenses excluding fuel
and FMV ($000) $201,875 $180,663 11.7%
ASMs (000) 2,705,027 2,512,092 7.7%
CASM excluding fuel $0.0678 $0.0719 (5.7%)
CASM excluding fuel and FMV $0.0746 $0.0719 3.8%Midwest Connect Operations
Total GAAP operating expenses
($000) $66,621 $56,950 17.0%
ASMs (000) 239,363 191,398 25.1%
CASM $0.2783 $0.2975 (6.5%)Total GAAP operating expenses
($000) $66,621 $56,950 17.0%
Less: aircraft fuel ($000) (15,966) (13,613) 17.3%
Operating expenses excluding fuel
($000) $50,655 $43,337 16.9%
ASMs (000) 239,363 191,398 25.1%
CASM excluding fuel $0.2116 $0.2264 (6.5%)Note: Numbers and totals in this table may not be recalculated due to
rounding and intercompany eliminations.
