Mesa Air Group Inc (MESA) 2006 Q4 法說會逐字稿

Good morning and welcome to the fourth-quarter and year-end results conference call for Mesa Air Group.

Your lines have been placed on a listen-only mode until the question-and-answer session of today's conference. (OPERATOR INSTRUCTIONS).

I would like to remind all parties today's call is being recorded.

If you have any objections, please disconnect at this time.

I would now like to introduce Mr. Jonathan Ornstein, Mesa Air Group Chairman and CEO.

Thank you, sir, you may begin.

Hi, everybody and thank you very much for taking time out of your day to listen to our call.

As you know, I have to start off with our forward-looking statement.

This conference call will contain various forward-looking statements that are based on management's beliefs, as well as assumptions made by information currently available to management.

Although the Company believes that these expectations [reflect] and such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Such statements are subject to certain risks, uncertainties and assumptions.

Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected or expected.

The Company does not intend to update these forward-looking statements made in this call prior to filings with the Securities and Exchange Commission.

Again, I want to thank everyone for taking a moment to join us.

We are going to walk through the numbers.

There is quite a bit here, and then be happy to answer any questions that you may have either on the call or if you feel more comfortable afterwards, you can call us directly.

The Company is reporting fourth-quarter pro forma net income of $6 million or $0.15 a share on revenues of $362 million.

This compares with pro forma earnings of $14.7 million on revenues of $309 million or $0.35 per share for the comparable period of fiscal 2005.

Pro forma net income excluded net investment losses of $600,000 and the cumulative effect of increasing our tax rate from 38.3 to 40.1 in fiscal 2006.

The increase in effective rate for the year is mainly due to not being allowed to deduct certain stock option expensed related to incentive stock options and resulted in a 41.7 -- excuse me -- 47.1 effective tax rate for the fourth quarter.

On a GAAP basis, our reported net income was $4.8 million or $0.12 per share as compared to $15 million or $0.36 per share for the same period last year.

The primary items of significance affecting the fourth quarter of 2006 were the following.

Total operating revenues for the fourth quarter of 2006 increased $53.4 million primarily the result of an increase in certain reimbursable base costs, such as fuel, which increased $39.1 million.

Under our revenue guarantee [each] [cochair] agreements, these expenses are a direct pass-through to our partners and in result may increase in the unit cost of those expenses resulting in a corresponding increase in revenues.

Flight operations expense increased due to the sale and leaseback of 15 CRJ-900 aircraft at September 2005.

The addition of CRJ-200s in go! and the Delta Dash 8s in JFK.

In addition, the Company experienced a $2.5 million higher than planned pilot training expense relating to our Delta Freedom operation, which I will go into further in a minute.

Interplane fuel costs increased from $1.66 per gallon to $2.35, and consumption increased $6.2 million.

Again while most of that is pass-through, that was about a $1 million impact on Air Midwest.

We are now looking at fuel about halfway between those two numbers and we think that if fuel was in fact where it had been, Air Midwest would have been profitable.

Maintenance expense was negatively affected by $7.8 million of higher than forecasted engine overhauls due to two early aircraft lease returns, which involved the overhaul of all four engines and two unscheduled engine removals due to damage.

Passenger-related costs were negatively impacted by an increase in certain expenses incurred to the Company's northeast flying, as well as increased rent expense.

The increased rent expenses are reimbursed by our partners.

While some of the costs related to the passenger expenses are; some are not.

Passenger administrative expense was positively affected by reductions in the allowance for doubtful accounts, property tax expenses, workers' compensation expenses and lower medical expenses.

Depreciation and amortization expense decreased primarily as a result of the permanent financing of the 15 CRJ-900s previously mentioned.

So that is effectively awash.

And interest expense decreased primarily due to a reduction in interest expense as a result of permanently refinancing the 15 CRJ-900 aircraft and the conversion from debt to equity of approximately $65 million of the Company's convertible bonds.

These decreases were partially offset by an increase in underlying variable interest rates on some of our aircraft expenses.

Operating stats.

Total Available Seat Miles for the fourth quarter increased marginally from the fourth quarter of 2005 as the startup of our Hawaiian operations offset any negative impacts of the former US Airways system transition.

Our total fleet count at the end of the fourth quarter was 194 aircraft comprising of 95 50-seat Regional Jets, 15 70-seat Regional Jets, 38 86-seat Regional Jets, of which 56 are US Airways, America West, 60 United, 26 transitioned to Delta and 5 CRJs operating in Hawaii.

In addition to our Regional Jet fleet of 149 aircraft, Mesa operates 46 turboprops, including 26 37-passenger Dash 8s, 6 at America West, 10 at United, 10 at Delta and 20 1900s, six of which are operating independently as Mesa and 14 operate as US Airways Express and Midwest Connection.

We added 10 aircraft to the fleet during the quarter.

All 10 Dash 8 aircraft.

They have been placed in service with Delta, operating from their hub at JFK.

In 2007 fiscal first quarter, we will be adding our final two of our commitment for the 12 Dash 8s, as well as three CRJ-700s that were placed into service during early October with United as part of a transition from 50-seat aircraft to larger CRJ-700 Regional Jets.

Mesa has also placed an additional four 50-seat jets in operation with Delta.

They are scheduled to go into service during the first fiscal quarter of 2007.

On an operational summary for the quarter ending September 30, our controllable completion rate was 98.8%.

Given the difficult operating environment due to weather and air traffic issues on the East Coast, we are satisfied with our quarter-to-date performance.

I would like to point out that despite our complicated fleet transition and inherent challenges of East Coast operations, including a significant level of our United Express operations into the six most heavily congested airports in the country, Mesa has experienced its highest total completion rate and second-highest controllable completion rate in the past five years.

I also will tell you that we do not go past five years to look, and I would say just based on my own personal recollection, that is probably the highest rate in our Company's history.

Furthermore, following declines on on-time performance in 2000 and 2005, which coincided with our increase in flying on the East Coast primarily in Dulles, our on-time performance this year to date has now returned to its five-year average, which I think is no small feat given the movement of aircraft to the East Coast.

Air Midwest, as many of you know, we have focused on mitigating exposure to our Beech 1900 fleet and are down to a net exposure of just 20 aircraft and 17 lines of revenue service.

Our strategy of working to replace all the 1900 aircraft in essential air service markets combined with leasing of 14 1900s to other operators has allowed us to reduce unprofitable flying and results in Air Midwest posting an operating loss of $900,000 during the fourth quarter.

With the recent drop in fuel prices, we are forecasting Air Midwest to operate at a breakeven or slightly profitable for 2007.

Also I would mention that we have renewed a number of the essential air service contracts, which prior to that had been operating under fuel cost assumptions that were much lower, and that has now changed.

Mesa projects ASMs at 2.35 billion in the first quarter.

Actual ASMs for the fiscal 2000 will be a function of the timing of the placing of four additional aircraft into service with Delta and any additional 50-seat RJ replacements at United with CRJ-700s, obviously as well as marketing schedules our partners require us to fly.

Obviously, to the extent we are awarding incremental flying from our existing or new partners, our ASM forecast could change considerably.

Our current projections reflect an estimated 1.5 increase in systemwide capacity for the first quarter.

Should our partners schedule change again, ASMs may be impacted.

Operations at go! continue.

We have now five aircraft over there, four lines are flying.

The results there -- our costs have been a little bit below expectations.

Load factors have been lower than expectations generating lower revenue.

This is primarily a result of the fact that our models were based on existing capacity, and both carriers, while seemingly upset over the additional capacity, in fact added more capacity than we did upon our entrance into the market.

We don't believe that this situation will continue, and we continue to penetrate the market.

Our current market share is now in excess of our seat share, and we continue to grow our online business, as well as our Frequent Flyer program, which now has almost 22,000 members.

At Delta, as you know, there is an RFP out for quite a few aircraft.

We will continue to pursue that business.

We are still awaiting any news of that.

And of course, there will be no assurances that we will get any business at all.

United, we have a current fleet of 70 aircraft there.

We do have a requirement to replace 50-seaters with 70-seaters.

We, in fact, moved that forward and took three.

We are looking to do another two reasonably soon.

Although we do have until 2010 ultimately to make that transition.

One of the things that we are moving forward on is we are transferring a number of our contract maintenance operations in order to what we believe is bring into house some of this.

A lot of that was done as we moved the aircraft quickly over to United.

We knew at the time it would be temporary, and now we are looking forward to moving that maintenance back in-house where we feel we will ultimately have a better product.

US Airways, our current fleet of 62 aircraft includes 18 CRJ-200s and 38 CRJ-900s, six Dash 8s.

HP did exercise the right to remove one CRJ-200 by year-end and four additional aircraft during 2007.

We feel that -- we understand that the 200s may or may not be working and fortunately we have, in fact, timed a number of early lease returns to match up to any returns we have from these partners.

And in fact, at last count, we actually were net short a few 50-seaters next year in terms of lease returns versus returns from USAir.

One other item I would like to mention is the status of our share repurchase program.

While we repurchased only 50,000 shares in the third quarter, during the fourth quarter, we repurchased over 2.2 million shares at an average price of $7.79.

Since 2000, the Company has repurchased over 10 million shares.

Given the Company's growth and operating challenges, I would like to again thank our employees and employee leadership groups for continued success of the Company.

As you know, we feel that we have really weathered what has been a very difficult storm in the industry.

We think that things are beginning to turn.

We know unfortunate for us in this quarter that we did have a number of expenses, primarily on the engine side, that all hit at once, as well as the training expense.

I would like to take a minute to explain that.

We had a very tight schedule in terms of putting the aircraft online, the Dash 8.

Unfortunately, the aircraft that we had thought we were going to be receiving we did not get, and we had to go out and find aircraft.

That delayed the program and meanwhile the pilot training had begun.

We ended up having to get those aircraft very quickly.

Some of the aircraft took longer than anticipated to put on a U.S. certificate because they were coming from outside of the country.

That delayed the program.

I think our people did a wonderful job recovering as best possible, but clearly when you have 100 pilots trained and no aircraft to fly them, it becomes an expensive proposition.

That probably accounted for two-thirds of that $2.2 million.

I would say that that is probably what I would probably put into the bucket of one-time expense.

On the engine side, we did have two damages.

We do schedule some amount of work, but this exceeded our planned, unscheduled removals and then as a result of the return to the aircraft from USAir, we did take two aircraft off-line.

We chose aircraft that we felt were best to take out from an operational standpoint.

Financially, maybe we could have made a different decision, but our view was that we wanted to look at the long-term impact on the operation and took the aircraft out that we found least desirable.

Going forward, we continue to aggressively bid for new business.

Again, it is a very competitive market out there.

We would like to think that our product, as well as our price, is enough to garner some of that additional business.

Mesa has been very successful in the past.

We have no reason to believe that we won't continue to be, but at this time, we have no news for anyone in regard to that.

Again, we just have to wait and see as some of our partners and some of our new carriers that we are in discussions work out their plans going forward.

With that, I would like to open it up to any questions that anyone may have.

(OPERATOR INSTRUCTIONS) Helane Becker, The Benchmark Company.

Thank you, operator.

Hi, Jonathan and Peter.

I just have a question, a couple of questions, actually.

Just so I understand on the maintenance and the training expenses, those are one-time items that won't be there going forward as the maintenance issues clear up too.

I think that we always have maintenance issues, and unfortunately in this business, sometimes there's always something.

But I mean clearly in this particular case, we took two airplanes off-line.

We did the maintenance on them to return them.

We could have done something differently.

On the two aircrafts that were damaged, that happens.

We do have generally an amount that we budget for that, but this was in excess of that.

So I don't think that that would occur again.

Also on the training side, we really had an issue with the Dash 8s that were coming out of the tundra from Air Canada.

My good friend, Montie Brewer, up there was able to help us at that time.

We had been counting on some aircraft that had been promised to us by Bombardier, that they thought that they were going to get back from USAir.

That didn't happen, so we had to hustle up some aircraft.

We did the trade for Delta literally where they called and asked us could we put turboprops into JFK to support their expansion there.

I am not going to say we did it as a favor.

We obviously wanted to do the business, but it was very low margin.

I think I mentioned that on the last call.

We did in order to strengthen our relationship.

Whether that has happened at this point, I don't know.

If it didn't have that effect, then it would have been a strategic mistake for us to move forward because clearly I will tell you that I would rather put 50 CRJs online than I would these 10 old Dash 8s.

It has been very challenging.

There was a bottleneck as a result of the aircraft coming to us with flight data recorders that weren't U.S. legal.

The Canadian flight data recorders are different.

All these things ended up where we had delays in the training.

We couldn't get the IOE training in time because we didn't have enough aircraft.

And you run up a bill very quickly in this business.

Again, I think in a funny way, it may help us because I think Delta saw that we clearly were jumping through hoops to make this happen, and we put a lot of resources on it because we felt that long term it is important to preserve what I view as a very positive relationship with Delta.

Basically my people followed my instructions, which was not to worry about the expenses, to make this happen as quickly as possible and as close to schedule as possible.

We did that and it was expensive.

Okay.

But I mean from a forecasting standpoint as we are looking forward, we shouldn't really be thinking -- I mean every once in a while you have a surprise, but we should be thinking more in lines of normalized costs now?

Yes, we've been doing this for some time.

Out of our whole history, there have only been a couple quarters that we've missed and this is certainly the biggest miss.

I don't think that this is something that will happen going forward.

To the extent I can say that obviously, this is not something that -- we don't think that these costs are recurring.

Well I hear from United actually that your United operation has improved fairly dramatically, and last month, I think you were like the top of their group in regional airlines in terms of performance, which is consistent with your completion factor rate.

Well, I appreciate that and I appreciate our good friends at United saying that because we have worked very hard in what I think has been an incredibly difficult environment.

Not anyone's fault, just that we do the bulk of the flying into airports in Boston, Newark, Philadelphia, JFK, LaGuardia and Atlanta for United Express, almost all of the Regional Jet flying and United folks have worked with us very closely.

We very much appreciate how they have treated us and our relationship with them.

And it has taken some adjustment for the Company.

There is no doubt Mesa had always been a West Coast company.

We are now to a large extent an East Coast company.

We have absolutely learned some very valuable lessons in terms of operations on the East Coast and the costs associated.

And as a result, I think going forward we will be a little bit smarter.

Okay.

(multiple speakers) relating those kind words from United.

Oh, that's okay.

And then just on the pilots, I guess you are starting or have you started openers with them?

They put out some announcement I think two Friday's ago that was kind of weird unless you take it in the context of them being in a negotiation.

Well, I think it is fair to say that they started negotiating.

I'm not sure that we have.

Okay.

Start negotiating for almost another year.

They seem to be pretty anxious, and the fact is is that in fairness, our pilots, since we signed our last contract over the last three years, our average pilot wages here have increased over 50%.

We have no one on furlough.

We've upgraded almost 1000 pilots to captain.

Our average upgrade time is probably half of our closest competitor.

But unfortunately we are -- I'm not going to argue for a second that we are not a target and that is primarily due to the fact that I think ALPA has run out of targets other than us.

Most of the other carriers have suffered significantly over the last five years, had concessions, have had pilot furloughs.

I think that we are maybe the only ALPA carrier that has not suffered that fate.

The only other one that I can think of is Transtate and they set up a separate nonunion carrier so that sort of tells you what their view of the world is.

So I have no doubt that this will be a focus and one that we are going to have to work very closely with our people here locally, which I think we will do, to work our way through it as best possible.

But make no mistake, that will definitely be a challenge going forward.

Okay.

Thanks, Jonathan.

Roger King, CreditSights.

Hello, fellas.

I have a couple questions.

Both -- well, the first one is on Hawaii, and I know Hawaii is just a tiny speck compared to the potential of getting business or keeping it at Delta, but do you really think that there is a market there for three airlines or are the other guys going to have to cut back capacity?

How do you think that is going to play out?

No, I think that's a good question.

I got to be very careful because it seems like every time I say anything on a conference call about Hawaii, we get sued.

Part of the reason why our numbers were where they were is that we had a $0.5 million of extra legal expense involving our Hawaiian operation.

But is their room for three carriers?

Sure, there is.

Is there room with three carriers with the existing capacity?

Maybe not.

When we entered the market, all the carriers decried there wasn't room; there was too much capacity.

What did they do?

They added more capacity than we did.

If anyone is acting in what I would call a predatory or anticompetitive manner, it would be them.

The fact is is that we will continue to operate there.

Our marketshare now exceeds our seat share by almost 25%.

We do about 8% ASMs.

We are garnering about 10% of the market.

I think that over time capacity has a way of working out.

We have a very small amount of capacity in the market.

We only have 8% of the capacity.

So I think that over time the right thing will happen.

We are fully committed to Hawaii.

We think that the market itself for the first time has actually grown.

We just got a report yesterday that the market had actually gone up almost 8.2% in terms of total passengers.

We clearly credit Mesa I think for that.

The state has been very grateful and thankful to us.

We've gotten a few phone calls from state officials saying how now the trend is reversed.

Plus there's some interesting things that are happening, too, that I think are helpful to us.

One, for example, a lot of people talk about the fact that there is a lot of direct flying to the islands, which there is, the neighbor island, but what is happening too is, because of our low fares, you can fly to a Kauai or a Maui for a lot less money connecting over Honolulu.

There will always be a part of the passenger traffic that is going to look for the lowest fare.

And in spite of a connection, they can save, in some cases, up to $200 round-trip by making that connection.

In addition, our website -- we are doing I think remarkably well for only being in the business for six months in terms of generating ancillary revenue on our website through the sale of hotels, cars and vacation packages, as well as online advertising, which we view much in the same way Ryanair views -- and one of the reasons why they have been so successful is that they generate 25% of their revenues from non-airline-related sources.

So we think that there is a lot of things there that make sense and ultimately we believe that this is going to work out quite well for us.

Since the -- (indiscernible) like about 100 miles, does the CRJ actually have a cost advantage all-in over, say, a 717?

On a unit basis, maybe not.

Although I have to say when we do the analysis, our competitors' costs are sometimes so high that even our CRJ-200 costs are in fact very competitive on a unit basis.

Our view was that the CRJ-200 was effectively a pathfinder aircraft, help us develop a market, build up our marketshare and then ultimately move into larger regional jets or narrow body based on that growth that we see as a result of A, our fare structure and B, the quality of our service.

I will say the operations out in Hawaii have been just incredible, running over 90% on-time arrival rates, and I think since inception, we've canceled less than a dozen flights in almost six months.

So it has been something where it is just going to take time.

The incumbent carriers have been there for 60 years and 75 years or something in that neighborhood.

We've been there six months.

We are carrying now a lot of people.

We are building our marketshare, and I think that their actions of adding more capacity than us -- I can't ultimately speculate as to how it affects them, but I do know that in particular in one carrier they added a lot of capacity.

They added 10% capacity and carried 10% fewer passengers.

Those numbers generally don't work.

That's true.

That is going the wrong way.

And then finally, one last question on ALPA.

It's interesting that ALPA is starting to get active with the regional pilots or maybe I've just been out to lunch for the last several years.

But it seems like they've gone out of the way to protect their mainline locals with the scope clauses at the expense of their regional locals.

And it always amazes me that the regional pilot locals were still with ALPA.

Does this -- is there a trend here that they are going to try to get more active at the regional level to compensate for this history that I perceive and, therefore, over a bargain and you might get stuck with a bad situation like that?

Well, you know, I think there's always that risk.

You would like to think that the last five years would have taught organized labor the risk of overbargaining.

The fact is that of the regional carriers, there is only a few that are able to finance and garner new business.

I think Mesa may well be the only ALPA carrier.

So you would like to think that they would rather see the jobs go to an ALPA carrier that is successful as opposed to a non-ALPA carrier that is successful.

And that you would think would counterbalance some of their natural tendencies to just ask for more.

You know, it is not always logical.

What appears to be for most businesspeople what would be a clear-cut answer is not always what we see at the bargaining table.

We do know it will be a challenge, but we are hopeful that our pilots will appreciate the work that has been achieved at Mesa.

The fact that they have had 100% job security right now, that they have no one on furlough, that their wages have gone up;

I cannot think of another carrier other than maybe some of the low-cost carriers like JetBlue and Southwest where average pilot wages have gone up so significantly.

If someone got hired at Mesa at the day that our contract was signed, their average pay has gone up almost fourfold as a result of advancement and our ability to grow.

I would truly hope that ALPA would not do anything to jeopardize that and the futures and careers of the people that they represent here at Mesa.

Yes, I know.

On the mainline side, the only guy that's getting a pension now is the American pilot who didn't go into bankruptcy.

Okay.

Well, good luck on the bargaining.

Thank you very much.

Will Nasgovitz, Heartland Funds.

Good morning.

Did you comment that there was 2.2 million shares purchased this quarter?

That's correct.

So what is remaining on the authorization then?

I believe it is about $9 million.

Okay.

And have you articulated what CapEx will be for next fiscal year?

Well, I know that that has been changing because in some of our discussions with our partners and with potentially new partners, there seems to be a movement towards the partner taking on the aircraft and then just subletting them back to us, which frankly we would be very much -- we like that kind of transaction because it takes out a lot of our requirements for deposits on aircraft.

But Peter, do you have an updated number?

Yes.

Putting aside what Jonathan was talking about, aircraft deposit, a non-aircraft deposits are forecasted to run about 5 to $6 million a quarter, just straight CapEx.

Also, Peter, I would like to also comment on the cash because our cash number that we reported was I think about $238 million.

Do you know where that stands today, Peter?

Yes, today it is just about that number.

It will grow over time for the rest of the quarter.

A lot of that is timing of lease payments.

So we should see growth of -- we should be by the end of this fiscal year at about $300 million.

Okay.

One last question.

I think it was in April you commented on a hiring consulting firm to look at China.

I was curious if there was any update there.

Yes, we have been in very serious discussions with two Chinese carriers.

We are somewhat surprised at the speed at which things are happening.

Peter, do you want to fill in?

Peter has been the one who has been on the airplane a lot going back and forth.

Do you want to give an update, Peter, that we can do?

Certainly.

There is a lot of interest over in China, primarily by the more entrepreneurial Chinese carriers.

I think as Jonathan mentioned, we have been very surprised at the speed at which they want to get something done.

As always, operating in China is unique.

So while we are very optimistic about getting something done, we will just play things out as they go.

But we are looking to hopefully do something mid to end of next year.

In terms of actual operations, and that is something finalized certainly by the first quarter of next year and maybe sooner.

Okay, thank you.

That is very exciting.

I operated an airline in Belgium, and even in Western Europe it was challenging.

So no one to underestimate what we are going to have to face going to China.

But I think that clearly when you look at a country with 1.5 billion people and they have fewer RJs than we do at our hub here in Phoenix, there clearly could be some very, very interesting opportunities for us going forward.

And I think there could be a benefit that a result of us being the first ones in that I think would be -- I think we can exploit.

Mike [Schulten], Ingalls & Snyder.

Hi, Jonathan.

Good morning.

I am sure you've given it a lot of thought to the potential impact of US Air's buyout of Delta on your business.

Can you kind of share how you think things might unfold for you?

Well, it is kind of difficult for us to comment on, which -- and I will say something, but at least in the paper called a hostile takeover.

We are partners with both, so as you can imagine we are going to steer clear from making any comments, because either way we're going to offend somebody by saying something.

So we would avoid doing that.

I will say this;

Mesa is we believe the lowest cost provider regional jet feed in the country.

We think ultimately that that is what will win business.

We think our product is also among the best in the country.

Clearly, there is going to be consolidation within the Delta family.

It is not a secret.

There are, in fact, significantly higher cost commuter operations that Delta operates.

So I think that from our perspective, we feel pretty comfortable that our business is remained intact, and we think that Delta clearly has catching up to do in terms of its regional jet fleet if nothing other than to resize the fleet in terms of its average capacity per departure.

So I think we are in pretty good shape.

Clearly one of the keys to this deal would be some kind of consolidation.

So clearly, it won't be without its pitfalls, but we have a very good relationship with America West, a very good personal relationship with the leaders there.

Both Doug Parker and Scott Kirby I'd like to think are more than just business associates but personal friends of mine.

We've developed a very close relationship with the folks at Delta, so I would suggest that we are as well positioned as anyone depending on whatever the outcome is.

So we have been through this before, and we will deal with it again.

And I think we are going to -- from Mesa's perspective, I think we will be fine no matter what the outcome.

Okay, thanks.

Could you clarify this higher tax rate?

You say it is related to not being able to expense stock options.

Is that --?

It is for GAAP purposes.

GAAP doesn't allow you when you are calculating your tax -- your earnings, your taxable earnings before taxes to deduct the expense from investment stock options.

And this last year we had a high percentage of our options that were exercised were ISOs.

As a result, when you are calculating your GAAP taxes, you had to add that expense back to your earnings before tax and then take the 40.1%.

So that is what you got -- that's how you got to the 47%.

Now from a pure cash standpoint, they are tax deductible.

Okay, great.

And great job on the share repurchases.

I think you are doing the right thing there.

I will tell you that we are -- we still have a lot of confidence in our business going forward.

We do have a lot of shares left to repurchase, and obviously we are going to do the best we can to purchase the stock at the right levels.

But I think that it is fair to say we've done over 10 million shares since we've been at the Company -- two million, last quarter.

We joke around here internally about the fact that for years we ran the Company with $20 million in cash.

Even now with a number that wavers, depending on timing, between $240 million and $275 million, clearly we think that there may be room to use up at least a big bulk of that 9 million shares and have enough cash cushion that we would not be concerned.

Great.

I think your stock is cheap, and I think it is a good investment.

Thank you very much.

(OPERATOR INSTRUCTIONS) Helane Becker, The Benchmark Company.

Thanks, operator.

Jonathan, just real quick, did you say what the impact of the earthquake in Hawaii was?

It wasn't that significant.

I think we canceled I think like ten flights.

There was some impact, but clearly I think the biggest challenge we faced in Hawaii, other than legal, has just been the fact that there has been a lot of additional capacity put in the market in an effort to thwart competition.

Our load factors I will say are lower than anticipated.

We are running load factors sort of in the mid 60s.

We expected to run load factors in the mid 70s.

If you sort of do the math backwards and if there hadn't been that capacity add, which was clearly irrational, that is where we would be.

So I think that they may view that they could open up barriers that for some reason we would be chased out that it is not going to happen.

So I think ultimately our existence will be accepted, and I think that the operation will work in a way that we expect it to.

Okay.

Thank you.

Charles Silk, C Silk & Sons.

Thank you.

I am a new addresser on this, and I just have one question.

What is the impact of the volatility of the fuel when it goes down from $78 a barrel to $58 a barrel now?

How positive, and can you just elucidate on it?

Sure.

The bulk of our fuel is purchased, and we get reimbursed by our partners.

It is a pass-through, so we don't have that big an impact.

However, we do have a fairly significant impact just in our Air Midwest operation and now in go! as well.

So for example, this quarter, the increase in fuel prices from $1.66 to $2.35 had about a $1 million impact on Air Midwest, which was in fact slightly greater than its loss. go! earns about -- what did we say the number is at go!?

Do the math here real quick for you.

I can give you an idea on the 5 CRJs out in Hawaii.

Peter is going to do that real quick.

It burns about 1,000,002 gallons a quarter.

Yes, we burn about 1,000,002 gallons a quarter.

So obviously there clearly is an impact in our operations, although it is not nearly as significant as it would be at a major carrier that has full exposure to fuel prices.

So you wouldn't be able to do any hedging at all with the futures at all?

You have an insignificant amount you have to worry about?

Yes, I mean in the past, we did some hedging on our Air Midwest operation that was a little bit larger then.

We wouldn't be opposed to doing it.

I will tell you that we did it when fuel was about $30 a barrel and when it got to $50, we decided that prices couldn't get much higher.

But I think at this point in time, we are not doing any hedging, and I think it is fair to say that we don't have any plans to at least for the near future.

I agree with the last caller that it is a bargain that we will probably be buying more.

Thank you.

Thank you very much.

I have no further questions at this time.

Okay.

In conclusion, I want to tell folks that we appreciate your interest.

We appreciate the support that we heard in the call.

We are clearly not happy with the results.

While there were some extraordinary items that impacted us, I also believe that there are many things that we could do internally and are doing to improve the numbers with or without these kinds of other expenses.

There is lots of places.

My mentor in the business, [Sly Ridgley] said, you never find dollars in this business, you find nickels and dimes and occasionally you get lucky and find a quarter.

We have been very focused on our operations.

I think that as a result, we are finding things that we can improve upon, and I think that going forward, we will see some of the results of that.

I also think that we have made a significant investment in our partners in terms of our relationships with them.

All three of our partners are very valuable to us.

We have spent a lot of money, for example on our United partnership.

We spent a lot of money on the Delta relationship on the Dash 8s, which for a small amount of aircraft, I will tell you have been more than a small problem.

But nonetheless, we think that these are wise investments for the long term and having been here as long as I've been here, we are going to run the Company in what we view is the best long-term interest and not be as concerned as one might be on quarter-to-quarter swings because we do think that these investments will pay dividends in the future.

So again, I want to thank everyone very much.

We very much appreciate the support and as always, if you have any other questions, please feel free to call myself or Peter after the call or any time.

Thank you.

Thank you.

That does conclude today's conference.

You may disconnect at this time.