SkyWest Inc (SKYW) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Express Jet's 1st Quarter 2007 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Kristy Nicholas. Ms. Nicholas, you may begin.

Thank you, Hilda. Good morning, everyone and thank you for joining the ExpressJet Holdings 1st Quarter Conference Call.

On the call, we have Jim Ream, President and Chief Executive Officer -- and Fred Cromer, Vice President and Chief Financial Officer.

Portions of this call may contain forward-looking statements not limited to historical facts, but reflecting our current beliefs, expectations or intentions regarding future events. A number of factors could cause actual results to differ materially from those in the forward-looking statements. Additional information concerning risk factors that could affect our results is described in our filings with the SEC -- including our 2006 10K.

During this call, certain non-GAAP financial disclosures may be made relating to our performance measures. In accordance with SEC rules, we will provide a reconciliation to our most directly comparable GAAP financial measures on our website at ExpressJet.com.

Jim will cover the operating and financial results for the quarter. Then Jim and Fred will take questions.

Now I'd like to introduce Jim Ream.

Thanks, Kristy. Good morning, everybody.

The 1st quarter results. Let me just hit a couple of the high points and then give some color on where I think we are as a company.

Obviously, the results are worse year-over-year. We made 10.2 million in the quarter on revenues of 412 million. Most of what we're looking at here in the quarter is fairly consistent with what we thought we would work through here this year. Reflecting the transition of taking 25% of our fleet and redeploying it into other business opportunities.

I think the table at the back of the press release does a pretty good job of laying out where we had the financial pressure issues on a margin basis. 1.5 points off the 10% margin that we had been as our benchmark, driven off of a couple of issues related to the CPA that we have with Continental Airlines.

We are in arbitration with them in setting the 2007 rates. The rates that we used to book the amounts in the 1st quarter were based on 2006, per the contract. We are pulling together the information to be able to sit down and go through the arbitration process, which is scheduled for June. I'm hopeful that we'll get all of that resolved and behind us by the time we get to mid-July or so.

I think that again, I'll reiterate the last call -- I think it'd be very good for both companies to go through this and just get a clearer understanding of what the meaning of the agreement is, so we don't constantly have these discussions back and forth, and be able to move this contract productively, going forward.

We also had some pressure on our pilot costs. Consistent with what you've seen in our sector, where there have been difficulties getting folks out of training -- both from just the amount of time it's taken to get through the training process -- a function of -- we've had a fair amount of attrition, and at some of our senior levels -- particularly in the training department. So we had folks that were done and out of training, but then waiting to get their final check rides up and out of the way -- it was very difficult to plan for, given the amount of attrition we did see in a couple of critical areas. And by the time we recovered, it was just too late, ultimately, to have folks sitting around ready to fly aircraft, but not checked out to do so.

Given the attrition patterns I'm seeing here in the second quarter, I suspect we're going to have similar pressures on us for the 2nd quarter -- maybe the first part of the 3rd quarter -- before we're able to ultimately arrest that issue. Again, I think it's consistent -- we were able to obviously produce all the block hours we needed to for the quarter. It would just cost us more to ultimately get that flying done.

Also, that table outlines that we had about a 5-point margin pressure on the transitional expenses. Again, consistent with what we thought as we brought aircraft out of the Continental CTA, got them [modded], painted and ultimately redeployed. We did net some of that against having some charter revenue, which was up a fair amount versus the previous year. About $7 million in charter revenue for the quarter. But obviously, when you're making that big a shift in the total fleet, you're going to have some pressure on your fixed-cost elements of the business. Again, consistent with our plan, with regard with how the 1st quarter turned out, in that case.

Also spent 11 million capital. Far and away, all of that related to the transition. Both aircraft mods and then systems that we needed to support the point-to-point flying. And getting all the airports up and going on the facility side -- and ground equipment. Again, consistent with the plan.

So that's the results for the quarter. I'll just make a couple comments. Obviously, we have markets up and going now, on a point-to-point basis. We're not going to talk about statistics, because it's so difficult to chat about them in a point where every week we're bringing on new markets, and we'll do so throughout the 1st week of June.

I would say, just to give some color on how that's going, it's that the markets are thin. That's why there wasn't service there to begin with. And certainly the load and what we've seen so far reflect that fact.

We've also had some distribution system issues where it's taken us a little bit longer to get a couple of the distribution outlets up and going. Once we got them up and going, we had some one-off issues that would happen from time-to-time, or where we'd have to bring them down to correct it. Some of it was our stuff -- some of it was their systems -- just sort of reading a new carrier in their tables.

So it just took that transition. You could somewhat expect -- but obviously a little bit difficult to deal with.

Having said that, at this moment, all the distribution systems are up and going except for Amadeus. And as we've brought them on, each one of those have generated the traffic we've thought they would generate.

If you'd've talked to me last week, we still had a few system issues going on. The bookings were under similar pressure. This week, not so much so -- and pretty much we're on pace with our projections.

So this week, it looks pretty good. We can't tell whether or not that's just a [ballet] demand, and that we're just going through that transition, or is it more steady state. But we're living this week-by-week, and that's just going to be the way the world's going to be here for the next several months.

We're somewhat optimistic about how the bookings are looking. But again, it reflects the fact that these are markets that are going to take some development.

On the branding side, not only were they thin markets. Obviously people were not used to our name being in the marketplace. We've made good progress there, but we have a fair amount of work to do in that area. And that's going to be a yearlong process of getting the service we have in the market known -- who we are, known. And again, that's all part of the spool that we anticipated.

But I think we've made good progress in large part because the product we said we could deliver to the market, we have been able to deliver that. We haven't really had any issues whatsoever on delivery of the service in the communities that we've brought online.

So our folks have done a tremendous job. We've set the bar pretty high on what we've thought we could bring to the market. And they've delivered on that -- and then some. And the passengers have responded very favorably to what the experience was.

We always thought we had good service delivery in this organization, and now even running this point-to-point operation, we haven't had a single hiccup in any of that. And I think we're very proud of what the folks are doing out there. I think they're doing a really good job in those markets.

In the press release, we also highlighted the fact that we're going to expand a little work with Delta. We're still in the process of working through the definitive agreements on how exactly all of that's going to work. But we've got a rough concept fleshed out with them and agreed to. We will have 18 airplanes working out of LAX and Salt Lake City -- mostly out of LAX. So we're going to have 10 aircraft working under a capacity purchase structure, in which they set the schedule and the price, and pay us on a per-hour basis.

We also have worked through a schedule in which we can put some aircraft into their operation under a prorated structure, which were coded and sold as a Delta product. We set the fairs and the schedule, and then ultimately are able to receive the passenger revenue, and then have a connecting fee for every connecting passenger we bring into their structure. For those of you that've been around the industry for a while, very similar to the structure that you saw in the late '90s and prior -- before we got into the capacity purchase agreement.

I'm very excited about that. I think it's something that really will hit on what we can do well as a company. I think we'll bring value to the Delta network. And we're looking forward to expanding that relationship.

In terms of the fleet allocation as of this second -- we're going to have 205 aircraft working for Continental. We'll have 18 working for Delta -- 10 in a CPA, 8 in a prorated structure. 42 to 43 aircraft in the branded operation, and then 9 aircraft working in the charter and corporate flying. And that business is continuing to progress along nicely.

In terms of cash -- ended up with cash -- the quarter with 318 million in cash. And that was 15 million higher than where we were at year-end. So that's a quick overview, and some color on where we are, right now. We'll open up the call to some questions. Don't push me on particular metrics, because I'm not going to get into it. But if there's anything I can clarify on what I've talked about, feel free.

Hilda -- we're ready.

Thank you. We will now begin the question-and-answer session. If you have a question, please press *, then 1, on your touchtone phone. If you wish to be removed from the queue, please press the # sign or the hash key. And if you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.

Again, for any questions, please press *, then 1.

And our first question comes from Ray Neidl, from Calyon Securities. Please go ahead.

Good morning.

Basically, the new contracts with Delta. I just want to verify. This is a completely independent type of flying. Total risk. No guarantees. Is that correct?

That's correct.

Okay. Great. And as far as Continental goes, I guess the next significant date with them -- once you've settled the arbitration -- is July of 2008, where they could pull additional aircraft out of the contract. Is that correct?

Yes. Under an 18-month notice period. Absolutely.

18-month notice. Okay. Great. As far as the pilot situation goes, I guess like other regionals, you're under a lot of pressure with losing some of your senior pilots to the legacy carriers. What do you think the future trends of that are going to be? Is this going to continue and the legacy carriers will continue to [inaudible] your personnel?

I think, yes, we have a lot of folks that are turning 60 from the Vietnam War era. So there are obviously a lot of folks that were flying through that conflict, and ultimately went on to commercial careers. They're all hitting 60. So we always knew we had this [bow wave] of folks that were going to hit that age point. And we're just sort of living through that.

I think that's going to be with us for a little while. We've got a couple of key positions in the check-airman process that we have here -- as we do a lot of our training done internally. It may require us to start carrying a few more folks in that area than we would have, given the historical patterns.

But it's ultimately manageable. But when you have a dozen folks leave for several different opportunities that they have, where they can fly some bigger equipment, that's difficult to recover from in an operation of our size.

And you've been incurring additional costs in recruiting and training new pilots, but I think you said that you've been able to fly your schedules, so you've been hit with no penalties for noncompliance with your contract.

Yes. That's right. I think most of the issue -- we've been able to source pilots pretty well. A lot of it is just the fact that they're going through training. There's just not the mechanism in place to go ahead and get them checked out and moved to the line.

So it's more of the earlier part of our conversation -- about just having that expertise no longer with us -- that we're trying to recover from.

As far as the independent flying goes, I understand some of the legacy carriers are now putting in competitions on some of your routes. Back East, out of Raleigh-Durham, I think American has put in some capacity. And out West, well, you're participating in it. Delta is expanding aggressively in Los Angeles.

How does that affect your outlook on your independent flying? Is it going to mean that you're going to have to curtail it? Move to other areas? Or change your plans in any way?

I don't see us changing the schedule based on competitive issues. I think we would let a few years pass and let the market dictate which carrier they preferred to fly on. I think our folks do such a good job. I think at the end of the day, we can be successful in those markets.

If the market's just generally thinner than we anticipated, obviously we're going to give that a fair amount of time before we make that determination. That would be only where we would tweak the schedule. Based on the underlying demand in a given community. Not based on competitive issues.

Estimates are all over the map. I guess at this point, you're still not prepared to give us any guidance over the next quarter or 2. Is that correct?

Yes. Because I'd just have to update it every week, and it would just be a mess. So I think we're just going to go through a couple of quarters here, where -- unfortunately, we always like to be a little more forthcoming than not -- but things are so dynamic that until we get ourselves into the backend of the 3rd quarter and have a sense of, "What do the next several quarters like," it's going to be difficult for us to do it.

Great. Thank you very much.

Our next question comes from Mike Linenberg, from Merrill Lynch. Please go ahead.

Hey. Good morning, Jim. I guess a couple of questions. I know you were talking about how it's hard to give forward-guidance. It seems like you haven't been putting out monthly traffic releases -- maybe since December. When do you think you'll resume putting monthlies out there? And then when are you filing your Q, so at least we can get what the quarter block-hour information was? ASMs, RPMs, et cetera?

Well, the 1st-quarter Q will go out tomorrow. Obviously, that won't help you on whatever started in April and beyond.

I think to answer your first question -- once we have the markets up for a full month, so that's probably July, where we have everything up and going and it has a full month of operations -- that's probably the best shot we have of kind of getting out a meaningful statistic that people can begin to model.

With so many markets kind of coming on every week, you're just chasing your channels trying to explain exactly what folks are looking at.

So by July, we've got a full month of operations for everything that we're going to serve. I think that's the time we'll start putting out the monthly load factors.

Okay. And then on incentive payments. It looked like you didn't earn anything. And I realized that the comps are very difficult. And so I presume that what you did -- it didn't look like you got hit with a penalty. So I presume that what you did in January, February and March was maybe flat versus a year ago. Is that how we should read it?

Yes. Yes. That's how to read it, Mike.

Okay. And then just a last question. You have 10 airplanes with Delta on a fixed-fee basis. I realize with the Continental agreement there is that MFN clause. And I believe you can fly up to 10 for somebody else without invoking that. Now that you're going to add another 8 -- and I do realize that they're on a prorate basis -- but is there any risk that the way maybe Continental interprets the agreement -- that the 18 would be in violation of potentially the MFN clause that you have? What's your thoughts on that?

Yes. I think the agreement's pretty clear that where we're at risk for that flying, that that doesn't count against that agreement. And this will be an old-style prorate deal . So we are back in the airline business, working for Delta out of LAX with those 8 aircraft.

Then just lastly, on that old-style prorate deal -- presumably, you don't have that capability. Whether it's a revenue-management system and/or the proper personnel. And I realize that it's a small part of your total network. Are there investments that have to be made? People that have to be hired? Does some of the CapEx reflect you moving into the prorate space?

Yes. Absolutely. We're expanding the capability of the Company to be able to manage it from where we were in the 4th quarter of last year. And that's reflected a fair amount in the operating expenses that you're looking at in the 1st quarter. Getting folks in position to be able to manage -- starting everything that we're getting into in the 2nd quarter.

But I think the systems stuff we're in pretty good shape on, with regard to that. There'll be maybe some tactical things that we need to add, but nothing that I think would rise to a level of materiality.

Okay. Very good. Thank you.

Our next question comes from Jim Parker from Raymond James.

Good morning, Jim.

Hi, Jim.

Regarding your corporate flying. So you were going to allocate 15 aircraft to corporate flying, and now you're allocating 9? Does that say those 6 were excess that really -- that business was probably not as good as the prorate business you could do with Delta?

We just felt that getting back in the prorate world was something that we were anxious to do, anyway. Just looking for the right opportunity. So that was a business platform that we thought absolutely as something we thought we could be successful in, in this business.

We had an opportunity to do it, and so we went ahead and took advantage of it.

I think where we would ultimately like to take the corporate and charter business is consistent with our views. That's as we continue to build on these relationships and look for solutions where we can be helpful, I think there's a real market there for the aircraft that we have. And hopefully that becomes another avenue which we are able to grow.

If we get ourselves into a position of needing aircraft, we're hopeful that aircraft order is going to touch all 4 of these business platforms. Corporate charter, doing some prorate work for another carrier, expanding it with Delta, and obviously looking for other point-to-point opportunities where we think we can be successful in these thinner markets.

So that's how we've set the Company up. Off of one common aircraft type to touch all of these different revenue sources. That's sort of how we're managing it.

Regarding your Delta's prorate business. So that's straight rate prorate. Is that correct?

Well, we're not going to get into the math of how we split the ticket up. But effectively, yes -- we keep the onboard segment of that, and they take the beyond segment piece of any itinerary that connects through that hub.

So if you fly someone just 1 segment, point-to-point, how much of that does Delta get?

All of the revenue that's onboard for a person that's flying between those 2 ONDs would be our revenue.

And regarding your own branded flying -- I believe the game plan is not to be a low-fare airline. To what extent are you offering promotional fares at the outset?

Yes. We've decided not to do that. We've put the prevailing fare levels into the marketplace. Obviously when you're going through a school period, we have some buckets that we have allocated to the fares that are on the lower end of that spectrum that are still available. So until the aircrafts start to fill up in the summertime, there's going to be a little bit of pressure on average fares, and opportunity where somebody might be able to travel on something. Or another carrier's service may be at a bucket that's at a higher fare level.

But from the terms of doing promotional fares, we've chosen not to do that, so that we would just have a clearer sense of what we needed to be managing, rather than try to work too many different levers at the same mtime.

Okay. Thanks.

Our next question comes from Jamie Baker from JP Morgan.

Hi. This is actually Taki Etter on behalf of Jamie. A few questions.

First, just to be clear -- will you be providing ASM data and block-hour data in your 10Q for the 1st quarter?

Yes.

Okay. Secondly, in terms of margins, do you at least see a slight improvement from what you witnessed in the 1st quarter? And then secondly, do you expect margins for your Cal business to come down a little bit?

Well, I expect the margins -- from what we saw in the 1st quarter -- to improve over the course of my lifetime. So I can't talk about the rest of this year. I don't have that kind of clarity.

I think in terms of what we're able to do with Continental long-term, I think there's an ability to sit down and figure out what makes sense for both companies. And those conversations are going to occur. And then we'll see where we can benefit them and where they can benefit us. Just that typical negotiation that's beneficial for both companies. I absolutely see that in our future, and we'll just kind of wait and go through that.

Okay. Thank you.

Our next question comes from Andrew Compart from Travel Weekly. Please go ahead.

Good morning.

Good morning.

Just wondered if you could do a little more detail on what the competitive response has been to the branded service, as far as adding routes and fares? And also if you could elaborate on who the distribution issues were with, and particularly what kind of distribution it is that you're talking about.

Well most of the issues have just been kind of system-interface issues, solely. So they're more technical in nature. We had a system that we thought... We knew we needed to modify it to give ourselves the flexibility that carriers that had more of that low-cost carrier platform from a reservation standpoint. But we wanted the full-service offering to be able to use every distribution outlet, in order to provide maximum benefit to the communities. That was just going to take a fair amount of programming that we had to work through. That involved every company out there that sells tickets.

So it would range from just quality-control issues. Was the connectivity working the way it ought to? In some instances they came online working fine, and then an update to a table would kick out error issues that we would have to go back in, find out what table it was and sort of bang our way through what the correction was.

Some of them were easy. Some of them were not easy. They covered the spectrum of everybody that ultimately sold a ticket. At some point, we had to spend some time working through that.

But I think we've been able to do it. They've been exceptionally helpful. All of the companies in that business have been very supportive, and have helped us a great deal. And at this particular moment, everything's working as it's supposed to.

In terms of competitive response, the benefit of being a smaller carrier is that our job is to connect with the communities, and the customers that travel on our aircraft. That's where we're spending our effort -- not really paying a lot of attention to what somebody may be doing, competitively.

I think we bring a good value to the marketplace, and I think we've got the right product that people are interested in. And our folks do a tremendous job. And that's where we're going to spend our focus. And whatever the competition does is what they do.

Were these distribution issues -- system interface issues -- with the DBSs solely? Is that what you were talking about?

Yes, principally. But in some cases, they could've been with some of the travel ports, as well. So everybody that has a system out there that sells a ticket, we had to spend some time chatting with their programmers.

And where do you stand with Amadeus?

They should be coming online in the next couple of weeks.

Okay. Thanks.

Our next question comes from [Phil Dumas] from [GLD] Capital.

Hi. Good morning, guys. Just a quick question on the balance sheet. The converts obviously are coming up to become short-term liabilities, in about 3 months. Short-term liability. What is your plan with those bonds? And do you intend to address those early? What are your plans for the converts, please?

Well, it's kind of a board matter. I think at the end of the day, we won't get into conversations about how to settle on those bonds until we get to the spring of next year.

A lot of companies refinance bonds early. Especially in your case, given the fact that there's some uncertainty around your new line of business -- [inaudible] independently. You guys don't have an opinion on whether to shore up the balance sheet at this point, take out some uncertainty in terms of financial strength?

Well, I think so far what we've modeled about how things are going to go, we've been pretty close on. So that's just our own internal measure of what's going on. And we haven't seen anything here that made us think that we needed to do something different from the balance sheet, to support where this business is trying to get to. If that changes, we'll respond accordingly. But as of this second, everything looks like it's on track.

So you're comfortable with that large short-term liability in the balance sheet?

As of this moment, yes.

Okay. Thank you.

Our next question comes from Bob McAdoo from Prudential Equity Group. Please go ahead.

Just a couple quick ones. Refresh my memory as to where you are now on -- we obviously just got your new allocation of equipment. But in terms of the Continental airplanes -- are you down to the 205 now? Or are there still some needing to come out?

No. We still have some aircraft that will come out here in the 2nd quarter.

How many more of those are there? Where is that process? I've lost track of that.

Well, we've got -- I think in the 2nd quarter -- it's going to be 35 that come out. We had 34 in the 1st quarter, 35 in the 2nd quarter. Let me tweak that just a little bit.

We had 3 aircraft that Continental are going to give back to us at the end of 3rd quarter. So it'll be 32 that we get in the 2nd quarter -- 3 in the 3rd quarter.

The reservation system you're using. Is it Open Skies? Or whose reservation system are you using?

It's Amadeus and Results -- it's a joint venture system out of Europe, hosted on Amadeus. And it's a pretty good system. Obviously it's new, and so that created a fair amount of connectivity issues and just being able to chat with every other system that's out there.

But from an ease-of-use and flexibility and how we can use it going forward, it's tremendous. And we've been very happy with it.

You said it's Amadeus and who is it? What was the other word you used?

Results.

Results?

Yes.

Does it have the capability to do interlining if you want it to interlining, as opposed to just being a kind of standalone guy?

We're going to be able to do interlining in the first part of the 3rd quarter, as it projects right now. So that's one of the programs that we're working on currently. Should have it up by October.

And as to the Delta prorate thing, remembering what I think I do about old prorate agreements, it seemed like usually if you had a point-to-point guy that was not going to go flow-through onto like the Delta system, that the big brother airline would usually claim some kind of money for handling the reservations and handling the processing of tickets and all the kind of stuff. Does Delta get a fee for all that kind of stuff? If you carry somebody local just to LA?

Yes.

So it's more than including ground handling. It's more of a traditional kind of a thing that way, too?

Correct.

When do you think we'll actually be able to see from you and/or from Delta, what markets are going to be prorate markets versus the contract markets?

Well, I think the schedule's moving around. We're looking at how to optimize the flow of aircraft and working through the system interface issues, right now. So we haven't really gotten down to that.

We'll have to figure out whether or not we want to do that competitively, to release that information, as it sort of makes sense to have that out there or not. And until I can see all the pieces put together, I don't know exactly how I'm going to respond to that.

So what you're saying is that Delta may -- it becomes a question of also I guess -- wouldn't that be a joint discussion with Delta, as to them saying, "These are markets where Delta is at risk versus not at risk," or no? Am I missing something there?

No. I mean it's somewhat complicated. But in a world of, "How do you optimize the flow of aircraft, which markets should we concentrate on from a prorate standpoint, how can we supplement the selling out of that local market?" Those are the things that'll be our assignments to sort of step into, in order to maximize the amount of revenues on that aircraft. Both for us and for Delta.

On the CPA stuff, obviously, they take the lead there. So there is a little bit of, "Which are the right markets for us to work in?" More from a marketing standpoint. And where do they ultimately want to direct more of the schedule. We're still working through all of that right now.

But it would be envisioned that you guys -- unlike some of the old ones -- like I just remember [May saying] it out of Denver with United, years ago. United basically told them when the schedule was supposed to fly, and their flexibility was simply how many seats and which buckets and what they were going to charge for the local buckets. Sounds like you actually had more schedule flexibility, as well -- not just the pricing and the size and shape of the buckets.

Yes. That's right. But obviously you're working within the construct of a hub structure. So it makes sense for us to obviously flow within all of that. And we've had really good discussions with them on, "Where does this airplane work? Where can we supplement what they're doing already? Where do they think there's real value for their overall networks?" All those conversions have gone pretty well.

Got it. Okay. Great! Good luck on that one. That sounds good.

Thank you.

Our next question comes from Greg Sawers from Evercorp Asset Management. Please go ahead.

Hi. Yes. Just one quick question on the Continental arbitration. Is it an all-or-nothing proposition? In other words, you either win everything or lose everything? Or are there a bunch of sub issues and the arbiter can rule some in your favor and some in favor of Continental?

It's very much the latter, as you described it.

Okay. Thank you.

We have a follow-up question from Ray Neidl from Calyon Securities. Please go ahead.

Yes. Just to try and verify the Delta contract, from what you were saying before. It's going to be a mix of prorate and contract flying. How does fuel work into this? Are you going to be liable for the fuel costs? Or is this something that's going to be negotiated? Or is it going to be some of this and some of that?

On the CPA works, since they're in control of the schedule and the pricing, they'll ultimately pay us on a fixed-fee basis -- including fuel. On the prorate world, we're at risk for fuel price.

Okay. Thank you.

Once again, for any questions, please press *, then 1, on your touchtone phone. We have our next question from Jim Parker from Raymond James. Please go ahead.

Jim -- just a follow-up on the convertible issue that you have outstanding. It appears -- and I may be incorrect about this -- that 140 million is redeemable in '08. Is that the case, and how? Will that come out of your cash? Or how will you handle that redemption?

I think it's 137 million is the convert. And we can settle that in cash or stock.

Okay. Thank you.

You're welcome.

We have a question from Roger King from [Credit Sites]. Please go ahead.

Hello, fellows. I have a question on the branded service. You're in 47 markets, now. And I'm sure you've gone through a ton of the other billions of market pairs out there. How expandable do you think this could be, over and above the markets you've already cherry picked? And could that handle a whole bunch of planes coming out of the Cal contract in a worst-case basis?

I think to answer your first question, right now we're just in the mode of getting ourselves in the position to be able to sell it effectively -- establishing the brand in the markets. We're in 24 communities and 55 different market pairs. And we've got a lot to work on right now, just to make that work the way we all are hopeful it will work.

So this idea of, "Could we expand it dramatically beyond there?" Right now, our thoughts are not drifting in that direction. We're more towards, "Let's make this work."

In terms of if Continental decided that some other number of aircraft didn't work in their network, I'm suspecting if they did another round of that that there would be some opportunities that would begin to open up in and around the region which they would serve. Because obviously, there are airplanes and we provide a good service in and out of those markets. So I think it changes the dynamics of how that analysis might work, if we found ourselves in that situation.

Also when we are in conversation with other carriers, as they're looking to expand and shore up their hubs, our ability to do prorate work gives us some flexibility of how to handle that fleet in those applications, as well.

So I think strategically, we're in pretty good shape -- given everything we've been working on.

Okay. But I guess I didn't ask the first question properly.

When you did your market data research, these markets popped out. I assume those were the best ones that you could see, given the Continental restrictions and this, that and the other. But are there -- in your research -- were there hundreds more? Or was this pretty much it?

Well, you're trying to prove a couple of different concepts. You're trying to prove, "Can you be a niche operator out of a community without being a dominant service provider in one particular direction? Or just dominate the whole market in particular?"

Yes.

If we're able to prove that concept -- that a niche operator providing a specialty service in and out of there that just sort of supplements the service already there -- then yes, you have an ability.

I think the next level would be, "Can you do it at less than twice a day? Can you have weekly frequencies that aren't 1X a day? There are a lot of other initiatives that you could take on to try and provide a little more convenience to a particular community. Obviously, the aircraft we operate and what the mission is -- we have to stay away from what other folks are doing. Because they already do a good enough job in those particular markets. So everything we do, you'd be doing something that's new. So yes, those possibilities are absolutely there. And the progress we've made so far, it looks pretty good.

So basically, we're still in the concept-proving mode.

Yes.

All right.

Thank you. At this moment, we don't show further questions. Thank you.

Okay, Hilda. Well, thanks everybody for joining the call. Look forward to chatting with you again in 3 months.