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Mesa Air Reports Quarterly Revenue Increase Despite Rising Fuel Costs

July 1, 2008

By Donna Hogan, The Tribune, Mesa, Ariz.

Jul. 1–Despite extra turbulent skies for Phoenix-based Mesa Air Group, the company landed in the black during the quarter that ended March 31.

Mesa Air reported revenue of $320 million, up 8 percent from the same quarter in 2007.

Net income was $9 million for the quarter, or 29 cents per share, compared with a loss of $24 million, or 75 cents a share, a year earlier.

A big boost to the bottom line was the negotiated settlement with Hawaiian Airlines. Mesa Air got to keep a big chunk of the contingency funds it previously expensed, adding back $21 million to the pot. Hawaiian sued Mesa Air, claiming it used proprietary information about Hawaiian to launch Mesa Air’s own island hopper airline, go!, and destroyed evidence of the misdeed.

Mesa Air also sold securities in the quarter, racking up income.

However, the carrier incurred more legal fees to fend off a lawsuit from now-defunct Aloha Airlines and fight its own court battle against Delta Air Lines, which wants to dump Mesa Air-piloted regional services.

And the company incurred expenses to start up a China-based airline as part of a joint venture and to shut down its own Air Midwest subsidiary.

Excluding all of the one-time gains and losses, Mesa Air would have posted a loss of $4 million, 15 cents per share, for the quarter.

“It’s been a tough environment financially and environmentally,” Mesa Air CEO Jonathon Ornstein said during a conference call. “But we will do everything we can to continue Mesa’s nearly 26-year tradition.”

Soaring fuel bills and flight cutbacks among the major airlines that Mesa Air provides services for are challenging, Ornstein said.

Mesa Air flies 34 jets for Delta Air Lines, carrying nearly 23 percent of Mesa Air’s total passengers, Ornstein said, and the loss of the Delta Connection business “would be detrimental to our ongoing operations.”

But that’s unlikely to happen, said airline analyst Mike Boyd.

Just a week ago, a judge who granted Mesa Air’s request for an injunction to keep Delta Connection flying while the suit is decided issued a written explanation of his ruling.

“I don’t think Mesa has much to worry about,” Boyd said.

Ornstein also said Monday that since Aloha’s shutdown, business has been up for go!. If the price of jet fuel was the same now as it was just a few months ago, the service would be profitable, he said. The company is looking at other options to compensate for the soaring oil prices, he said, including carrying mail and adding fees for amenities similar to the strategy now used by most mainland carriers.

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