Photo credit: A Mesa Air Boeing 737-400F operated for DHL Mesa Air Group
U.S. regional carrier Mesa Air Group’s profits rose in the quarter ending in December from a year ago, mainly due to federal stimulus funds. The company reported fiscal first-quarter profits of $14.1 million, compared with $10.8 million the prior year, thanks to $11.3 million in benefits from the CARES Act last year.
The CARES Act’s benefits offset a 26 percent reduction in revenues Mesa earned from flying for its mainline partners, Chief Financial Officer Michael Lotz told analysts during the company’s earnings call on Tuesday. Mesa availed itself of a $195 million loan through the CARES Act in its most recent quarter, and the company expects to receive a further $25 million by March through the second round of airline support Congress authorized in December.
Without the payroll support, Mesa would have had to seek concessions from its pilots, maintenance workers, and flight attendants, CEO Jonathan Ornstein said. The federal aid allowed Mesa to avoid concessionary contracts and furloughing employees, although pilots did agree to pay cuts, he said.
“We are starting to see some glimmers of hope,” Ornstein said. The company is adding five Bombardier CRJs to its contract with American Airlines, and will have 64 of the type this year. For United Airlines, Mesa is adding 16 new Embraer E175s and is removing one CRJ from that fleet for every E175 it adds. Mesa expects to have 80 E175s in its United fleet in the next six months.
Last year, Mesa took the unusual step, for a regional carrier, of adding two Boeing 737-400s based in Cincinnati to carry cargo for DHL. The company plans to increase this fleet to at least 10 aircraft and could add a new aircraft every other month, Ornstein said. Mesa could expand its cargo flying to other companies beyond DHL, although no firm plans are in the works. “The cargo opportunity is significant for us going forward,” he said.
E-commerce has grown rapidly during the pandemic, as consumers increasingly shop from home. Mesa is not alone in adding freighters. Sun Country, which is planning to go public this year, operates 12 Boeing 737s to carry freight for Amazon. But Mesa’s deal is unusual, as it is the only regional carrier to fly mainline narrowbody aircraft as freighters.
The regional airline industry’s consolidation could continue, leaving just three or four companies flying all the U.S. regional lift, and Mesa is well positioned to be one of those companies, Ornstein said. He noted that in 1989 there were 113 regional airlines in the U.S., and that has winnowed down to the current handful of companies.
Mesa reported revenues down 26 percent in the most recent quarter to $127.2 million, compared with a year ago, but this this was up 31 percent from the previous quarter as block hours increased.