UBS Warburg Models 'Illustrative' Regional Rate Cuts

World Airline News, Nov 30, 2001

Atlantic Coast Airlines [ACAI], Mesa Air Group [MESA] and SkyWest Inc. [SKYW] ultimately will provide their major airline partners with significant savings, according to Jamie Baker of UBS Warburg. And while the amount and duration of the savings are hard to gauge, Baker takes a stab at it in a Nov. 13 analysis. For illustrative purposes, he models a full 10 percent cut in United Express rates and a 5 percent reduction for Mesa's America West [AWA] and US Airways [U] routes. Using company guidance and consensus estimates as a baseline, he comes up with the following:

Atlantic Coast. A 10 percent reduction in United departure rates at Atlantic Coast over full-year 2002 would provide United with an estimated $60 million savings and result in Atlantic Coast earnings of $0.45 - before taking into account further cost efforts at Atlantic Coast. UBS Warburg's current 2002 estimate for Atlantic Coast is $1.00 versus a consensus of $1.18.

SkyWest. A 10 percent reduction in United departure rates at SkyWest over full-year 2002 would provide United with an estimated $35 million savings and result in SkyWest earnings of $0.85, before taking into account further cost efforts at SkyWest. UBS Warburg's current 2002 estimate for SkyWest is $0.85 versus consensus $1.22.

Mesa. A 5 percent reduction in both America West and US Airways departure rates at Mesa over fiscal 2002 (September) would provide America West and US Airways with an estimated $33 million savings and result in Mesa earnings of $0.20, before taking into account further cost efforts at Mesa. UBS Warburg's current 2002 estimate for Mesa is $0.51 versus consensus $0.62.

Potential United savings relating to Atlantic Coast and SkyWest could approach $95 million. Including potential savings at Air Wisconsin, an across- the-board 10 percent discount to prevailing rates could save United as much as $140 million in 2002, according to Baker. He says this would be a "meaningful amount" against UBS Warburg's forecasted 2002 loss of nearly $1 billion.