Republic Airways Holdings' plan to restructure subsidiary Chautauqua Airlines must work or the company could "move way" from the 50-seat jet operation.
"An un-restructured Chautauqua loses money in every one of its [capacity purchase agreements] today," Bryan Beford, Republic's chairman and chief executive, told analysts today.
In April, Bedford announced that the company would restructure Chautauqua, hoping to add between $40 and $60 million in improvements by the end of 2012 from reducing maintenance and ownership costs and bringing grounded small jets back into service.
Bedford says that Republic has made strides with its key stakeholders in the second quarter to come up with a restructuring plan to keep the company's more than 70 small regional jets profitable, but cautions that future work must be done to ensure that Chautauqua-an operator that exclusively operates smaller Embraer 140 and 145 aircraft-can make money in coming years. He says that stakeholders understand this situation.
"They understand that there is a problem down here at Chautauqua, and it's an industry-wide problem," says Bedford.
Bedford says that US airlines' move away from 50-seater jets has turned the market for regional service into a competitive buyer's market, and that he believes carries such as Delta, United and American are aware of the trend.
As a result, the CEO is "laser focused" on restructuring the regional subsidiary.
"We're going to have to re-tool our economics so that we can feed In that space, or we're going to have to move away from the Chautauqua operating segment," says Bedford.
In June, Republic amended Chautauqua's capacity purchase agreement (CPA) with Continental Airlines, which extends the agreement until August 2014. Under the agreement, Chautauqua operates four additional Embraer ERJ-145 aircraft for Continental. Chautauqua will operate 12 aircraft total for Continental by September.