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Midwest Q3 Results  
User currently offlineKnope2001 From United States of America, joined May 2005, 2912 posts, RR: 30
Posted (6 years 11 months 1 day 16 hours ago) and read 1595 times:

MEH posted their 10-Q for the 3rd quarter 2007. Interesting that it appears they are not doing the traditional PR piece that translates some of the numbers into English, nor a conference call. I’d like to spend more effort pouring over it today but don’t have the time. But here are some things which jump out at me or raise questions.

Three months ended 9/30/07
Net loss of $3.86m versus net profit of $1.68m last year

Nine months ended 9/30/07
Net profit $9.00m versus net profit of $1.80 m last year

By segment:

Midwest Mainline
Third Quarter
2007 - $0.989m
2006 + $1.664m

First Nine Months
2007 + $18.578m
2006 + $5.398m

Midwest Connect
Third Quarter
2007 -$2.868m
2006 +$0.020m

First Nine Months
2007 -$9.567m
2006 -$3.594m


--CASM did drop for both Midwest mainline and Midwest Connect for the quarter year over year. (This drops are in spite of a hit to operating results based on fuel contract value change discussed, and the cost of the takeover fight, both discussed in the next sections). CASM drop is primarily due to longer stage length, and on the MIdwest Connect side, the larger lower-CASM aircraft (the CRJ's)

Midwest Mainline Q3
2007 11.39 cents per mile
2006 11.56 cents per mile

Midwest Connect Q3
2007 20.74 cents per mile
2006 28.62 cents per mile



--Cost of takeover flight is not entirely clear. In one place they say the quarterly cost of defense against AirTran was $2.3m. Does that include costs associated with the TPG deal too? In another place, the cost just for advisory of Goldman Saks alone will be $4.4m to $6.6m when the dust settles. Almost certainly that is not just for this quarter, but how much is?

--The affect of the change in accounting for the fuel contracts is becoming clearer. In the first quarter they posted a large profit (Q1 is normally a money-loser) based on the value of these contracts valued at $19.9m. At that time these contracts were nearly all for 2007. Best I can understand it, in (simplified) essence the full benefit of these contracts is no longer realized when the fuel is consumed but rather when the contracts are purchased. I suspect that under the old accounting method Midwest would have spread out the value of these contracts recognized in Q1 ($19.9m) over the full year when they were exercised. What instead shows up on the books is the increase or decrease of the value of their fuel contract holdings in the quarter reported. If the value of their fuel contract holdings held at exactly the same level as they were in Q1, then there would be no line item in this quarter for them…the benefit of these contract was realized back in Q1 at $19.9m and that would be it. However every quarter the value of their rolling fuel contract holdings can change, and for Q3 the current fuel contract holdings have a lower estimated value than what they held back when they were recognized, and that shows up on the quarter’s operating stats as a hit to cost. This quarter it was recorded as a cost increase of $3.3m. Had they not changed accounting method they would not have recorded the $19.9m gain on fuel contracts in Q1 and there would not have been the lose of $3.3m recognized this quarter on fuel contracts. So to look at the $3.3m fuel contract loss for the current quarter without also recognizing the $19.9m fuel contract gain in Q1 is missing half the picture.

On the flip side you can’t really say that the $3.3m hit to operating cost in Q3 is not really operational, since the benefit of this change was realized as a help to operating costs back in Q1. Personally it would make more sense to me if it was segregated from operational results, but I’m not an accountant. And just FYI, I researched a little what lead to the accounting change, and best I can understand it is a combination of the type of contracts Midwest now holds, and the prevailing interpretation of a FASB regulation.

I hope to have more time to dig through the results soon and see what else is in there. WIthout benefit of the usual conference call and PR piece it's harder to find and understand everything.

6 replies: All unread, jump to last
 
User currently offlineEXAAUADL From , joined Dec 1969, posts, RR:
Reply 1, posted (6 years 11 months 1 day 16 hours ago) and read 1564 times:

Just more evidence that YX mgmt was looking out only for themselves by rejecting the FL buyout.

Quoting Knope2001 (Thread starter):
Midwest Connect Q3

Miwest Express CASM
2007 20.74 cents per mile
2006 28.62 cents per mile

Those FRJ's are pigs arent they???? Introduce a few CRJs, not exactly a cost efficent aircraft in its own right, and watch CASM drop nearly by 1/3!!!


User currently offlineKnope2001 From United States of America, joined May 2005, 2912 posts, RR: 30
Reply 2, posted (6 years 11 months 1 day 15 hours ago) and read 1504 times:

Quoting EXAAUADL (Reply 1):
Just more evidence that YX mgmt was looking out only for themselves by rejecting the FL buyout.

Hmmm...if indeed Midwest is such a dog, perhaps in fact this raises questions why AirTran was willing to spend far more than market value to buy them.

Quoting EXAAUADL (Reply 1):
Those FRJ's are pigs arent they???? Introduce a few CRJs, not exactly a cost efficent aircraft in its own right, and watch CASM drop nearly by 1/3!!!

As I have been saying again and again and again in this forum and others, the dramatically increased stage length lowers both RASM and CASM significantly.

Midwest Connects average lenght of haul increased by 32.5% in the quarter, from 320m to 424mi. Whatever CASM improvements are being realized by the move to larger aircraft (BE1 to FRJ, FRJ to CRJ) they are overrun by the large difference in stage length.


User currently offlineMKENut From United States of America, joined Jul 2007, 699 posts, RR: 1
Reply 3, posted (6 years 11 months 1 day 15 hours ago) and read 1489 times:

Quoting Knope2001 (Thread starter):
--Cost of takeover flight is not entirely clear. In one place they say the quarterly cost of defense against AirTran was $2.3m. Does that include costs associated with the TPG deal too? In another place, the cost just for advisory of Goldman Saks alone will be $4.4m to $6.6m when the dust settles. Almost certainly that is not just for this quarter, but how much is?

I was asking myself the same question. How much of a burden was the hostile takeover on Midwest? Can we assume the cost is reported quarterly? If that is the case, the burden was pretty high if you ask me.


User currently offlineJlbmedia From United States of America, joined Jun 2002, 622 posts, RR: 0
Reply 4, posted (6 years 11 months 1 day 15 hours ago) and read 1470 times:

Quoting Knope2001 (Reply 2):
Hmmm...if indeed Midwest is such a dog, perhaps in fact this raises questions why AirTran was willing to spend far more than market value to buy them.

In a word..........Milwaukee.



JLB54061
User currently offlineFlyPNS1 From United States of America, joined Nov 1999, 6608 posts, RR: 24
Reply 5, posted (6 years 11 months 1 day 15 hours ago) and read 1421 times:

These numbers are not a great sign for Midwest. Right now, the industry is experiencing strong demand, good capacity control and rising yields leading most airlines to hefty profits. However, YX is still floundering. Even removing whatever money was spent fighting FL, the company is at best breakeven.

If YX can't make money now, they're going to be in a lot of trouble when times get tough. If FL does build-up at MKE, it could make these numbers even worse.


User currently offlineJmc1975 From Israel, joined Sep 2000, 3280 posts, RR: 15
Reply 6, posted (6 years 11 months 1 day 15 hours ago) and read 1421 times:

They would have been profitable had they been bought out by AirTran. The estimated $15 million in quarterly synergies would have made it a far healthier entity.


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