Most airline stocks have been rising this year. This is true for both major and regional airlines. Republic Airways Holdings Inc. (NASDAQ:RJET) is up more than 90% year-to-date. The stock has risen from low values, trading near $5 for the most of 2012. Does it still present value?
Republic Airways Holdings Inc. (NASDAQ:RJET) is an airline holding company and owner of Chautauqua Airlines, Frontier Airlines, Republic Airlines and Shuttle America. It reports its earnings under two segments: Frontier Airlines and Republic Airlines.
Republic Airways Holdings Inc. (NASDAQ:RJET) fell short on analyst expectations in the first quarter. The company reported earnings of $0.01 per share, while analysts were expecting it to report earnings of $0.02 per share. The earnings miss did not do much damage to the stock–it has continued to trade between $10 and $12. Revenue fell 9% compared to the same period in 2012. Meanwhile, operating expenses declined by 10.5% due to lower aircraft-fuel expenses.
Republic Airways Holdings Inc. (NASDAQ:RJET) has recently reported April data for both Republic Airways and Frontier Holdings. Available seat miles for Republic Airways declined 7% in comparison with April 2012. Load factor increased one point to 81%. On the Frontier side of the business, available seat miles declined 12% and load factor stayed unchanged at 87%.
The available seat miles measurement shows how many seat miles are available for purchase on an airline. Load factor presents how many seats were actually bought. Available seat miles is a measure that shows the airline’s capacity to carry passengers. If the company is optimizing its business, this gauge can decline and still be positive for the business. With load factor things are simpler: the more, the better.
We can see that, unlike other regional airways companies, Republic Airways Holdings Inc. (NASDAQ:RJET) is not expanding its aircraft. JetBlue Airways Corporation (NASDAQ:JBLU) has reported a rise of 6.5% in available seat miles, while Southwest Airlines Co. (NYSE:LUV) has reported a 4.1% rise in available seat miles. JetBlue had a load factor of 83.7%, a decline of 1.5 points from 85.2% that was reached in April 2012. Southwest Airlines increased its available seat miles by 4.1%, while load factor fell two points to 77.8%.
The major problem of Republic Airways Holdings Inc. (NASDAQ:RJET) is debt. The company reported a $275.5 million current portion of long-term debt. Long-term debt less current portion stands at approximately $1.8 billion. Stockholders’ equity, which represents the stake in the company that equity investors have, is only $516.9 million. This brings us to a very uncomfortable debt-to-equity ratio of 3.9.
Interest expense ate all the profit in the first quarter. While operating income was $30.1 million, the company’s interest expenses were $29.7 million. High debt levels always pose risks for a company. If the environment is unfavorable, a company that has a lot of debt would run into trouble.