18/03/2008 - 10:07

Skywest Airlines reports strong profit increase

18/03/2008 - 10:07


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Singapore based Skywest Airlines Ltd has announced an interim after-tax profit for the half-year to December 2007 of S$6.5 million (A$5.1 million), an increase of 46.6 per cent on the previous corresponding period.

Singapore based Skywest Airlines Ltd has announced an interim after-tax profit for the half-year to December 2007 of S$6.5 million (A$5.1 million), an increase of 46.6 per cent on the previous corresponding period.

The interim dividend to shareholders increased by 133 per cent to 0.7 Singapore cents per share.

Group revenue for the six months was up 26.3 per cent to S$74.1 million).

The company, which is listed on London's Alternative Investment Market, said revenue for the full year ending June 2008 is expected to materially exceed that of the prior full year.

Executive chairman Jeff Chatfield attributed the strong growth to the expansion of fly-in fly-out operations for mining companies, includng its marquee client Rio Tinto.

Scheduled charters with other mining companies such as Newcrest Mining Ltd and Fortescue Metals Group Ltd and a code share with Virgin Blue Holdings Ltd are adding revenues in current period.

A statement from Skywest's executive chairman Jeff Chatfield is pasted below:

I am pleased to present our interim results for the six months ended 31 December 2007 (the "Period"). The Company's airline operations have resulted in improved Group operating results with Group revenues for the half year increasing to $74,185,824 (2006: $58,726,491) with earnings before interest, taxation, depreciation, amortization and aircraft rentals (EBITDAR) doubling to $21,543,159 (2006: $10,400,199).

The Group's net profit after income tax was recorded as $6,485,870 compared to $4,422,960 for the same period last year - an increase of 46.6%. This was a result of increases in revenue along with economy of scale improvements that result from a larger and better utilized fleet.

The interim dividend payment to shareholders will be $0.007 per ordinary share which is an increase of 133% on the amount paid per share as the interim dividend payable for the comparable period of last year.

The Company's results are presented and prepared in accordance with IFRS and are un-audited.

The regular airline business that the Company operates, where scheduled flights are provided and sold to the flying public, continues its organic growth within a relatively stable environment. We believe that the current growth in this area of the business is currently 20% in revenue terms. The Company is pleased with the growth in this area of the business. We continue to add regional routes as and when additional aircraft become available. The most recent route added was Perth - Kalgoorie - Melbourne, a route that was contributing to profits within 2 months of the inaugural flight.

Revenue Passenger Kilometers increased by 12.75% to approximately 158,883,000 and Available Seat Kilometers increase by 17.7% to 276,790,000.

It has been a key strategy of the Company to pursue contracts for scheduled charter services. The Company operates these long term scheduled mining charters for the resources sector whereby the Company carries workers into and out of their place of employment in remote mining areas. This is the area where the Company is enjoying the largest growth in revenues. Demand for services currently exceeds the ability of the Company to secure aircraft, pilots and flight attendants. The growth in services in this area has been dramatic.

The Company often sells regular passenger tickets combined with a block booking for a resource company. The ability to combine these two methods of operation and commerce is a unique advantage that Skywest maintains and one that is in line with the policy of the current Western Australian Government. By way of explanation - Skywest enjoys a an arrangement with its marquee client Rio Tinto Ltd (ASX:RIO) for a regular service for the employees of the Argyle Diamond Mine. After landing at Argyle to collect the Rio Tinto Ltd employees, the aircraft then flies to Kununurra en route to Perth, to transport members of the traveling public and regional community.
This joint Rio Tinto Ltd and Skywest initiative allows the airline to provide services to this remote regional community and travelers are able to enjoy a reliable and economical jet service to a town, namely Kununurra, which under usual circumstances would not enjoy such a service level. Combining resource sector activity with regular passenger services adds value for all parties. The technique also alters the calculation of seat load factor that the Company reports: it makes the load factor appear to be artificially low.

Scheduled Charter for clients, such as that delivered during the construction phase of the Fortescue Metals Group Ltd (ASX: FMG) Iron Ore production facility, has assisted the Company grow the business. Flights delivered during the construction phase of the mine for FMG have provided the Company with significant opportunity to better utilize its fleet of 100 seat jets. These flights were operated during the entire Interim Period in this report.
The increase in profits is in part due to an increased scale of business. The Airline's overheads are in the main part fixed; as the fleet of larger planes has expanded, the ability to generate profits from the operating asset base has been increased.

The Company can expect continued growth; two additional jets are anticipated to be added to the fleet within 60 to 90 days of the date of this announcement.
The Company also plans to continue with an initiative to add the larger narrow body jets to its fleet over the next couple of years. Certain routes the Company operates may continue to grow so as to warrant the introduction of larger aircraft.

The Company continues to aggressively compete for each and every scheduled mining charter in its scope of operations in Australia. The Company believes that larger aircraft are required to adequately service the larger mining operators and continues to source and offer these to existing and potential clients.
The Company recently won a major scheduled charter contract with Newcrest to fly Newcrest's employees to the Telfer Gold production facility in Western Australia. This contract has commenced effective January and is performing well and is profitable. Because the contract commenced in January, no financial impact is recorded in the Interim Statements, however, due to this contract and others of a similar nature a material increase in group revenues for the full year above and beyond the prior year is inevitable. Further contributing to revenue growth is a code share with Virgin Blue airlines. The Company will attempt to add additional routes to the code share and utilize Virgin Blue's sales network.

Risks faced by the business are normal commercial risks and typical airline industry related risks.

While increased fuel costs have unpredictable consequences to the bottom line, it may be that the growing costs could assist our returns rather than diminish them. The reason for this focuses on the decision making process when a passenger chooses to either travel in an automobile or to fly. Air travel may be a more cost effective option for the consumer than an automobile over the distances of Skywest's routes. This is because the amount of fuel used by an aircraft on a per passenger basis and its cost is typically less than that used by a single passenger on a similar trip in an automobile. This set of circumstances is only applicable when the airline has the economic freedom to directly pass to the end user changes in fuel cost.

To mitigate the fuel cost issues, the Company operates an ethical and transparent fuel levy policy on pricing of ticket sales to the public. The Company also has in its contracts with mining company's rise and fall provisions where on the basis of a transparent formula, in so far as possible, the Company passes on increases in fuel.
In line with the increase in profits, the directors have increased the first interim dividend for 2008. The interim dividend for this period is $0.007 per share (2007 $0.003, increase this year 133%). The dividend will be paid on 2 April 2008 in Pounds Sterling calculated at then prevailing exchange rate to shareholders on the share register at the close of business on 25 March 2008.

The Company has its shares quoted on the AIM market in London and the shares are also traded on PLUS Markets in London. Consequential to the mandate issued by shareholders at the last annual general meeting and the high levels of cash and relatively low levels of gearing within the group, the Company has been in the process of systematically buying back its shares for cancellation. The Company understands that this is a tax effective method of increasing the earnings per share enjoyed by shareholders. In the period 1 Jan 2007 - 31 Dec 2007, the Company repurchased for cancellation a total of 7,936,073 shares. The Company intends to continue with systematic repurchases of shares for cancellation based on its opinion that when in an environment of rising profits a buyback programme represents a tax effective opportunity to continue to increase shareholder value.

I would like to take this opportunity of thanking you - the shareholders - for your continued support and encouragement and look forward to keeping you updated on the progress of our Company.



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