Q1 2024 Surf Air Mobility Inc Earnings Call
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Surf Air First Quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by at this time I would like to welcome everyone to the surf Air first quarter 'twenty 'twenty four earnings call.
Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad once again star one and if you'd like to withdraw your question simply press Star one again. Thank you.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Thank you. I would now like to turn the call over to Taylor Giles to kick things off. Taylor, please go ahead.
I would now like to turn the call over to Taylor Giles to kick things off Taylor. Please go ahead.
Taylor Giles: Thank you, operator. Welcome to Surfair Mobility's first quarter 2024 earnings call. I'm joined today by Stan Little, Surfair's outgoing CEO, and Oliver Reeves, Surfair's CFO. Please note that we released our results this afternoon, which are available in filings with the SEC and on Surf Air's investor page at investors.surfair.com. Before we begin, I would like to remind everyone that we may, during this call, discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate, or other similar similar words.
Taylor Giles: Thank you operator welcome to serve their mobility is first quarter 2024 earnings call I'm joined today by Stan little surface, outgoing CEO and Oliver Reed, Sir fares CFO.
Speaker Change: Please note that we released our results. This afternoon, which are available in filings with the SEC and unfair fares investor page at investors Dot Sir fair Dot com.
Before we begin I.
Would like to remind everyone that we may during this call discuss our outlook and future performance.
Speaker Change: These forward looking statements may be preceded by words, such as we expect we believe we anticipate or other similar such statements. These statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today.
Taylor Giles: These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports filed with the SEC. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the earnings release we issued earlier today, which has been posted on the Investor Relations page of CERF Air Mobility's website and in our filings with the SEC. With that, I'll turn the call over to Stan.
Taylor Giles: Some of these risks have been set forth in our earnings release, and our periodic reports filed with the SEC.
Taylor Giles: During today's call. We will also present, both GAAP and non-GAAP financial measures.
Speaker Change: Additional disclosures regarding non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures are included in the earnings release, we issued earlier today, which has been posted on the Investor Relations page of surf Air mobility website and in our filings with the SEC with that I'll turn the call over to Stan.
Stan Little: I'd like to begin by addressing the announcement today that I will be stepping aside as Surfair Mobility's CEO this week. It has been the highlight of my career so far, to build Southern Airways into America's largest commuter airline and then to be invited to join Surf Air Mobility as CEO following our merger. While I will miss my day-to-day interaction with so many of our team members, I'm honored to assume the role of founder of Southern Airways, a vantage point from which I will continue to actively advise the company and bring my expertise to bear, especially in industry and government relations.
Stan Little: I'd like to begin by addressing the announcement today that I will be stepping aside as surf air mobility CEO. This week. It has been the highlight of my career, so far to build southern Airways into America's largest commuter airlines and then to be invited to join surf air mobility as CEO following our merger.
Speaker Change: Well I will Miss My day to day interaction with so many of our team members I'm honored to assume the role of founder of Southern Airways, a vantage point from which I will continue to actively advise the company and bring my expertise to bear, especially in the industry and government relations.
Stan Little: I'm also pleased to announce that Surf Air Mobility's Board of Directors has appointed Deanna White as Chief Operating Officer and Interim CEO. Yana is a seasoned industry leader. She melds intimate knowledge of the company and its people, an unparalleled depth of experience in the aviation industry, and a track record of success in the C-suite of multiple innovative companies across the air mobility sector. Deanna has been with the company since 2021 and has already made a valuable and long-term contribution as both CFO and Senior Advisor.
Speaker Change: I'm also pleased to announce that sort of fair mobility Board of directors has appointed Deanna, Hawaii as Chief operating officer and interim CEO.
Speaker Change: Deanna is a seasoned industry leader Shemales intimate knowledge of the company and its people and unparalleled depth of experience in the aviation industry and a track record of success in the C suite of multiple innovative companies across the air mobility sector.
Speaker Change: The other has been with the company since 2021 and has already made a valuable and long lasting contribution as both CFO and senior adviser.
Stan Little: Moreover, Deanna's previous experience in sea-level positions at a large private jet company, Bombardier FlexiJet, and an eVTOL company, Kitty Hawk, now Whisk Aero, will continue to guide and inspire her as she brings about Surf Air Mobility's next chapter, which will herald a renewed focus on balancing growth and opportunity with profitability. I look forward to supporting Deanna as she takes on the mantle to reshape the industry and deliver on Surfair Mobility's massive potential.
Anna: Moreover, the Anna's previous experience in C level positions at a large private jet company Bombardier Flexjet and an E. VTOL company Kitty Hawk now with Arrow will continue to guide and inspire her as she brings about surf air mobility. His next chapter that will Herald, a renewed focus on balancing growth and opportunity.
Anna: With profitability I.
Speaker Change: I look forward to supporting Diana as she takes on the mantel to reshape the industry and deliver on surf air mobility has massive potential.
Stan Little: To the entire Surf Air team, many of whom I've known for over a decade, I'd like to personally thank you for your continuous hard work, for being the heartbeat of this company, and for allowing me to go on this exciting journey with you. With that, I'll turn the call over to Oliver to provide more detail on our first quarter.
Diana: To the entire surf air team, many of whom I've known for over a decade I'd like to personally. Thank you for your continuous hard work for being the heartbeat of this company and for allowing me to go on this exciting journey with you.
Speaker Change: With that I'll turn the call over to Oliver to provide more detail on our first quarter.
Oliver Reeves: Thanks Dan and thanks to everyone that joined our call. Please note that the company will be providing a comprehensive strategic update at our upcoming Investor Day, which will now take place in the third quarter of 2024, in order to give Deanna time to take charge, drive the company's most important priorities, and prepare an in-depth Investor Day briefing for your information and input. With that said, I do want to give you a preview today of our investor relations objectives over the course of this transition to engagement.
Oliver: Thanks, Dan and thanks to everyone, who has joined our call.
Speaker Change: Please note that the company will be providing a comprehensive strategic update.
Speaker Change: Coming Investor day, which will not take place in the third quarter of 2024 in order to give them time to take charge drive the company's most important priorities and prepared and in depth Investor day briefing for your information and put with that said I do want to give you a preview today of our Investor relations objectives over the course of this trend.
Oliver: Issue for engagement.
Oliver Reeves: First, we plan to provide the investment community with a comprehensive overview of our business, which includes our leading regional air mobility platform and our expanding technology platform, which encompasses our aircraft as a service, other software products, and electrification emissions. Secondly, we intend to provide visibility into the various ways in which we plan to rapidly achieve profitability for the regional air mobility business, which includes our Southern, Mochilele, and Fairfax brands, as well as our large operations.
Oliver: First time to provide the investment community.
Oliver: Hence at the overview of our business, which includes a leading regional and the Verity platform and our expanding technology platform, which encompasses our composite service other software products and electrification initiatives.
Oliver: Secondly, we intend to provide visibility into the various ways in which we plan to rapidly achieve profitability.
Oliver: <unk> been in the business, which today includes our southern <unk> and <unk> brands as well as the cost of operation.
Oliver Reeves: Third, we intend to illustrate for our investors the underlying unit economics today and contrast them against achievable future unit economics for these platforms at scale and at a steady state. Finally, we aim to provide context that more clearly frames and explains our projections regarding the size of these opportunities and compares them to the chronological evolution of regional air mobility industries. Just Air Mobility's regional air mobility platform, which encompasses our commuter airline operations, as well as our charter operations, serves as our current growth engine.
Oliver: Third we intend to illustrate for our investors the underlying unit economics today in contrast, I guess achievable future unit economics in these platforms at scale and at a steady state.
Oliver: Finally, we aim to provide context, the mortality claims and explains our projections regarding the size of these opportunities and compare them to the corner logical evolution of regional and movement in the industry.
Oliver: <unk> regional <unk> platform, which encompasses a commuter airline operations as well as our charter operations.
Oliver: Our current growth engine.
Oliver Reeves: The platform's first quarter revenue growth was driven by an 80% year-over-year increase in EAS Scheduled Service revenue and a 4% year-over-year increase in On-Demand Charter revenue. With regard to scheduled service, we anticipate that the refit of Southern, coupled with the implementation of cost-cutting measures and other strategic initiatives, will result in a return to profitability for airline operations. To this end, we intend to complete a strategic review of the vast majority of our Scheduled Services routes in the coming quarter to maximize route profitability in what remains a challenging operating environment. However, we do not anticipate that our focus on profitability will come at the expense of revenue.
Speaker Change: The platform was first quarter revenue growth was driven by an 18% year over year increase in scheduled service revenue and a focus on year over year increase in on demand charter revenue.
Speaker Change: With regard to the scheduled service, we anticipate that the re phasing of southern coupled with the implementation of cost cutting measures and other strategic initiatives will result in a return to profitability for airline operations.
Oliver: The sudden.
Oliver: We intend to complete a strategic review of the vast majority of our scheduled services roots in the coming quarter to maximize profitability in what remains a challenging operating environment.
Oliver: We do not anticipate that I'll focus on profitability will come at the expense of revenue.
Oliver Reeves: In fact, over the medium term, the imminent passing of the FAA Reauthorization Act has the potential to positively impact revenues and profitability as it raises, in its current form, the subsidy cap from a maximum of $200 per passenger to a maximum of at least $650 per passenger. Given our participation in the program, under which we support 19 communities as of March 31st, 2024, the possibility to rebid expiring routes at levels that take into account inflationary and other cost pressures creates the potential for improved unit economics over time.
Oliver: In fact over the medium term the imminent passing as the FAA Reauthorization Act has the potential to positively impact our revenues and profitability.
Speaker Change: <unk> in its current form the subsidy cap for the Max $200 per passenger.
Oliver: Excellent.
Oliver: $650 per passenger.
Oliver: Given our participation in the program under which we support 19 communities as of March 31st 2020 for the possibility to rebid expiring routes.
Oliver: Take into account inflationary and other cost pressures creates the potential for improved unit economics over time.
Oliver Reeves: Finally, the Reauthorization Act would require the total cost of an air carrier's proposal to be equally weighted with other factors, such as local recommendations and interline agreements, which favor CERF Air Mobility's low-cost caravan fleet. In parallel, in our last earnings call, we specifically called out new routes between Williamsport, Pennsylvania, and our Washington Dulles hub, and between Purdue University and our Chicago O'Hare hub. These routes are subsidized by local and private entities without the need for the essential air service program.
Oliver: Finally, the reauthorization would require the total cost of an <unk> proposal to be equally weighted with other factors such as local recommendations and interline agreements with stable than the seasonal low cost carrier of IC.
Oliver: In parallel in our last earnings call, we specifically called out new wins between Williamsport, Pennsylvania, Washington Dulles hub.
Speaker Change: I mean could you University of Chicago.
Oliver: These routes are subsidized by local and private entities without the need for the essential service program.
Oliver Reeves: I am pleased to report that both of these routes are now operational, with Purdue launching this week and Williams next. As we look to longer-term growth, Textron Aviation is providing us with up to 128 new aircraft over the next six years, beginning next quarter. On the aircraft delivery side, we remain on track with the cadence of previously announced delivery slots with techs running for eight new caravans across Q3 and Q4. As we welcome these aircraft into our fleet, we will be decommissioning some of our older aircraft to reduce maintenance costs and improve reliability.
Oliver: I am pleased to report that both of these routes not becoming operational with could you launching this week and Williams for next week.
Oliver: As we look to longer term growth.
Oliver: Aviation is providing us with up to 128, new caravans aircraft over the next six years beginning next quarter.
Oliver: On the aircraft delivery side, we remain on track with the cadence of previously announced delivery slots with excellent <unk>.
Oliver: Events across Q3 and Q4.
Oliver: As we welcome these aircraft into our fleet, we will be decommissioning some of our older aircraft to reduce maintenance costs and improved reliability.
Oliver Reeves: Once Southern has been refleeted, we anticipate that the remaining aircraft will be deployed into our previously described growth network. We plan to give a more fulsome update on our Holistic Growth Network strategy at our investor day in the third quarter. Moving away from our flight operations, I would like to comment on our technology partnership with Palantir, which continues to evolve and grow deeply. We are really excited about the software that we are co-developing, first for ourselves, and thereafter as applications that we will market and sell to the industry to establish a new and growing revenue stream. With Palantir, we're developing the tools that address the largest and most important opportunities that regional operators face today, including flight distribution, crew scheduling, revenue management, passenger operations, and business intelligence.
Oliver: <unk> has been with since it we anticipate the remaining aircraft will be deployed into a previously described growth network.
Oliver: Trying to give a more fulsome update on our holistic growth network strategy at our Investor day in the third quarter.
Oliver: Moving away from our flight operations I would like to comment on our technology partnership with patents here, which continues to evolve and grow deeper.
Oliver: We are really excited about the software that we are co developing first for ourselves and thereafter as applications that we will market and sell to the industry to establish a new and growing revenue stream.
Oliver: With talent here with developing the tools that address the largest and most important opportunities that regional operators face today.
Oliver: Flight distribution crew scheduling revenue management passenger operations and business intelligence.
Oliver Reeves: We continue to make exciting progress across all of these aspects. As with software, our electrification initiatives also continue to make good progress, powered by our relationship with TechSoup. The electric caravan program is moving through the conceptual design phase, which we expect to close later this year. In this current phase, we are iterating on the design and performance of our EP1 electric powertrain and its integration into the caravan's airframe and system. We are also working closely with the FAA in preparation for the submission of our FTC application, including our certification basis and methods of compliance draft.
Oliver: We continue to make exciting progress across all of your aspect.
Oliver: As with software I think just the case of initiatives also continued to make good progress by our relationship with Textron.
Oliver: The electric caravan program is moving through the conceptual design phase, which we expect to close later this year.
Oliver: In this current phase where it's at.
Oliver: On the design and performance of our <unk> and electric powertrain.
Oliver: Integration into the caravans assay consistence.
Oliver: We are also working closely with the FAA in preparation for the submission to buy STC applications, including a sophistication basis and methods of compliance dropped.
Oliver Reeves: We expect this to follow the closeout of the conceptual design phase later this year. In addition to the electric EP-1 program, we continue to engage with the supply chain for the hybrid EP-1 powertrain for the Caravan, as well as other potential aircraft platforms. Now, let me briefly cover the numbers for the course.
Oliver: We expect this to follow the closeout of the conceptual design phase later this year.
Oliver: In addition to the electric <unk> program, we continue to engage with the supply chain for the hybrid <unk> powertrain for the Caribbean as well as other potential aircraft platforms now.
Oliver: Now, let me briefly cover the numbers for the quarter.
Oliver Reeves: As detailed in our press release, the company reported first quarter revenue of $30.6 million compared to $27.9 million for the comparable prior period on an unaudited pro forma basis, which assumes a sudden acquisition closed as of the beginning of fiscal year 2023, beating the first quarter guide. First quarter revenue was up 9.5% year over year, driven by a number of factors. First, an 18% increase in EAS revenue driven by the addition of our Burlington IRA route, as well as increased subsidies for certain routes within our network, and second, a 4% year-over-year increase in revenue from our on-demand charter business.
Oliver: And detailed in our press release, the company reported first quarter revenue of $36 million compared to $27 9 million for the comparable prior period on an unaudited pro forma basis, which assumes the southern acquisition closed at the beginning of fiscal year 2023 piece in the first quarter guidance.
Oliver: First quarter revenue was up nine 5% year over year, driven by a number of factors first an 18% increase in SaaS revenue driven by the addition of about Burlington, Iowa as.
Oliver: As well as increased subsidies for certain weeks within our network.
Oliver: And 2nd% to 4% year over year increase in revenue from our on demand Chaucer business.
Oliver Reeves: Specifically, our on-demand charter products saw quarterly departures increase 29% year-over-year, which equates to 906 departures in the first quarter of 2024 versus 701 departures in the first quarter of 2023. The divergence between the departure and revenue growth is explained by our charter mix, which increasingly favors turboprops over larger aircraft. More granularly, 72% of our charters in the first quarter of 2024 were flown on turboprops versus 68% for the first quarter of 2023. Adjusted EBITDA was negative 16.5 million, driven by operating losses in our Air Mobility segment, where we continue to experience inflationary cost pressures and supply chain issues that continue to impact aircraft maintenance and completion time.
Oliver: Specifically on demand charter products. So quoting departure has increased 29% year over year, which equates to 906 departures in the first quarter of 2020 for 701 departures in the first quarter of 2023.
Oliver: Divergence between the departure and revenue growth is explained by a constant mix, which increasingly favors tablet, perhaps or the larger aircraft.
Oliver: Annually, 72% of our chances in the first quarter of 2024 with federal Tyler products, especially 68% for the first quarter of 2023.
Speaker Change: Adjusted EBITDA was negative $16 5 million driven by operating losses in our mobility segment, where we continue to experience inflationary cost pressures and supply chain issues that continue to impact aircraft maintenance and completion factors.
Oliver Reeves: We also continue to make investments in our technology business across both the electrification and software industries. Nonetheless, our adjusted Iridar is on track with management expectations and met our first quarter 2024 guide. Turning to liquidity, as of March 31st, 2024, Surfair Mobility had $1.3 million cash on hand, with the ability to draw $90 million in committed draws and $296 million in follow-on draws from the general share subscription facility. Upon closing the mandatory convertible security described in our 8K filed on March 6th, 2024, Circa Air Mobility's ability to draw from the GEMS subscription facility will be restored to full capacity. 100 million in committed draws and 300 million in follow-on draws, subject to any drawdowns prior to the closing date.
Oliver: We also continue to make investments in our technology business across both electrification and software initiatives.
Oliver: Our adjusted EBITDA is on track with management expectations and met our first quarter of 2020 full guidance.
Oliver: Turning to liquidity as of March 31st 2020 for sustainability, you had $1 3 million in cash on hand, with the ability to grow 19 million committed rules and 296 million followers, who was from the general share subscription facility.
Oliver: Upon closing the mandatory synthetic with security as described in our 8-K filed on March six 2024 seven.
Oliver: <unk> ability to draw from the journal subscription facility will be restored to full capacity of $100 million committed draws and $300 million follow on rules subject to <unk> prior to the closing date.
Oliver Reeves: In addition, while management continues to believe that GEM facilities should provide adequate capital to finance our investment in network growth, software development, and electrification over the short to medium term, management feels it is necessary for the company to secure additional, less diluted capital in the form of a credit facility. The company has retained a leading investment bank to more fully represent it in the future. Management is also considering pursuing other strategic initiatives with partners and affiliates, including the creation of one or more joint ventures to separately capitalize the company's electrification and software efforts and maximize shareholder value creation from these substantial investments.
Oliver: In addition, while management continues to believe the German facility should provide adequate capital to finance our investment in network growth software development and Thats just the case over the short to medium term management feels that is necessary for the company to secure additional less dilutive capital in the form of a credit facility.
Oliver: The company has retained a leading investment bank to more fully represented in these efforts.
Oliver: Management is also considering pursuing other strategic initiatives with partners and affiliates, including the creation of one or more joint ventures.
Oliver: Decapitalize, the companys electrification and software assets and maximize shareholder value creation from the substantial investments.
Oliver Reeves: Finally, our second course of 2024 guidance is revenue in the range of $28 million to $31 million, which reflects the seasonality of our charter operation, and pro forma-adjusted EBITDA in the range of negative $18 million to negative $16 million, which excludes the expected impact of stock-based compensation and other non-recurring items. CF Air Mobility will provide four-year 2024 guidance at its investor day to be held in the third In closing, I would like to personally thank Stan for his warm welcome when I joined the company and his subsequent leadership over the last few months. I'm now excited to work closely with Diana and look forward to helping her implement and achieve her strategic goals for the company. With that said, I'm happy to take questions.
Oliver: Finally, our second quarter 2024 guidance is revenue in the range of 28 million to 31 million, which reflects the seasonality of our Chaucer operations.
Oliver: Pro forma adjusted EBITDA in the range of negative 18 million to negative 16 million, which excludes the expected impact of stock based compensation and other nonrecurring items.
Oliver: So I think let's see we will provide full year 2020 guidance at its investor day to be held in the third quarter of 2024.
Speaker Change: In closing I would like to thank Stan for his warm welcome when I joined the company in a subsequent leadership over the last few months.
Speaker Change: Excited to work closely with Deanna I look forward to helping implement and achieve our strategic goals for the company and with that I'm happy to take questions.
Operator: Thank you. And at this time, I would like to remind everyone that in order to ask a question, please press star one on your telephone keypad. Once again, star one, and we will pause just a moment to compile the Q&A roster. And it looks like our first question is from Austin Moeller at Canaccord. Austin, please go ahead.
Speaker Change: Thank you and at this time I would like to remind everyone that in order to ask a question. Please press star one on your telephone keypad once again star one.
Speaker Change: And we will pause just a moment to compile the Q&A roster.
Speaker Change: And it looks like our first question is from Austin Moeller at Canaccord Austin. Please go ahead.
Austin Moeller: Hi, good afternoon. Is this strategic review expected to primarily focus on routes on essential air services flights or on Tier 1 routes?
Austin Moeller: Hi, good afternoon.
Austin Moeller: This strategic review expected to primarily focus.
Austin Moeller: It's on a central air services flights on tier one routes.
Oliver Reeves: Well, to answer your question, the strategic review is going to be on all of the routes that we currently fly, but as you know, we mostly fly. Sorry, I thought I was on mute.
Oliver: Well.
Austin Moeller: To answer your question the strategic review is going to be on all of the routes that we currently fly but as you know we mostly fly.
Austin Moeller: Okay.
Austin Moeller: Okay.
Speaker Change: Sorry, I forgot I was on mute, we mostly flat central service routes. So that so obviously bye bye bye bye bye bye back calculation it would be it would be on it yes, it's mostly.
Oliver Reeves: We mostly fly Central Air Service routes. So, obviously, by that calculation, it would be on EAS routes.
Austin Moeller: Okay. And in terms of the strategic review, do you see it as more likely that the electrified powertrain tech is what you would sell, or are you looking at potentially selling some of the caravan fleet?
Speaker Change: Okay.
Speaker Change: And in terms of the strategic review.
Speaker Change: It's more likely that the electric electrified powertrain tech.
Austin Moeller: Is what you would sell or are you looking at potentially selling some of the Caribbean fleet.
Oliver Reeves: No, so just so we're clear, the strategic review is something that we're doing from a profitability standpoint. What we intend to do is to look at each of the routes at which we currently fly and assess whether they're profitable, and if they're not profitable, what we can do to make them profitable. Once we've done that, we're going to look at other operational efficiencies that, you know, we believe are low-hanging fruit, and then assess, on top of that, revenue growth such as what you were talking about, which is our growth network.
Speaker Change: So just so we created a strategic review is something that we're doing from a profitability standpoint, while we intend to do is to look at each of the routes, which we currently fly and assess whether that profitable and if they're not profitable what we can do to make them profitable. Once we've done that we're going to look at other operational efficiencies.
Speaker Change: You know, we believe a low hanging fruit and then assess on top of that revenue growth such as what you were talking about which is outgrowth network in which case, we would take some of our tech sometimes is it coming.
Oliver Reeves: In that case, you know, we would take some of our Textron planes that are coming from our order that we disclosed, which is 128 planes. Some of that would go, obviously, to refueling Southern, but the rest of that would be deployed to our growth network.
Speaker Change: From a auto that we disclose which was 128 claims some of that would go obviously to refusing southern but the rest of that would be would be deployed to outgrowth network.
Speaker Change: Yeah.
Operator: Great, thanks for all the details.
Speaker Change: Great. Thanks for all the details.
Speaker Change: Thanks Austin.
Operator: And our next question comes from the line of Alex Potter with Piper Sandler. Alex, please go ahead.
Speaker Change: And our next question comes from the line of Alex Potter with Piper Sandler Alex. Please go ahead.
Operator: Alex, please go ahead. Hi there, this is Ben Johnson on behalf of Alex Potter.
Ben Johnson: Ben, can you kind of remind me of the mechanism by which the EAS program subsidies work and exactly how this FAA Reauthorization Act will impact CirFair? And then, like, were you previously receiving the maximum cap of $200 per passenger? And how much do you expect to be receiving going forward?
Speaker Change: Oh, Hi, there this is Ben Johnson on for Alex Potter.
Ben Johnson: I guess can you kind of remind me of the mechanism by which the Eas program subsidies work and exactly how this FAA Reauthorization Act will impacts are fair and then like where you previously receiving the maximum cap of $200 per passenger and how much do you expect to be receiving going forward.
Speaker Change: Yeah.
Stan Little: Hi Austin, this is Stan.
Stan Little: Hi, Austin this is Stan I'll be glad to I'll be glad to handle that as I haven't been intimately involved with the.
Stan Little: I'll be glad to handle that as I have been intimately involved with the FAA REopt program for, I guess, over a year now. So the way the system works is that when an RFP, a request for proposals, goes out to all of the airlines, essentially asking for bids from the cities, each airline is then able to put in a proposal of the number of flights that they will fly, the proposed subsidy, and the proposed airfare that goes in.
Stan Little: The FAA reauthorized I guess over a year now so the way the system works is that when an RFP a request for proposals goes out to all of the airlines.
Stan Little: And then, at the completion of each fiscal year, the DOT computes what the actual subsidy was per passenger. So they take the total amount of subsidy paid to an airline. They divide that subsidy amount by the number of passengers who actually fly. And in theory, that number has to be below $200, or the city risks being eliminated from the program. There have been some waivers lately, so it has not always happened that if you're above $200 when it's said and done, you are eliminated.
Stan Little: Essentially asking for bids at the cities each airline has been able to put in a proposal of the number of flights that they will fly the proposed subsidy. The proposed airfare that goes in and then.
Stan Little: At the completion of each fiscal year the D O T compute what the actual subsidy was per passenger so they take the total amount of subsidy paid to an airline they divide that subsidy amount by the number of passengers, who actually flu and in theory that number has to be below $200 or.
Stan Little: The city risks being eliminated from the program there have been some waivers lately. So it has not always happened that if you're above 200. When it is set and done you are eliminated but at least during the proposal period you have to anticipate a.
Stan Little: But at least during the proposal period, you have to anticipate a subsidy below $200 per passenger. As you may or may not know, airlines have been working for 25 years or more to get the subsidy cap raised. I believe that cap has been in place since the early 90s, so there's been no inflationary raise on that whatsoever. We have been working hard in Washington for the last, as I said, over a year to get that raised to realistic levels so that when we put in bids, we have the flexibility and the ability to put in a bid that accurately reflects our costs and some degree of profit margin.
Stan Little: Subsidy below $200 per passenger.
Stan Little: As you may or May not know airlines have been working for 25 years or more to get the subsidy cap raised I believe that capital has been in place since the early nineties. So theres been no inflationary raise on that whatsoever, we have been working hard in Washington for the last as I said over a year.
Stan Little: To get that raised to realistic level, so that when we put in bids we have the flexibility and the ability to put in a bid that accurately reflects our cost and some degree of profit margin. So moving from a $200 subsidy cap to a $650 sub.
Stan Little: So moving from a $200 subsidy cap to a $650 subsidy cap is quite a big deal because now we won't have to cut all the way down to the bone, as it were, in trying to do our forecasts and make our proposals. Another important thing to note in the FAA REopt this time around is that in addition to raising that cap by 300 plus percent, there's also been a language change that says that the DOT must look at the cost of the subsidy when awarding the bid.
Stan Little: <unk> is quite a big deal because now we won't have to we won't have to cut all the way down to the bone as it were.
Stan Little: In trying to do our forecasts and make our proposals the other important thing to note in the FAA re up this time around.
Stan Little: Is that in addition to raising that cap by 300 plus percent.
Stan Little: There's also been a language change that says that the.
Stan Little: The Dod must look at the cost of the subsidy when awarding the bid so you can't come in necessarily and bid a bigger faster.
Stan Little: So you can't necessarily come in and bid on a bigger, faster, newer aircraft and get the proposal, even though it may be twice as much as Southern's or Mokalele's or Sir Fair's bid may be. So it makes the program competitive from a dollars standpoint, but it also allows us to increase the dollars in our bid, which should be healthy for the company. We anticipate that this could add as much as $5 million to our bottom line in the near term without increasing costs since we're already flying.
Stan Little: Newer aircraft and get the proposal, even though it may be twice as much as as southern's or moca lately or certain areas that may be so it makes the program competitively base from a dollar standpoint, but it also allows us to increase the dollars in our bid which should be healthy for the.
Stan Little: Company, we anticipate that this could add as much as $5 million to our to our bottom line in the near term without increasing cost since we're already flying flights.
Ben Johnson: And I guess, would it be fair to say that the increase in the cap substantially increases the amount of potential EAS routes, EAS viable routes?
Speaker Change: Awesome. Thank you and I guess would it be fair to say that the increase of the cap substantially increases the amount of potential.
Speaker Change: S routes.
Speaker Change: It's viable routes.
Speaker Change: Yeah.
Stan Little: Well, you know, the EAS program is limited in the number of routes that are out there. There are only a certain number of cities, 120-something cities, I think, that are in the program.
Speaker Change: Well the Eas program is limited in the number of routes that are out there. There are only a certain number of cities 120, something cities I think that are in the program. So it won't change that what it will do is probably increased the number of cities in which we may be interested in bidding because with the increase in the cap we now have.
Stan Little: So it won't change that. What it will do is probably increase the number of cities in which we may be interested in bidding because, with the increase in the cap, we now, you know, have the ability to look at all of them and say, with that kind of cap, can we still make money there? So it's quite possible we may be able to increase the number of cities on which we bid.
Speaker Change: The ability to look at all of them and say with that kind of caf can we still make money. There. So it's quite possible, we may be able to increase the number of cities on which we bid.
Ben Johnson: Awesome. Thank you very much. Certainly, thanks.
Speaker Change: Awesome. Thank you very much.
Speaker Change: Certainly thanks.
Operator: And thanks, Ben. Last call for questions. If you would like to ask a question, again, press one on your telephone keypad. Once again, press one. And it looks like there are no further questions. So, ladies and gentlemen, that will conclude today's call. Thank you all for joining us, and you may now disconnect.
Speaker Change: And thanks, Ben last call for questions. If you would like to ask a question again star one on your telephone keypad once again star one.
Speaker Change: And it looks like there are no further questions. So ladies and gentlemen that will conclude today's call. Thank you all for joining and you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: