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Mesa Air Group - Speculative Play

|Includes: Mesa Air Group, Inc. (MESA)

Mesa Air Group, Inc.

MESA is a buy @ $0.195

About: Mesa Air Group, Inc. (Mesa) is a holding company whose principal subsidiaries operate as regional air carriers providing scheduled passenger and airfreight service. As of September 30, 2007, the Company served 184 cities in 45 states, the District of Columbia, Canada, the Bahamas and Mexico and operated a fleet of 182 aircraft with approximately 1,100 daily departures.


Traffic up 17% in March

Traffic on interisland carrier go! airlines was up nearly 17.3 percent in March.

The airline carried 64,093 passengers in March, up from 54,604 in March 2008.

The airline, a subsidiary of Phoenix-based Mesa Air Group (Nasdaq: MESA), generated 14 million available seat miles and 9.3 million revenue passenger miles for the month.


The numbers:

It’s hard to believe that a company that has over 1.2 billion in revenues is trading with a market cap of only 23 million! Heck, they have almost 6 times that much in shareholder equity. Last quarter they had a profit, and there is no reason they will not achieve this again this quarter. The company restructured a big part of the long term debt and is drastically reducing expenses. The company should have a good looking 10Q coming out soon. (2 weeks)

We are in the midst of a major breakout based on valuation. Bottom line is they dodged the bullet, cut costs, made a deal with the creditors, and now they are making money, and have .34 cents per share cash on hand with a book value of $4.27

They removed 117.7 million of long term debt by:
1) Paying a one time payment of 6.8 million
2) Making long term note holders convert to common shares [117 million shares]
This action alone will increase shareholder equity to over 240 million which is over 10 X the current market cap!
MARKET CAP = O/S of 146 Million X .16 = 23,360,000

Think Small

Size matters

With expectations to continuously expand their bottom line, the nation’s largest airlines are constantly forced to take on new ventures, new routes and risky business models. Because they are always seeking to expand, they cannot react to the market’s whims nearly as fast as they need to.

For example, international routes have been extremely hard on profit margins as fuel prices soared, demand dropped and competition increased. But there is no way major airlines could drop these flights without seriously eroding their brand or creating a shareholder uproar.

But companies like Mesa, on the other hand, are nimble enough to move in and out of markets as they please. If one route turns out not to be as profitable as expected, they can quickly dump it instead of being forced to stick with it in order to generate a higher quarterly revenue figure.

Small regional carriers also have an advantage when it comes to federal regulators. Just today, Delta announced it wants to change some of its routes. It will not be able to do it before federal regulators give the go ahead and will certainly not be able to make the changes unless it uses planes with fewer than fifty seats. Meanwhile, small carriers often slip in and out of markets with great ease.

Of course, the airline industry is not alone in its “size” battles. I cannot think of any other time in the nation’s recent history when size matters as much as it does today. Just look at the banks. I sure would not want to be one of the 19 “big” banks. Or a big manufacturer. Or a big retailer.

When the economy contracts like it does every few years, a company’s ability to adjust to the changes in the market prove critical. The airline industry is a perfect illustration. Over the next few months and quarters, expect to hear lots of news from the regional carriers. I suspect many of these firms are going to be acquired for a pretty premium as the industry works to rebuild.

Regional carriers are officially cleared for takeoff. [link]

Executive Overview

The first quarter of 2009 marked a number of milestones and challenges for us.
In the first quarter of fiscal 2009 Mesa continued to expand its Hawaiian inter-island operation, go!. Available seat miles increased 15.4% in comparison to the same period in the prior fiscal year. December 2008 generated revenues of $11.6 million dollars which resulted in a pretax income of approximately $0.6 million. Fuel prices were reduced significantly in the quarter and go! experienced increases in passenger revenue, and load factor. Departures increased 11.4% and passengers carried increased 11.3% over the first quarter of 2008.

The Company recorded consolidated net income from continuing operations of $15.5 million in the first quarter of fiscal 2009, representing basic and diluted income per share from continuing operations of $0.56 and $0.46 respectively. This compares to a consolidated net loss from continuing operations of $2.8 million or $0.10 per basic and diluted share in the first quarter of fiscal 2008.

Expect the PPS to rise around $0.30 within the near future.

All of this along with a favourable price at a 6 month low make this a great buy. The cheap discount prices on tickets along with well their well managed team of executives and PR reps make this a great buy, especially within a troubled economy!