ExpressJet's New CEO Targets Costs to Fix the Airline. Duh

Last Updated Jun 14, 2010 6:00 AM EDT

Poor ExpressJet (XJT). The airline has lived in the shadow of its former owner Continental for years. After several failed attempts to diversify, the airline has a new CEO with a new strategy. The focus is now on costs with its Operation: Green Light plan. This should have been something they focused on before.

Let's start with the history of this airline to put this in context. For years, Expressjet was a wholly-owned subsidiary of Continental and the exclusive provider of Continental Express service. Continental spun the airline off in 2001 and started to shed some airplanes that it had the right to shed. ExpressJet could have pushed those airplanes back to Continental to dispose of, but they made the highly unusual decision to keep them and try to diversify.

This ended up being the genesis for the ExpressJet branded product which flew point-to-point routes between smaller markets. Personally, I loved the idea, but there were a couple of problems. First, the 50 seat jet is not the right airplane for that market because it costs too much. Second, fuel prices skyrocketed just as ExpressJet was getting going. Third, it had no marketing partner for frequent flier miles, etc. The experiment failed and the company shut it down.

The other project was to start a corporate aviation division. ExpressJet was able to get some charter business to fill those planes, but it has been shrinking ever since it started. It is now a shell of its former self with only six airplanes flying, down from 30 last year.

Meanwhile, the airline kept trying to diversify its flying partners. It ended up winning a contract to fly a handful of planes for United Express, but we later found that it actually had to pay United for the privilege with a warrant. Yikes. And now that United (UAUA) and Continental (CAL) are merging, ExpressJet is back to square one -- one partner.

Earlier this year, CEO Jim Ream left to join American, and ExpressJet began the search for a new CEO. The airline picked Tom Hanley, someone who previously oversaw the United Express and US Airways Express networks.

Tom stepped into an airline that was losing money and obviously had to do something to leave his mark. His plan is Operation: Green Light, which is expected to provide $40 million in cost savings. The first phase is comprised of these steps:
  • Reduce corporate overhead -- includes hiring freeze for management
  • Reduce workers comp claims and lower restricted cash requirements
  • Collect revenues currently owed under third party contracts
  • Increase crew productivity and lower travel expenses
  • Increase maintenance productivity and lower vendor costs
Is it just me or is there nothing particularly imaginative here? I mean, really, shouldn't ExpressJet be collecting revenues that are owed to it anyway? This seems to show an airline without a lot of discipline and with a lot of basic things that need to be done. You would hope that these things would already be in progress, but it sounds like that's not the case.

In general, the idea is the right one. The regional business is all about having low costs and reliability. So, if ExpressJetcan strip out costs, it might be able to wrest some business away at other airlines. It's already offering competitive bids, as evidenced by the United win, but it's losing money doing it. If you can't fix the revenue side, you need to focus on cost reduction. That appears to be the plan.

Photo via Flickr user brettsnyder
  • Brett Snyder

Comments

Market Data

Market News

Stock Watchlist