Atlas posts a solid 2Q, looks ahead to strong peak

Atlas Air Worldwide Holdings (AAWW) this morning reported second-quarter net income down 4.1% y-o-y to $28 million, as total revenue rose 3.3% to $456 million. Operating income for the quarter was up almost 130% to $61 million.

However, after adjusting for a variety of one-time charges and gains in the second quarters of 2014 and 2015, Atlas said net income for 2Q15 was up 85.3% to $29 million.

Atlas divides its business into three reporting segments: ACMI (including CMI), Charter (including both commercial and military), and Dry Leasing (through its Titan Aviation subsidiary).

• ACMI: Block hours in the segment rose 12.0%, driven both by ACMI customer flying 8.3% above contractual minimum, and CMI customers adding more aircraft – in this case four more 767-200s for DHL Express. Revenue per block hour, on the other hand, fell 9.5% as a result of declining fuel surcharges and an increase in the proportion of CMI flying. However, as we have pointed out in several recent discussions of falling yield, one has to consider cost as well as revenue, and since surcharges are a pass-through, and CMI flying removes the cost of ownership, the direct contribution of the ACMI segment was up 14.5% to $51 million.

• Charter: Block hours in the Charter segment were up 21.8%, with both commercial and military hours showing similar increases. Revenue per block hour fell 18.4%, but the company said this was largely due to falling fuel surcharges. Direct contribution of the Charter segment more than tripled to $25 million, but some of this increase was due to lower than expected maintenance costs in 2Q15 – costs which have not disappeared, but rather which will be recognized in the third and fourth quarters.

• Dry Leasing: Revenue rose 7.4% to $27 million, and direct contribution jumped 41.3% to $11 million, but the company pointed out that some of the increase was due to maintenance payments received on the scheduled return of a 757-200F from China Cargo Airlines in April, a one-time event.

Looking ahead, Atlas said it foresaw continued strong growth in demand for air freight in the second half of 2015, including a relatively good peak season – in the markets in which it and its customers operate. Of particular interest was a comment made by CEO Bill Flynn when he was asked whether charter customers were already trying to reserve space for the upcoming peak, or whether they were still in wait-and-see mode. Mr. Flynn said customers, particularly some of the big forwarders, were definitely now securing space commitments, and that Atlas was now faced with the problem of balancing security now with opportunity later – that is, keeping some capacity unreserved in order to take advantage of the anticipated rise in spot rates during peak.

Not a bad problem to have.