Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Duane Pfenningwerth – Raymond James.
Duane Pfenningwerth – Raymond James
On the Pinnacle side, it looks like excluding the accrual that you reversed, it looks like your op margin was still about 10% and that looks like the highest you've had in awhile which is a little surprising given the decreased utilization that you referenced. Can you give us an idea of what drove profitability outside of the reversal that you called out and how should we think about margins in that business going forward?
Peter Hunt
I really have to give a lot of credit to operations leadership because when we started the year, we knew that margins would be very tight. We didn't receive the rate increase in our CRJ-200 ASA that we normally received. That put a lot of pressure on our income statement and we challenged our operations leadership to find some additional cost savings in places where they could.
The total we targeted for the year was $10 million. We did hit a component of that during the quarter of $2 million. That is offset by other cost pressures though. We continue to have cost pressure on our maintenance business, our maintenance side of the business with the CRJ-200's.
The other thing I guess looking forward is with the new pilot contract there will be an increase in salaries, wages and benefits. But the real strength I think this quarter relates to the fact that our operations group worked really hard to find those cost savings where they could, and we did realize some of that this quarter.
Duane Pfenningwerth – Raymond James
Were there any performance incentive payments in the quarter?
Peter Hunt
Nothing significant. Our CRJ-200 contract which is really the bulk of the business, its structured in a way where we, essentially there's a penalty not an incentive if we're below certain levels. We're not below those levels so there's nothing recorded as a penalty.
The CRJ-900 business does contain some incentives or some margin mark ups and we earn some of those but not necessarily any different than we've had in any other quarter, and they're not significantly large numbers in proportion to the total business.
Duane Pfenningwerth – Raymond James
The pilot deal and the impact to the margin profile of the Pinnacle business, I think you've mentioned in the past that your contracts don't necessarily have rate adjustments for higher wages and that you basically have to find incremental cost savings if you give your pilots a raise. So what sort of rate increase is embedded in that and what do you think the impact on Pinnacle's margin profile is?
- To read the full transcript on Seeking Alpha, click here »
