What: Shares of third-party airline operator Republic Airways Holdings (NASDAQ: RJET) cratered as much a 55% today after the company warned investors that earnings would be even worse than expected because of disputes with pilots.
So what: On the earnings front, management said second-quarter earnings will be between $0.08 and $0.10 per share, affected by a 4% decline in block hours because of operational interruptions.
Worse yet, operational disruptions will continue because the company hasn't come to an agreement with the pilots union, which has kept below market rate pay in place. In turn, below-market pay has led to higher attrition among pilots. The disruption has caused Republic Airways to discuss cutting down contracted flights with airline partners, and as a result, management isn't giving guidance on future operations.
Now what: Uncertainty is in the air for Republic Airways, and that's not something investors are going to be fond of. Unless the dispute with the pilots union is resolved, the company's operations could continue to deteriorate significantly.
I simply don't like Republic's weakening strategic position in a market where it will always be competing on price for flights and where a raise for pilots will mean lower profits. This is a stock I would stay away from for exactly the kind of strategic flaws we're seeing today.
