The press release screamed it from the mountaintop: “Breeze Airways Announces First Full Quarter of Operating Profit in 4Q2024.” This is a big milestone for the airline which, up until now, has been wildly unprofitable. But we don’t know everything yet, so it’s hard to know just how good this news is for the airline. Today, we’re going to dig in and see what we can pick apart.
The Department of Transportation requires airlines to report finances — even if they’re private companies that don’t otherwise have to report — but they have a delay on those numbers. Even though public airlines are reporting Q4 and full year 2024 numbers now, DOT has just recently put out Q3. And since Breeze isn’t public, it doesn’t have to say anything until DOT numbers come out.
Of course, Breeze WANTS to say something about Q4, because it posted an operating profit. It’s happy about that, but it only released select data. Here’s what we know that’s useful:
- generated more than $200 million in revenue in Q4 2024 and more than $680 million for the full year
- had an operating margin of more than 4 percent in Q4
So, let’s work with this. To start, here’s what the previous quarters look like since the airline began flying
Breeze Operating Results by Quarter
via DOT Form 41
Those last numbers in Q4 are estimated based on what they told us, but either way, it is a big improvement. Based on data from the first three quarters, we know that Breeze generated $477 million in revenue. Breeze now says it made over $680 million in revenue for the full year, and that means this would be $203 million in Q4… which is right around what they said in the press release. So far, so good.
I know that the airline said “more than” those revenue numbers, but let’s just assume it isn’t much over at all. In other words, let’s say that the airline generated $203 million in revenue, and its operating margin is 4 percent. Using math, that means expenses in Q4 were almost identical to what they were in Q3. This seems like a stretch.
If we look at capacity, Breeze in Q4 operated more than 10 percent more flights than it did in Q3 and 15 percent more block hours. Costs have to be higher in Q4. There is some offset, however. United and Delta both reported fuel price declines in Q4 vs Q3 of 6.25 and 7.5 percent respectively, so it’s likely Breeze saw fuel prices drop as well.
In Q3, Breeze had fuel costs of just over $51 million, but… let’s say that fuel prices dropped 7 percent. That drops the price of fuel, but remember the airline flew 15 percent more block hours. So the fuel expense would still be higher than in Q3 overall. This could mean that revenue was well over $203 million so it could cover the higher level of cost. Or something came out of costs in Q4 to offset the growing operation.
Anyway, I’m getting too bogged down here. I’m just trying to get to a number that makes sense, but it is definite that the airline made an operating profit of at least 4 percent. It isn’t lying about that, or if it is, then we’ll see how David Neeleman looks wearing an orange jumpsuit.
The real question is now just how far is Breeze from making an actual profit? Over the last several quarters, Breeze has added an enormous amount of “Other Interest Expense” to its non-operating numbers.
Breeze Financial Information By Quarter
via DOT Form 41
As you can see, this really escalated in Q2 and Q3 of last year. (This, by the way, happened after the guest post I published last year which is about other operating expenses. That was something completely different.)
What is this interest expense? Presumably it’s related to outstanding debt on aircraft financing or possibly something related to convertible debt. I’m not sure what it is, but it’s a thing that matters. How much? In Q3, it changed the operating margin of -21 percent to a net margin of -31 percent.
Clearly this is going to be a significant number in Q4, because otherwise Breeze would have announced a net profit instead of just an operating one. I just don’t quite know how to think about scaling that since we don’t have too many quarters of history.
Despite that, this is obviously a very big and positive change for Breeze. I find it surprising that Q4 is the first quarter where it posted an operating profit. That doesn’t seem like it would be a peak quarter. So maybe the momentum is there, and we’re going to see further, rapid improvement. Or maybe not. But I certainly can’t fault the airline for celebrating the wins. It should.
12 comments on “Breeze Makes a Big Jump Toward Profit in Q4, But It’s Not There Yet”
Well as it is said, slow & steady wins the race. So good for Breeze. With that said I don’t want them left blowing out in the wind if things go south.
Glad to see Breeze at least reporting an operating profit. Tough to tell from just one or two data points, but it looks like “Non-Operating Income and Expense” is roughly 7-10% of revenue. That’s going to be quite the drag on cash flows if it stays that way going forward, especially if Breeze is exposed to increases in market interest rates or if the credit market tightens and Breeze is unable to refinance obligations that come due.
How is interest expense that is related to outstanding debt on aircraft financing not an operating expense? Between this and their massive pile of unclassified “other” operating expenses, it’s clear that Breeze is blowing lots of smoke to obfuscate what’s really happening there. And that their independent auditor is not doing a very good job.
Bill – Nothing is really clear here. We don’t know what that interest expense is, because Breeze doesn’t have to tell us. It is following the rules set forth by DOT which means we just don’t get to know. Hope for an IPO if we want more!
An accountant can explain it better, but “operating expenses” typically refer directly to expenses involved in the core operations, i.e. those expenses directly required to produce goods and/or services for sale. Interest expense is not an operating expense under GAAP, even if used to buy assets or fund operations (with enough money, Breeze could choose to own its planes outright and have ZERO interest expense, but it would still incur “operating expenses” like labor & fuel), and keeping interest expense out of “operating expense” makes comparing companies with different capital structures (more debt vs less debt, etc) easier.
A significant amount of interest expense isn’t abnormal for many younger companies and those in capital-intensive industries (such as airlines), but the question is whether the company can survive long enough to generate positive cash flows, both from operations alone and after paying interest expenses.
You are absolutely correct, interest is not an operating expense. Kinda feels more like it should be operating rather than financing in this situation but the rules are the rules. That’s why I did tax, not audit. Tax folks were just more, shall we say, creative than the auditors!
Hahaha. That is why I studied finance instead of accounting (and took “finance-adjacent” operations jobs that were focused on provided analysis to management, where I could work with controllers without becoming one). I love being able to look at things and saying, “Close enough, the difference isn’t going to be material for our purposes,” without worrying about details and pennies.
I don’t pretend to understand the work they do (not sure anyone outside their cabal truly understands their work), but I have a lot of respect for the corporate tax guys I’ve worked with. Lots of arcane knowledge and some solid creativity (even within organizations without significant international operations) to make astute & justifiable choices as to which related legal entities (child companies) in various state/local jurisdictions should be used for which purposes, so as to minimize/delay tax bills.
Great work by Breeze – as mentioned, celebrate where you can. How much cash on hand do these guys have left? If Q1 and Q2 don’t see a net profit… what happens next? As many have pointed out, what happens at the next economic downturn. An imminent Spirit collapse certainly gives some capacity hope – and we’ll see if the “fast growth” mentality pays off for Neeleman once again. 2025 seems like the make or break year.
Nachez – Breeze didn’t say how much cash it has, but at the end of Q3 it had a little more than $110 million in cash and short term investments.
But none of that means anything, because if the airline needed more cash, it could probably go raise the money.
As alluded to in the article, Breeze does not report its financials in Generally Accepted Accounting Principals (GAAP) format for it is still privately held. Also, in an analysis of its prior DOT statements, it appeared Breeze was handing off a LARGE chunk of its revenue to the investors via non-operating expenses. Should it attempt to go public (IPO), it will need to convert its last year or two of financial data in to the standard format for a more apples to apples comparisons with “significant disclosure and footnotes” for all its financial statements.
As for the airline, I live next to one of its focus airports. Service to LAX and PBI came and went so quick, I wasn’t able to even able make a reservations. Frequency is only 2x or 3x if your are lucky. Some of the connections are 4 to 6 hours long. The rest of the locations are of no value. And I hear that customer support is non-existent via a highly resistant chatbot!
Nope, I take my money elsewhere. I feel I have better odds at a casino in Vegas compared to Breeze.
If correct, that goes a long way toward answering the “what are all of those non operating expenses” question.
This is a fuel cost story. Legacy competitors reported 4Q fuel expenses dropping by ~20% YOY on 2-6% capacity increases. According to Form 41, fuel in 3Q was about 25% of the airline’s expenses, so the fuel tailwind generated >5% increased margin for 4Q.
Fuel is known to vary widely within a certain range, and it likely touched the bottom of the range in 4Q. Add in the fact that MX’s non-operating expenses are about 10% of total expenses, their net pre-tax profit margin was likely -10% on cheap fuel.
Even AA the Magic Dinosaur reported a 5.8% net pre-tax margin in 4Q (again, on cheap gas). That said, MX hasn’t yet demonstrated that it is a sustainable business.