SURF AIR MOBILITY INC. Q1 FY2025 earnings call

Economic, Regulatory and Political Environment

• Changing trade policies, tariffs and funding for governmental functions have implications for the regional air mobility sector. Surf Air Mobility is an American company operating almost exclusively in the US with domestically manufactured aircraft, and tariffs are expected to have minimal impact. The EAS program, representing ~40% of revenue, is part of the budget reconciliation process. The FAA Reauthorization Act change gives Surf Air Mobility an advantage as it's often the lowest cost provider on routes below 500 miles.

Financial Results

• First quarter revenue was $23.5 million, at the high end of the expected range. Adjusted EBITDA loss in Q1 was $14.4 million within the expected range. Recently raised an incremental $5 million in funding.

Operational Achievements

• Airline Operations Optimization: Completed relocation of company systems operations center to Dallas/Fort Worth area, attracted top aviation talent. Returned five older aircraft, simplifying fleet to focus on Cessna Grand Caravan. Made progress on clearing aircraft maintenance backlogs, flight completion factor improved to above 92% in the first six weeks of Q2, and customer satisfaction is improving.
• On-Demand Business Recalibration: Exhibited charter products focusing on profitability, launched new Jet Card, signed volume purchase agreements, and rebranded the on-demand business.
• SurfOS Efficiency: Launched self-service flight changes and cancellations via chat reducing call center traffic by ~20%. SurfOS has potential applications in ATC including Tower OS, resource planning, Safety Hub, and Crew App.

The EAS business represents approximately 40% of Surf Air Mobility's revenue. First quarter revenue was $23.5 million, at the high end of the expected range of $21 million to $24 million, keeping the company on track to meet full year expectations of over $100 million in revenue. Adjusted EBITDA loss in Q1 was $14.4 million within the expected range provided in the last earnings release.

Second Quarter

• Guiding to revenue of $23.5 million to $26.5 million and adjusted EBITDA loss in the range of $10 million to $13 million. This considers exiting unprofitable scheduled routes, focus on on-demand profitability, and investment in technology initiatives.

Full Year

• Continues to expect transformation initiatives to positively impact financial results. Reiterates expectation of at least $100 million in revenue and achieving profitability in airline operations for 2025.

• Economic, regulatory and political environment changes pose uncertainties. Tariffs could potentially impact, though Surf Air Mobility anticipates minimal impacts. EAS budget reconciliation process is uncertain with potential changes that could affect revenue from EAS contracts.

Q: What about the changes to the essential air service budget around the $308 million reduction in subsidies?

A: Deanna White said they are watching it closely. Being one of the lowest cost operators, they have a competitive advantage. There are other higher cost operators at risk, and they are looking at strategies for EAS routes if subsidies change.

Q: Can you discuss what of the scheduled and charter flights that you consider to be core versus some of the ones that you're reducing activity on? Are there examples of potential routes or regions that you consider to be more core than others?

A: Deanna White said Hawaii is the most core area for AAS routes. Their EAS routes in communities with no direct competitor have unique economics. There are also clusters in the central region and East Coast.

Q: Was any part of the service interruption that you mentioned in the prepared remarks planned downtime?

A: Deanna White said the service interruption in early January was not planned, related to maintenance around corrosion and interiors where they didn't have the proper FAA program.

Q: When you're thinking about the potential for more partnerships like with Japan Airlines, are there any geographic geographies that you would be targeting?

A: Deanna White said they are excited about the Japan Airlines partnership and would look to expand to other carriers globally, not just in the US.