Gman5000

Delta Ends Contract with Pinnacle: What's the Impact on Regional Carriers?

One other thought. The author clearly understand finance issues better than airline industry management. Regarding the comment about RJ's being cheaper at "regional" carriers than mainline b/c of pension and salary issues, I think the author is repeating what he/she has heard elsewhere and it is out of context here. Of course ever since jet-A went over $1 a gallon (now $3.50/gal and rising quickly) the CASM on RJs has been higher than mainline aircraft, so it is cheaper to carry passengers on mainline aircraft. But regarding the pension/salary component of his comment, it is cheaper for these "regional carriers" to fly the same size jets (in this case 76-seat CRJ aircraft) than it is for Delta mainline to fly the same 76-seat CRJ aircraft. So in that since the author is right, and that's the only reason pension/salary issues at "regional" carriers has any relevance, but I don't think he really understands the airline management side of the equation so this comment is almost unrelated to the point of the article.

Bottom line: Delta (and other carriers) are trying to reduce capacity and quick, and first priority is to get rid of 50-seat and smaller jets as soon as they can. As I mentioned previously, I think this Delta move against Pinnacle is to reduce a Delta Connection carrier (Pinnacle) and then take those 76-seat aircraft and use carrot/stick to get rid of more 50-seat aircraft at other DCI carriers (Freedom) in exchange for giving that other DCI carrier these 76-seat aircraft that Pinnacle has been flying. Delta needs these 76-seat aircraft given the gaping hole in the capacity of its fleet (next biggest a/c is 142 seat MD-88s), and the cost on 76-seat CRJ-900 is far better than 50-seat RJ lift. Delta is desperately trying to reduce 50-seat flying, and I see this as a strategic move toward that end.

Delta Ends Contract with Pinnacle: What's the Impact on Regional Carriers?

As xavier mentioned, Freedom/Mesa got a preliminary injunction against Delta to maintain the status quo on the 50-seat flying until the court hearing. And the Freedom 76-seat flying is not affected. Nothing has been decided there on the 50-seat flying, so it does not in any way portend what will happen with Pinnacle. Pinnacle is also different in that they're flying 76-seat RJ's with First Class seating. Delta wants to rid itself of 50-seat RJ feed, as well as the number of Delta Connection carriers, and it wants to sub out 76-seaters for 50-seaters where it can. So it rids itself of Pinnacle in this situation and gets rid of a Delta Connection carrier. Here's my guess as to what happens. Delta and Pinnacle settle and Delta takes the 76-seaters from Pinnacle and gives them to another Delta Connection carrier. Why will Pinnacle agree? One, all of the default issues cited in the article. Two, and more importantly, Pinnacle is a major Northwest Airlink partner and receives a substantial portion of its income from Northwest. Delta will own Northwest in 6 months. It's better for Pinnacle not to bite the hand that will feed it.

Why will Delta agree to take 76-seaters when they're trying to reduce RJ lift? Remember, Freedom continues to fly for Delta the same 76-seaters as Pinnacle. Might Freedom settle with Delta and agree to reduce the 34 50-seaters that are the subject of the dispute, with Delta dangling a carrot of 16 more 76-seaters to add to the 14 Freedom already flies for Delta? Notice Delta didn't take this action against Pinnacle until after the Freedom injunction. Might this be "Plan B" for reducing 50-seat lift with Freedom while also reducing another Delta Connection carrier by removing Pinnacle?