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Delta’s New Pilot Contract Kicks Off the Great Regional Feeding Frenzy of 2012

Last week, Delta’s pilots easily approved a new contract with management that will see a lot more insourcing of flying as well as an upgauging of existing regional airplanes. As I wrote before, this is great for travelers. But if you’re a regional airline, whoa, it’s going to get ugly. The Great Regional Feeding Frenzy of 2012 can now begin. I expect to see some carcasses.

At the end of last quarter, Delta had contracts with regional airlines to fly 353 of the 50 seat jets. (All but 26 are Bombardier CRJ-100/200s. The balance are Embraer ERJ-145s.) This new contract? It has a cap of 125 of those airplanes. Holy shnikes. That’s a lot of airplanes that are going to be collecting dust in the desert.

But this only tells half the story. While the 50-seaters will be slashed, there will be some growth at the top end. The number of 65-69 seat aircraft will stay flat at 102, but the number of 76 seat aircraft will climb from 153 to 223. So these guys will end up fighting for a piece of that business. Here’s how this looks in a fancy chart.

50 seats 65-69 seats 76 seats
Operator CRJ-100/200 ERJ-145 CRJ-700 Embraer 170 CRJ-900 Embraer 175 Total

Shuttle America
26 14 16 56

Comair 30 15 13 58

6 6 36 48

156 61 31 248

Pinnacle 141 57 198

Current Total 353 102 153 608

New Target 125 102 223 450

So, let the bloodbath begin! You know these airlines are all going to be crawling all over each other to win that new business, especially since it might be losing a big chunk of the old business. Let’s take a look at each regional, starting with the ones with the most dire futures.

Cincinnati-based Comair was very early to jump on the regional jet bandwagon and it has paid the price. The airline, though owned wholly by Delta, has seen cut after cut in its fleet. There’s no question that all the 50 seaters here will be gone (and Cincinnati will lose service). The only question is whether the airline will lose its larger aircraft as well and simply disappear. That’s where my money is these days. Delta can likely place the larger aircraft with another operator for less money anyway. There’s no reason to keep Comair flying.

Memphis-based Pinnacle is currently sitting in the middle of its Chapter 11 bankruptcy reorganization and things don’t look good. Though Delta gave the airline debtor in possession financing to help get out of bankruptcy, the airline is looking at potential doom. It no longer flies for any other airline, so it relies on Delta for life. Delta did reaffirm the airline’s contracts recently, but I wouldn’t bet on that sticking, especially since it alone has more of the 50-seaters with Delta than Delta can have in total. Pinnacle’s current CEO John Spanjers made it clear that existing labor rates aren’t going to win the airline any business. If things don’t change dramatically, I wouldn’t be surprise to see Pinnacle disappear (along with a lot of flights in Memphis). At the very least, it’s going to be a lot smaller.

I can’t imagine a world where a relationship between SkyWest and Delta doesn’t exist. SkyWest’s relationship with Delta goes way back to the days of Western. When Delta bought Western more than 25 years ago, it inherited the relationship and SkyWest has been the dominant provider for Delta in the West ever since. When SkyWest acquired Atlantic Southeast (now merged with ExpressJet), a long time legacy operator for Delta in Atlanta, the relationship grew further. But the combined airline has a lot of 50-seaters, 156 to be exact, so it is going to lose out to some extent. If I were a betting man, I’d say that SkyWest will get some of that bigger jet flying one way or another. The airline will be a part of Delta’s future, but exactly how many airplanes it will have with the airline when the dust settles remains unclear.

Chautauqua/Shuttle America
Today, Republic-owned Chautauqua and Shuttle America have a fairly small presence at Delta with only 56 airplanes, but I wouldn’t be surprised to see that grow. With only 26 of the 50-seaters at the airline, it doesn’t have much to lose. But it does have a fair bit to gain with the possibility of additional Embraer 170/175 flying. Republic is a good operator that can get aggressive. I would assume it would like to get a bigger chunk of the flying if it could, and I would think it probably has a good chance.

These Trans States-owned airlines are in a nice spot these days. They fly none of the 50-seaters for Delta but Compass (formerly owned by Northwest) has 36 of the big Embraers flying along with 6 CRJ-700s at GoJet. I honestly don’t know a ton about this airline, but it seems like it has nothing to lose here. If anything, it can possibly pick up some more flying as Delta doles out new airplanes.

To me there seems to be a very clear line. Comair and Pinnacle will be lucky to still exist after the dust settles while the rest all can gain something. Of course, this is just the beginning if other airlines try to replicate the Delta contract in some way. There will be blood, oh yes. Oh, and if you ever wanted to buy a 50 seat regional jet, they’re going to be really, really cheap.

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