I would be remiss to not mention the major cuts Continental announced yesterday. The airline will retire 67 aircraft by the end of 2009 that were not previous planned to go. I decided not to write much about that here, because the customer impact is simply fewer flights and I don’t have much other insight. If you’d like to read more, you can see what I wrote over at BNET about the impressive way they’ve gone about dealing with their employees. Over here, however, I’m writing about a situation that’s near and dear to many of my readers’ hearts . . . ExpressJet.
Just a couple days after ExpressJet said it would renegotiate its contract with Continental, the two airlines came to a wide-ranging agreement that has a lot of good news for both sides. Who are the losers here? SkyWest may be since they don’t get to buy the airline, but that may also have been fortuitous. Also, it won’t surprise me at all if the ExpressJet brand loses out completely, but nothing has been announced. Oh, and the shareholders may end up losing since the stock is still well below the $3.50 per share offer.
Still, I must admit, I’m surprised to see that ExpressJet has found its way out from between a rock and a hard place. How did they do it? Well, here’s what happens now:
- Continental guarantees to keep the same amount of planes (205) that ExpressJet currently flies for the airline for one year, and they get it for a lot cheaper (after one year, they can ditch 15 planes)
- Continental will take back 39 of ExpressJet’s 50-seaters that currently don’t fly for Continental and replace the more costly (on a per seat basis) 37-seaters, which will be grounded
- ExpressJet gets more flexibility in being purchased and in flying for other carriers
- Continental loses the right to terminate the agreement without cause
- All outstanding disputes between the two are settled
So, where does this leave us? Well, for Continental customers, nothing changes. You won’t have any more of those 37 seaters to fly around, but you’ll still be on ExpressJet for most of the Continental Express flights you take. For the customers that fly on the ExpressJet brand, however, it’s much less clear.
Currently, the airline flies 205 aircraft for Continental, 23 for Delta, 23 in Corporate Aviation, and 23 for the ExpressJet brand, according to an employee communication reposted here. ExpressJet will now return 39 of those non-Continental aircraft to Continental. So where will they cut? Where things aren’t performing well, of course. ExpressJet assumes all the risk of flying those 23 ExpressJet aircraft as well as 13 of the Delta planes. I have to think those will go away while the remainder will come from the Corporate Aviation group. In case you were wondering, at the end of 2007, there were . . . 39 planes flying under the ExpressJet brand.
From the airline perspective, Continental will save a bunch of money and be able to eliminate flying on jets with less than 50 seats, but they haven’t quite eliminated as many 50 seaters as they might like here. ExpressJet lives to see another day as an independent company and gets some security, but with the share price closing yesterday at only $1.95 (well below SkyWest’s $3.50 offer), shareholders may not be so thrilled. The airline is free to pursue deals with other airlines now, but unless someone else shuts down, I’m not sure who would really be looking for more 50 seaters right now.
My guess is that we won’t see any big changes until the Fall, but I wouldn’t be surprised to hear an announcement about their plans in the very near future. Expressjet is going to have to prove that this was, in fact, the right decision for everyone involved.
