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.
From what I’ve heard around the rumor mill, this pretty much ends branded service, but supposedly this agreement will also make it easier for XJet to fly for other big carriers.
So who knows.
I actually interviewed for a position with ExpressJet working specifically with their branded operations. After two interviews, they decided they did not want me. For the better – I would be unemployed and stuck in California (no offense CF).
In the end, ExpressJet provides some great service, but with outrageous overhead. I am surprised they didn’t settle for further service cuts. Moreover, ExpressJet charges Continental a heap-load of money to run outstations throughout the CO network.
for whatever it’s worth, i have a very good old friend that was a supervisor for branded flying in austin. he bailed and went to nasa to work contract jobs. that, to me, is a pretty good indicator of where the branded flying is headed. sad, sad. ty for the article , too cranky. your insight is always a notch above. kudos.
Is it just me, or did Express Jet ads JUST start showing on LA-area TV? I saw the same ad 3-4 times over the weekend, and do not recall seeing anything previously.
Seems odd they would start running ads this late in the game, especially if they are looking to dump branded flying altogether.
The fact that the airlines are acting in unison (i.e., most are adding charges and cutting capacity) makes individual airline brands seem even less important. Of course, people have been thinking airline brands less and less over the years anyway and more about what schedule works best for them. This might just be the final straw. Just watch what happens when (not if!) the airlines start playing around with frequent flyer benefits –probably the last brand loyalty component left!
i got a question for cranky. our airline and most others are famous for putting their profits , or lateley losses, in hard to understand terms. maybe you could clear up what they mean when they refer to “special items”. the latest one i read was about alaska airlines posting a profit of 60 something million, but still cutting mgt. and seat capacity, because “excluding special items, they posted a 15 (or something like that) million dollar loss”. i don’t understand all this mumbo jumob.
Good question, mechanic x. There can be a variety of special items. Sometimes, it’s an accounting charge. A bunch of the crazy losses you’ve seen this year, for example, have been due to write-offs of goodwill. Goodwill is basically the value of a company above and beyond its tangible assets. I’m trying to keep this so that it makes sense, but I apologize if I misspeak. (I’m sure someone will correct me.) It’s really the amount that they think the company is worth because of its brand name, or something else that doesn’t have an actual presence. So now, they’ve decided that in fact, it’s not worth as much anymore due to deteriorating market conditions, or something like that.
Those losses don’t really matter except on paper, so it won’t push a company out of business. It’s the special items that actually cost money that can have a bigger impact. If you want a general idea of how the company is doing, look at how much cash came in or disappeared during the last period. Yes, you want to make sure they didn’t take out loans or sell something to bump up the cash position, but you’ll have a basic idea if you can see what happened to cash.
I was a former expressjet mechanic till October 2007, When thanks to Continental not paying the rent for their hangar in louisville I got shipped out to another base with comments from their VP of maintenance that Continental was supposed to support their maintenance bases still present till 2009 when the contract could take another reduction in flights. I thought great 2 more years of job security geographically speaking. I feel sorry for my friends who when to Ontario and Lax along with all the other California Maintenance bases they may have opened after I left the company. Of course most of my best friends there got the hell out quickly when they found moves to continental exclusive bases.
Ironically they had just enough overnight aircraft between continental operations and branded operations to keep the hangar just as busy as it ever was in louisville till the branded flying was going to cease. That would have saved them a fortune in moving people and equipment.
I managed to get a job with Chautauqua who took most of the expressjet flying in STL and louisville along with several of my friends who stayed in KY. Ironic isn’t it they are facing delisting in 6 months and Jim Ream, and the rest of the Chiefs and VP’s are still around. Guess being a YES man no matter how dumb that plan is can keep you a job. I hope as some point that Skywest gets smart and just gobbles them up in a hostile takeover for a fraction of what they originally offered and then offers those blind, deaf, and dumb types the door.
Also I have a question for mechanic X. are they asking for big concessions on their union contract this year? I figured with the big cuts they are charging continental it would be a requirement.
when i attended the roadshow and listened to jim ream speak, i actually took alot from it. i am not a union man. i tend to side with the company on most (not all) issues. jim ream came across more down to earth than i thought he would. as far as i know , the concessions are 5 percent across the board. it’s everyone or no-one. in other words, unlike when big c took concessions last year and their flight attnedants didn’t, ream says there will be none of that here. so five percent across the board, with ream and the other execs. taking a ten percent, and …………what’s the word………forfeiting? the rest of their pay and bonuses this year. i too have alot of friends affected by this, but in this industry, you’d be hard pressed to find anyone not affected by the airline troubles. good luck to you.