Moxy Should Buy Compass

David Neeleman’s proposed start-up is racing to get in the air, and the timetable has recently moved forward to next year. How is he going to stand that up from nothing in such a short time? Maybe it won’t be from nothing. There just happens to be a perfect platform out there for Moxy (or whatever it will actually be called) to build on. It’s called Compass, and it’s an airline in need of a savior.

Moxy was expected to start in 2021 with new-build A220s, but Neeleman told The Air Current last week that he was looking at moving up to 30 Embraer 195s from his Brazilian airline Azul to Moxy so it could get in the air next year. That’s a stopgap measure until the A220s arrive, but it would get the thing flying sooner, if he can get everything done in that short amount of time.

Sourcing the airplanes obviously isn’t a problem. Azul is getting new Embraer E2s to replace its existing fleet over time. If David wants to move airplanes north, he can do that. But who is going to fly them? And what about gaining federal approval that quickly? Both of those are real issues that can be solved (at least, in part) by buying Compass.

Compass has quite the history. It was started by Northwest as a wholly-owned regional to operate 76-seat aircraft. The airline purchased the old operating certificate from Independence Air and started flying in 2007. After Delta bought Northwest, it sold Compass off to Trans States Holdings in 2010. It remains owned by Trans States to this day.

Right now, Compass flies only Embraer 175s. It has 20 operating for American and 36 for Delta, all out in the Western US. But those 36 airplanes flying for Delta? They’ll be gone within the year. Delta is consolidating its flying with fewer regionals, and Compass is out.

What’s not clear to me is just how long the contract with American goes. Compass started flying for American in 2015. It seems likely the agreement would expire in the next couple of years, though I unsurprisingly couldn’t get an answer from either Compass or American. What I do know is that American owns those airplanes outright, so when the contract is done, it can just take them and have another regional partner fly them.

Think about that. Compass will soon be an airline that is flying 20 airplanes it doesn’t own. That is not much to go on and growth prospects are limited at best. It doesn’t likely fit into its parent’s future plans either.

Trans States Holdings on the whole is, shall we say, in a state of transition. Outside of Compass, it has two subsidiaries. Trans States Airlines is the small Embraer jet expert flying 45 ERJ-145s for United. Then there’s GoJet which is the Bombardier, er, Mitsubishi expert. It too is losing its Delta flying with 27 airplanes going away, but it is seeing big opportunity with United. It is converting the 15 CRJ-700s it has under contract with United to the new 50-seat CRJ-550 configuration. It will be adding 35 more.

Trans States sure looks like a good candidate for consolidation. Just imagine United buying Trans States and merging it with ExpressJet… But I digress. The real point here is that United has no use for Compass whether Trans States Holdings is independent or not. (United already has ExpressJet, Mesa, and Republic, and SkyWest flying Embraer 175s.) So if I’m Trans States, I’m trying to sell that thing off for cheap to anyone who is even vaguely interested.

Neeleman prefers to start from scratch when he’s building an airline since culture is so important, but that takes time. Starting an airline is a lot harder than it used to be thanks to more stringent regulatory issues and a pilot shortage. He wants this thing flying by next year, and that means he doesn’t have the luxury of time. That being said, he seems undaunted. He told me through a spokesperson that he is getting his own certificate and not buying one. That means I’m probably just telling into the wind, but so be it.

Compass has a certificate, it has a roster of pilots who can fly E-jets but won’t be needed to fly the majority of them for much longer, and it has a parent company that should be motivated to sell. If I’m American, I have little problem ending my contract early and placing my 20 Embraer 175s with one of my other existing regionals since it has more partners than it needs anyway. In other words, if Moxy bought Compass, it would be good for everyone involved. It’s not often that kind of opportunity presents itself.

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16 Responses to Moxy Should Buy Compass

  1. Matt D says:

    I’m surprised you haven’t had a thing to say about the reboot of Midwest Express. I figured you would’ve ripped that apart by now. But this could get interesting because I think they are interested in Compass too as a “rent an airline” service, since, as you noted, starting a new one is so difficult, onerous, and expensive, as to be effectively impossible anymore.

    What was the last truly all new “ground up” airline to take flight? Wasn’t that Virgin America, back in 2007? So well over a decade without a single new start?

    That’s a record untouched since pre-Deregulation.

    • CF says:

      Matt D – Midwest Express has hardly been worth talking about. It’s just a rent-a-plane plan like many before it. I’ll probably write something up when, or if, it flies.

      As for the last new airline, yeah, I think Virgin America was it from a Part 121 perspective. I could be missing something small, however.

  2. Frank says:

    Orrrr….maybe he uses Compass as stop-gap contractor like Morris Air used Ryan, Continental, and Sierra Pacific to “get things going”. Ahhh Morris Air…eticketing in 1993, costco muffins, hybrid reserved/open seating, some things so ahead of its time…good times, I miss it.

  3. Alex says:

    That would be nice, but I don’t see it happening. A big part of DN’s startup strategy has always been cheap labor, i.e. starting everyone at Year 1 pay. And definitely no unions. Compass is an ALPA airline with an existing contract and with many pilots on Year 5 plus pay. It all goes against the grain of a DN startup. As Frank wrote above, I can also see some hybrid arrangement between Moxy and Compass, but an outright purchase is unlikely.

    • Blueside says:

      But the salary is REGIONAL pay which is a substantial savings over what he’ll be paying pilots in the future!

  4. DesertGhost says:

    This idea makes so much sense, it probably won’t be tried (I’m being facetious of course).

    But all of this raises a larger issue. I’m guessing (and only guessing) that the entire regional airline industry will be quite different five years from now. Regional airlines and holding companies like Air Wisconsin, Mesa, and Trans States seem to be too small to effectively compete with the wholly-owned carriers and the SkyWests and Republics of the world. I’m also guessing (and again, it’s just guessing) that the lack of new 50 to 65 seat regional aircraft in the manufacturing pipeline may require a wholesale rethinking of airline pilot scope clauses in the U.S. Of course, I could be dead wrong about all of this.

    As for a revived Midwest Express, maybe some entrepreneur will have the “Moxy” to start it up again. Obviously, I’m being extremely facetious – except that the A220 would be the ideal aircraft to resurrect the old Midwest business model – if there’s still a market for that kind of service.

    • ChuckMO says:

      Re: Midwest Express

      Even if there is a market for the former MEx business model they would need to somehow muscle their way into BOS (possible), LGA and DCA (not bloody likely). Without that level of biz traffic any hopes of truly reviving MEx as it “was” just ain’t gonna fly.

    • CF says:

      DesertGhost – Indeed, it does seem that a major consolidation in regionals will accelerate here soon. To me, SkyWest is the only true rock that will remain an important partner. Everything else is up for grabs.

      • DesertGhost says:

        I tend to agree, although I do think Republic will stick around in some form because it’s owned in large part (a controlling interest, if I’m not mistaken) by the three large legacy carriers. It’ll also be interesting to see where Mitsubishi will fit in and how the pilot shortage will affect the whole situation.

  5. IO says:

    re ME, it may be that the piece you write will be in the airline obituary you write each year.

  6. BGR Chris says:

    Any idea where this airline will be based?

    • CF says:

      BGR – Moxy? I don’t believe it’s been said.

    • Alex says:

      Neeleman has said that it “would likely be based near a technology center other than Silicon Valley”. That’s vague enough that it could apply to a lot of places. Some of the candidate locations people have speculated about:

      – AUS: Definitely a growing technology center, but probably has too much competition. It’s already a focus city for both WN and DL, plus both F9 and NK have a substantial and growing presence. Neeleman has also said “I doubt we will have a single route where we will have a competition. Every route, we’ll be the only one flying it nonstop.” It would be hard to pick off enough routes from AUS that don’t already have competing direct service.

      – RDU: Similar problem – too much competition. It’s a focus city for DL and F9, and has substantial WN service as well.

      – IAD: Serves the technology centers at Reston and Tysons Corner, but United already flies direct to pretty much everywhere, and we’ve already seen from EWR that they are willing to price-match any competitor to death. Also a notoriously expensive airport to operate from.

      Other potential locations:

      – ONT: Huge metro with limited direct flights, but is it really a “technology center”?

      – FTW: The business case here would be “like DAL, but for the Fort Worth side of the metro area”. The obvious downside is that Fort Worth is by far the less populous half of the Dallas-Fort Worth area, so the addressable market is a lot smaller than DAL.

      – CLD: Would steal a ton of flyers from SAN, but the runway may be too short to take off with adequate range.

      – ORF/JAX: Similar cases, so I’ll lump them together. Both pretty large (> 1.5 million) metro areas with very limited direct service, and minimal long-haul options. In particular, there’s a lot of unmet demand for Navy/Marine Corps employees and contractors traveling to and from SAN. However, the government employee slice of this traffic may be hard to get, because the GSA negotiates contract rates for the full fiscal year in advance. “Technology center” would be a stretch, unless you’re talking about naval technology.

      – SAT: 25th-largest metro area in the US, and a semi-plausible “technology center” but not a hub or focus city for any airline. However, this is very much in WN’s backyard – they have 18 direct routes from SAT, and 4 additional seasonal routes, and they presumably would do what they could to defend their Texas turf. This would definitely be picking a fight with WN, but with the MAX grounded it might actually be a good time to do so. The hard part would be finding profitable routes that WN isn’t already serving, assuming that’s still Neeleman’s strategy.

      – TUS: A legit technology center with very limited year-round direct routes, but maybe not a big enough metro area to fill airplanes on new direct routes.

      • Alex says:

        + OKC: Large, growing metro with limited direct service. Energy economy makes it a plausible “technology center”.

      • Ian L says:

        Out of those, thinking that SAT is most likely, and that AUS isn’t in the cards for the reasons you mentioned.

        Maybe MCI? Bit of a tough market, but would work well for point-to-point and there’s a pretty significant tech presence there.

        • Alex says:

          If you’re choosing between SAT and MCI, I think you choose SAT. SAT has a larger population, faster population growth, and fewer existing WN routes (MCI has 26 year-round plus 5 seasonal).

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