The smart bet would have been on American and Mesa terminating their relationship multiple times over the past several years, but time and time again, the pact endured. That streak ended last weekend when it was revealed that Mesa will no longer be flying as an American Eagle regional carrier after April 3. It was clearly a bitter break-up. How did this all go wrong?
Mesa had flown for American and its predecessor companies US Airways and America West for decades. Over the years there had been an ebb and flow, but in the end, American would still stick with Mesa because it could provide regional feed for cheap. Mesa’s low-cost operator status was understandably appealing to those holding the purse strings.
Approaching the pandemic, Mesa once again found itself in hot water with American. With 47 of Mesa’s airplanes expiring in two tranches, the two partners agreed on a new comprehensive deal moving forward that greatly reduced the number of contracted aircraft from somewhere in the neighborhood of 60 down to a flat 40. The agreement began January 1, 2021 and would run for 5 years.
It didn’t take long for American to start getting agitated. All regionals have been hurt by the pilot shortage, but Mesa was performing worse than the others despite having recently reduced the number of airplanes. Here’s a look at Anuvu data showing the percent of cancellations by operator by month under American-marketed flights.
% of Cancellations by Month for American Mainline and Regional Operations
Considering Mesa had a bunch of aircraft just lying around with nothing else to do, this result may be surprising. If the cancellation rates weren’t enough, the flights that did fly were underperforming as well. Looking at American’s favorite metric of D0, Mesa was again at the bottom of all the regionals even though it only flew out of the relatively benign-weathered hubs in Phoenix and Dallas-Fort Worth.
Departures On Time or Earlier (D0) by Month for American Mainline and Regional Operations
The numbers are what they are, but why those numbers exist is a matter of debate.
On one side, American can easily point and say Mesa is just not a reliable operator. Possibly even more dangerous to the relationship, Mesa had also becoming increasingly irrelevant in the airline’s network. Not only was Mesa’s operational performance lagging, but Mesa could only provide 20 to 25 aircraft to be scheduled by the beginning of 2022. This was a sharp decline from the already reduced number of 40, and it obviously was cause for concern.
On the other side, Mesa can deflect blame and say that American schedules the fleet, and Mesa is merely doing the best it can considering the circumstances. Further, American had gone and increased wages for pilots at its wholly-owned subsidiaries, and that hurt Mesa’s ability to get enough pilots in the door.
It wasn’t just pilots. Mesa was struggling to keep mechanics as well, and several ended up taking jobs for American, further reducing Mesa’s ability to operate punctually. (Both sides have made it clear this was never a safety issue.) The hiring of a partner’s mechanics seems to have left a bad taste in Mesa’s mouth, but American wasn’t going to tell applicants from Mesa they wouldn’t hire them just because of where they worked.
This operational degradation was problematic enough, but it led to heightened concerns, at least among some, about Mesa’s financial situation. In August of 2022, Mesa announced a massive increase in pilot wages to the top of the industry, raising first-year first officers from around $35/hour to $100/hour. This surpassed even American’s wholly-owned regionals which now started a first-year first officer at $90/hour.
From Mesa’s perspective, it had to boost wages in order to continue to attract pilots since American had set the market with its massive increase at its wholly-owneds. But for this to work for Mesa, it required American to pay the additional costs. American balked at this, but this wasn’t the first time. Apparently all that shrinking had put cost pressure on Mesa, and it had looked for more money even before the wage issue. That could have been resolved, at least in part. The wage issue was what really pushed this into impossible territory.
Mesa is said to have made this massive wage increase plan without consulting American. Once the plan came to light, American didn’t want to pay the increased costs, at least not the full amount. It certainly would have been different if American had been involved in the decision and had signed off on the plan in advance, but then again, it’s unlikely it would have signed off on such a rich agreement.
This instantly put Mesa in a bind. It was now, by its own admission, losing $5 million per month on these increased costs without the commensurate revenue bump. It sounds like American was willing to work with Mesa on some of the increases, but Mesa wanted to pass through the entire amount. With no agreement in sight, Mesa continued to lose money at alarming rates.
Mesa needed cash or it risked a bankruptcy filing, so it started to build the coffers. In October, the airline sold 18 of its CRJ-700s off to United, putting about $50 million in the bank. It was already operating dozens of Embraer 175s for United on airplanes that United had bought. This ensured Mesa could stay lean and not worry about the ownership costs of these aircraft during a time where it couldn’t find enough pilots to enable sufficient fleet utilization.
This was not how it worked with American and the CRJ-900s. Mesa was the owner/lessee and operator of those airplanes. The fewer airplanes it could keep in the air, the less ability it had to spread its fixed ownership costs around. This compounded the problem that already existed with those higher pilot wages. It was clearly an untenable situation for Mesa, though there are very different stories about whose fault it was that the airlines ended up in this place.
These issues led to fears of a potential Mesa bankruptcy permeating the halls at American, and that created urgency. It’s no secret Mesa was unhappy with the money-losing contract it was holding at American, and the simplest way to get out of that if American wouldn’t play ball was to file for bankruptcy protection and walk away. Whether this was actually on the table or not, it was certainly an option to be considered. American knew it, and had to think of the possible repercussions. What if Mesa filed for bankruptcy in the days before Christmas and pulled its 20-25 airplanes’ worth of flying? It would be a disaster that DOT Secretary Buttiegieg would not fail to use.
As I understand it, Mesa was the one that came to American and suggested an orderly wind down of the contract. This was the only real solution in the end. It would allow Mesa to get out of the money-losing deal without filing for bankruptcy. Getting American out of the way probably made it easier for Mesa to go back to United and get what it needed there as well. After all, United was and is desperate for more regional lift. For American, this would provide more certainty through the holidays and allow for the airplanes to leave quietly in April. It was a win-win for both airlines, and so it was done.
But wait… it couldn’t just end amicably could it? Of course it couldn’t. I was provided the text of the verbiage that Mesa says American proposed using to announce the break-up internally. It was very matter-of-fact.
American continually evaluates its regional network and makes strategic decisions that will benefit our airline and customers and best position us to run a reliable operation and return to sustained profitability. As a result, American and Mesa Airlines have mutually agreed to begin reducing our schedule operated by Mesa in early 2023. We’re working closely with Mesa to minimize disruptions to our customers’ travel plans and we continue to focus on delivering the very best global network with our other regional airline partners.
Contrast that with what actually was sent internally, and it paints a different picture.
This lengthier version talks about concerns about Mesa’s financial and operational viability, and it seems to have sent Mesa’s management into a rage. The memo gives far more color than the original draft that was circulated at Mesa, and it also appears designed to assuage any concerns shareholders may have had about management being willing to walk away from 20 airplanes’ worth of pilots at a time when pilots are tough to find.
Mesa’s own memo came out shortly after and was obviously quickly revised to help shift the narrative. The airline wanted to position this as Mesa breaking free of the shackles of the American deal and into the arms of a much more fair and friendly United.
The Mesa memo goes on to rake American over the coals, blaming it for not being willing to reimburse for pilot costs and saying that is a plot by American to bring more flying in-house and prevent third-party regionals from attracting pilots. Trying to seed the idea that American is a bad partner to all of its non-owned regionals feels like an emotional reaction since it’s unlikely — though not impossible — that Mesa could know the exact details of American’s other agreements. (The other regional partners at American are publicly silent on this, but it would seem to be a grave mistake for American to actually pursue this path with an enormous partner like SkyWest, let alone a little one like Air Wisconsin that it just lured away from United.)
Ultimately, Mesa wants everyone to know that it was the one that initiated the wind down, and it did so was because American wasn’t willing to pay what Mesa considers fair. This is also a message targeting the airline’s shareholders to build confidence, because outside of that particular area, does it really matter who started it all?
One thing both sides can agree upon is that the other is not reliable. The Mesa memo comes to the same conclusion as American’s… word-for-word.
American: As a result, we have concerns about Mesa’s ability to be a reliable partner for American going forward
Mesa: As a result, we have concerns about American’s ability to be a reliable partner going forward
Mesa is now free to run into United’s arms, but United isn’t there just yet. Yes, United wants a deal done. After all, CEO Scott Kirby went to talk with Mesa employees this week, presumably to reassure pilots that it was going to happen and convince them not to flee for other airlines with more certain prospects. While this agreement could happen any day, the uncertainty remains for the moment. When that fades, it will join the lingering bitter feelings associated with the American contract in the archives of regional airline history.