+1 Good post

 

I don't really have a response for the original post, because it really was more of an uninformed statement than a question. But having said that, I wouldn't be surprised to see the pendulum swing back toward wholly-owned feeders because it gives the mainline more control and better profit margins. The Colgan Effect probably accelerated this.

 

Not true. A major cannot just break any regional feed contract without good reason. Even if it has good reason, it is still likely to get sued and end paying anyway (ex. DAL). Wholly-owned's provide some profit in good times, but they also serve as "capacity accumulators" during bad times because their capacity can usually be changed on a whim.

 

A prime example of this is comair who has had block hours slashed in the past year resulting in a furlough of about 25% of the pilot group. Why? Mostly because they can without any legal whiplash ala mesa.

 

my understanding is cal does NOT own xjt, nor does united, unless something happened between 2005 and now that im not aware of?

 

Continental sold off xjt but they have subsequently ruined that market for airlines like American and Delta who both tried to sell off Eagle and Comair and could not find a buyer. Maybe all the buyers actually paid attention to what happened to xjt. Unless the regional has a long term cpa that is flexible, profitable and guaranteed (like a certain % of regional feed) there will never be a sale of a wholly owned. ASA was sold to skywest under that scenario and i am pretty sure that delta would have rather kept it a wholly owned now in hindsight. There is so much pressure to keep costs down and the whipshawing is keeping negative pressure on pilot compensation and profit margins in the industry.

XJT was sold off and went from a high of 1850 flights a day to somewhere around 900 right now. Their original cpa was so restrictive that xjt couldnt bid on any other flying without ruining the profitable flying with CAL. Now we are the cheapest (cost per hour) 50 seat regional in the world and we arent making any money.

In the future i think the larger regionals will prevail. The majors want cheap and are going to force regionals to accept meager profit margins on the flying. The only real way to make money with such tight margins is going to be with economies of scale ( a lot of airplanes) or running a crappy operation. They might only be making a few bucks per flight but when you have 400 airframes all actively flying your expenses generally go down per airframe. I think SKW, Republic, Eagle, ... will survive along with the airlines who treat their employees and skimp on maintenance.

 

How well did this work out for Continental? Every time the accident is discussed in the media, Continental has some unwanted advertising with their logo splash across the newspapers and television.


Some airlines may still use outsourcing to cut costs, but others will see the inherent risk in passing the safety of their passengers and the reputation of the airline to the lowest bidder.

Great post, mwa. Government intervention may still happen, but since they are quickly going broke, I don't see them being able to do much unless it is subsidize Greyhound and Amtrak.

 

the word going around is that DELTA is upset republic will compete against them. therfore when the contracts expire, they will not be re-newed. which puts compass in a position to pick up their flying and increase their fleet of emb-175....

 

That is biggest risk RAH is taking here. They may have danced around their current contract language to avoid getting terminated outright, but when contracts are up for renewal the majors can disqualify you for any reason or no reason at all. The bigger they get, they more majors they are going to annoy.

How long are their feed contracts good for?

 

I once thought this, but depending on who you talk to, it couldn't be further from the truth. Remember, RAH has different certs for each carrier. Shuttle America flies E175s for DL, not Republic (Airlines). Therefore, they are not in vilation of the contract. It gets even muddier when you consider, the NWA/DAL/MIDWEST/TPG Holdings scenario. I forget how its all tied together, but in the Major thread if you do some searching, those guys have it all laid out. Somehow, NW/DL were/are in bed with RAH and TPG as far as this deal is concerned.