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Airsupport 04-22-2010 08:27 AM


Originally Posted by HIREME (Post 799922)
IDK...seems like they'd be better off in house than having 9 diff. regionals. THink about it...they are supporting operations for 9 other companies...that's 9 different upper level mgmt teams (MILLIONS per team), with 9 diff. physical locations/offices, 9 diff. ops/sched. groups...cannot make financial sense to have so many...maybe 3 makes sense for stability/cost control. 9 is chaos and waste.

There won't be 9 when it is all said and done. And they don't pay management salaries. They pay a set fee. How management decides to spread that money throughout the company is their business.

They are also not supporting the operations. You all have to remember the most important thing here. The contract carriers get their payment. What the contract carrier does with that money is their own business. The contract carrier has to run their own HR. They have to hire their own people. They have to have all the things it takes to run an airline and they have to do it on just the money they get for their contract. That is why they want to pay ground workers nothing. That is why they fight pilots on contracts. If it's not in the contract with the major they are out of luck. I promise you no major is just giving money away to regional's to help them stay afloat. If one regional isn't able to keep their business running on the money they are making off the contract then they aren't able to fulfill their contract and the major pulls out.

That is why Delta nor any other major want to own their own regional's. If they own a regional whose costs are out of control then they have to eat the losses. If they have a contract carrier who isn't performing and meeting the goals on the already agreed to terms of payment then they cut them off and find someone who is willing to do the work. Pinnacle nor any other regional doesn't get paid extra to cover all those things you listed. They get paid what they are entitled to in the contract and not a dime more.

This is also why Delta is getting rid of their ground workers. It is so much more cheaper for them to outsource the work and pay a flat fee than it is to take on the additional burden of more employees with more needs. They pay the ground service company a flat fee and the ground service people hire employees at 6 bucks an hour than 10 or 11 that mainline used to pay.


Remember the key here is Delta is not supporting any of their regional's except for the wholly owned. They told ASA, SkyWest, Pinnacle, etc here is your contract. It is only good for X amount of money. Then those companies take those payments and run their airlines how they see fit. If you hire one employee at Delta and pay them $40,000.00 a year the real cost to delta is more like $65,000.00 once benefits and all the other federally mandated programs are paid for per each employee. If you give the money to a contractor who doesn't offer retirement, medical, pass, or any of those other benefits or they offer cheap versions of them then the company can hire that person for $40,000.00 a year and the real cost will be closer to $50,000.00 for the outsourced company. That is how bids for contracts are won. Who can do it cheaper than we can. And so far in the U.S. you can do it cheaper almost anywhere else than here. That is how the majors see it and thats why none of this will change. If they can outsource it then they will. That means no pensions, no benefits, no hr headaches. If the people they outsource to want to offer that stuff then so be it. If they don't the major doesn't care. They aren't going to pay them anymore than if they did. Outsourcing is all the rage in this country right now and there is no end in sight.

jayray 04-22-2010 10:25 AM


Originally Posted by Airsupport (Post 799877)
no i agree. I never said pinnacle was safe from the chopping block. But I can say that them sourcing it out is cheaper than doing the flying themselves. If not they (all airlines) would have stopped years ago and brought everything in house to save money. They haven't and they dont want to. They sold ASA and still gave them a contract to fly because it was cheaper if Skywest took the company and they just paid skywest some money and let them handle running the airline. Comair has had a for sale sign in their front yard for a long time. Remeber Pinnacle was wholly owned by northwest and we were sold off. It cost more to manage, run, and handle the everyday business of an airline than it is to just pay a contract fee and handle it themselves.

How many other major airlines own their own regionals? Is Delta the only one? There is a reason for that.

Doesn't American essentially own Eagle? How about Horizon and Alaska?

I have a hard time believing that the extra costs involved in being able to whipsaw labor outweighs the savings of combining 9 companies into one. Delta is an airline, they are in the business of flying airplanes. At what point does Delta just become a shell of a company with no real employees? Although the contract carriers overhead costs are not directly paid by Delta, the money still needs to come from somewhere to pay for the management team, the buldings, the HR people and all other costs. You don't think it would be cheaper to have one management team and one building to pay rent on verses 9? Delta doesn't want to keep the profits from their own flying? I'm sure it is already a nightmare managing all these airlines that they don't own and trying to bring one level of service. Think of the resources Delta needs now to manage all these regional operations that they don't own and collect no profit from and have no flexibility. If airlines are all about cost cutting there has to be some huge costs to cut here. One wholly owned and one contract, that is all it takes to keep labor in line.

HIREME 04-22-2010 10:28 AM


Originally Posted by Airsupport (Post 799932)
There won't be 9 when it is all said and done. And they don't pay management salaries. They pay a set fee. How management decides to spread that money throughout the company is their business.

They are also not supporting the operations. You all have to remember the most important thing here. The contract carriers get their payment. What the contract carrier does with that money is their own business. The contract carrier has to run their own HR. They have to hire their own people. They have to have all the things it takes to run an airline and they have to do it on just the money they get for their contract. That is why they want to pay ground workers nothing. That is why they fight pilots on contracts. If it's not in the contract with the major they are out of luck. I promise you no major is just giving money away to regional's to help them stay afloat. If one regional isn't able to keep their business running on the money they are making off the contract then they aren't able to fulfill their contract and the major pulls out.

That is why Delta nor any other major want to own their own regional's. If they own a regional whose costs are out of control then they have to eat the losses. If they have a contract carrier who isn't performing and meeting the goals on the already agreed to terms of payment then they cut them off and find someone who is willing to do the work. Pinnacle nor any other regional doesn't get paid extra to cover all those things you listed. They get paid what they are entitled to in the contract and not a dime more.

This is also why Delta is getting rid of their ground workers. It is so much more cheaper for them to outsource the work and pay a flat fee than it is to take on the additional burden of more employees with more needs. They pay the ground service company a flat fee and the ground service people hire employees at 6 bucks an hour than 10 or 11 that mainline used to pay.


Remember the key here is Delta is not supporting any of their regional's except for the wholly owned. They told ASA, SkyWest, Pinnacle, etc here is your contract. It is only good for X amount of money. Then those companies take those payments and run their airlines how they see fit. If you hire one employee at Delta and pay them $40,000.00 a year the real cost to delta is more like $65,000.00 once benefits and all the other federally mandated programs are paid for per each employee. If you give the money to a contractor who doesn't offer retirement, medical, pass, or any of those other benefits or they offer cheap versions of them then the company can hire that person for $40,000.00 a year and the real cost will be closer to $50,000.00 for the outsourced company. That is how bids for contracts are won. Who can do it cheaper than we can. And so far in the U.S. you can do it cheaper almost anywhere else than here. That is how the majors see it and thats why none of this will change. If they can outsource it then they will. That means no pensions, no benefits, no hr headaches. If the people they outsource to want to offer that stuff then so be it. If they don't the major doesn't care. They aren't going to pay them anymore than if they did. Outsourcing is all the rage in this country right now and there is no end in sight.

I understand they pay a set fee, but the money still flows to the other companies...theoretically, they could cut cost by keeping it in the family. Indirectly, through the contract, they are paying for all those things...a business has to bid the contract with those costs accounted for... Delta would be cost neutral on many of those items that are unique to individual companies. I realize they don't "pay the rent" but they pay the people who pay the rent enough to pay it and make a profit. If they do it themselves, they can use their own teams/facilities/people without causing 9 diff. companies to profit.
I've owned a couple businesses and grew up in an entrepreneurial family with a successful business...we used contractors at times, but only when it made sense...ie>too much work at the time but not sure if it will continue into slower seasons/can't keep up with hiring demands. Long term, it made no financial sense unless you are using them for leverage. Even then, you are paying a premium for their services. Sure, you get rid of some headaches by using another company, but you pay a price. I can't imagine having as many as Delta does. It cannot possibly make sense long term.

Truman_Sparks 04-22-2010 11:57 AM

Delta may be about to rid themselves of all wholly owned regionals. Apparently they do not agree that it is best to own all their own Regionals.

200MSPCRJ 04-22-2010 12:16 PM

Delta may be about to rid themselves of 5 contract carriers...:rolleyes:

AirWillie 04-22-2010 12:16 PM

Guys... or it could be the fact that they don't want 50 seaters anymore and that it has nothing to do with being wholly owned or not. Just a thought.

Check Essential 04-22-2010 12:36 PM


Originally Posted by AirWillie (Post 800102)
Guys... or it could be the fact that they don't want 50 seaters anymore and that it has nothing to do with being wholly owned or not. Just a thought.

Correct.
Delta buys the fuel for the connection flights.
50 seat RJs made sense with oil at $40. They lose big money with oil at $80.
Its pure economics. Doesn't matter who owns them. 50 seat RJs are no longer profitable.

skywatch 04-22-2010 01:14 PM


Originally Posted by HIREME (Post 800022)
I understand they pay a set fee, but the money still flows to the other companies...theoretically, they could cut cost by keeping it in the family. Indirectly, through the contract, they are paying for all those things...a business has to bid the contract with those costs accounted for... Delta would be cost neutral on many of those items that are unique to individual companies. I realize they don't "pay the rent" but they pay the people who pay the rent enough to pay it and make a profit. If they do it themselves, they can use their own teams/facilities/people without causing 9 diff. companies to profit.
I've owned a couple businesses and grew up in an entrepreneurial family with a successful business...we used contractors at times, but only when it made sense...ie>too much work at the time but not sure if it will continue into slower seasons/can't keep up with hiring demands. Long term, it made no financial sense unless you are using them for leverage. Even then, you are paying a premium for their services. Sure, you get rid of some headaches by using another company, but you pay a price. I can't imagine having as many as Delta does. It cannot possibly make sense long term.

Lots and lots of misinformation on how the agreements with the regionals work. Here are the facts.

All of the regionals (WO and contract) work under a cost plus arrangement. They get reimbursed for the costs of operating the flight, plus a set margin, assuming they hit the pre-determined performance targets. Period. As long as regional airline X hits the completion/A14 numbers, regional X makes money. Period.

Here is why it is makes sense to use a contract carrier rather than a wholly owned: Assume you have two carriers, X (WO) and Y (contract). Both hit all the targets. Both are flying under an agreement that Delta will pay them cost plus 10%.

Now assume that Both operate a flight from ATL - MCO and Delta sells $1500 worth of tickets to fly on each flight. Carrier X has higher labor costs, and it costs them $1500 to operate the flight, so Delta pays Carrier X $1500 plus $150 margin or $1650 to operate the flight. Overall, Delta loses $150 to operate that flight. Carrier Y, however, is a "bottom feeder" and Delta only has to pay their costs of $1200 plus $120 margin or a total of $1320 to operate the flight. Now Delta makes $180 to operate the flight.

It is that simple. Either make $180 or lose $120 to operate the flight is a no-brainer. That is why the "keep it in the family" argument does not work.

acl65pilot 04-22-2010 03:50 PM


Originally Posted by rickair7777 (Post 799046)
They are called "90's" because they are certified to 90 seats even though they are usually configured with less.

Smart pilots have scope clauses which are based on certified seats and MGTOW, not just installed seats.

A 90-seater configured with 76 seats and a first class cabin generates more revenue than one with 90 coach seats (in the proper market).

Actually 86 and 88 seats.

acl65pilot 04-22-2010 03:55 PM


Originally Posted by flycrj200 (Post 799918)
Delta needs the W/O for flexibility. They can increase and decrease the flying as they wish. You will never get that kind of flexibility with a contract carrier. Even if Delta wants to sell the W/O, they will have a very tough time finding a buyer. The days of guaranteed fee for departure are long gone. The contract carriers will have to share the risk with major carrier on any new contracts to be signed. Sharing expenses and risk is not a good thing for contract carriers. IMHO, you will see a couple of W/O and 2 contract carriers flying for DCI.

I agree with this.

They would need to dress OH A LOT to sell them. No one is that dumb. Their costs are out of control due to the cuts.

I agree that we will see a few WO and a few contract carriers. A lot of these contract will either not be renewed or they will be changed to risk sharing at the checkpoints.


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