Delta Terminates Mesa Contract!!!

[Andy]

...and at the same time increasing unit revenues. When you pull a MD88 out of a market and put a CRJ900 in, the cost of the ticket generally increases on decreased supply.

You will always have some business travellers that pay whatever it costs for last minute travel.

The retired folks and families of four on priceline.com tickets will most always fill up an airplane to sunny destinations, but rarely pay the costs to actually get them there.

The problem is half empty 50 seaters going to cities which are only a 30 minute drive to a major hub. Particularly those cities which have welched on their marketing agreements to pay for jet service.

I see the RJ's doing MD88 flying, the MD88's doing 757 flying, 757's doing 767 flying etc.... Eventually we will have agreed to outsource almost all domestic narrowbody flying and that really stinks. On the other side AirFrance / KLM and others are happy to do our International operations.

ALPA needs to get religion about scope!

The downguaging that you're referring to assumes maintaining the same frequency. It also does not take into account what happens to the 777 when it's replaced with a 767.
The 777s would need to be sold. United dumped a bunch of 747s on the world market (and I think 777s, but am not positive). They went dirt cheap. Fortunately, there was a market for them. What if a bunch of the majors start dumping their widebodies? No, that's why I think frequency will decrease this time around.

Let me give you one city pair example. United on PHX-LAX. There are 5 daily 50 seaters that fly that route. 250 seats.
What if United went to 3 70 seaters and dump the 50 seaters?
Now we've got a hole where the 70 seaters were flying. Plug in 2 A319s - still cheaper than 3 RJ70s. Plug in 1 757 into the market served by 2 319s.

This is an incredibly complex puzzle where I am using very simple examples; the airlines use supercomputers to build their schedules. I can't give you a 'solid' example across multiple guages while sipping a beverage (hey, it's 5 o'clock somewhere) that will not have holes in it.

And yes, alpo does need to get religion about scope. However, I'm convinced that alpo's run by these guys: http://upload.wikimedia.org/wikipedia/en/3/3a/Stoogelogo.gif

 

[~~~^~~~]

Andy:

I'm not saying the larger airplanes are getting dumped, quite the contrary - they are going further out to make Delta a Global Airline and that strategy is working.

But, instead of 15% growth international and 10% shrinkage domestically, we should be seeing growth in both areas commensurate with GDP and other factors (around 3.5% yearly in normal conditions). Instead if we had the numbers on how much Delta Air Lines won domestic narrowbody flying has decreased we would have LEC meetings with 2,500 in attendence.

We should have rational growth in both areas. More people are flying, they just are not flying mainline.


Jon:

You are scaring me. Pretty good crystal ball you have there. In fact, that is exactly what they say....

But if the ALPA was run by the Three Stooges, they would all have mustaches.

Don't anyone get me wrong, I am a true blue union loyalist, but think they need to reorganize so they can determine and execute a national strategy.

 

[contrail67]

Mesa shares tumbled following the carrier's report that Delta plans to terminate a contract with the company due to issues with the number of flights it completed.



I have been a victim many times by their cancelled mess, cannot imagine the frustration on the passengers part.

 

[Andy]

We should have rational growth in both areas. More people are flying, they just are not flying mainline.

OK, THAT's the fundamental disconnect. You see an increase in passenger traffic. I disagree; I think that there is going to be a large dropoff in passenger travel. Think post-911 squared.

As for the 3 stooge link, that was me. Excellent point on the mustaches; too bad I stink at photoshopping.

 

[IronCityBlue]

Wishful thinking DAL newbie, but don't worry you'll be making the big bucks flying a 777 or a 787.

When scope finally does collapse completely the senior Captain sitting next to you who just voted himself a big pay raise will explain to you how you didn't really want to fly those little planes (MD-80, 737) any way. Too many legs in a day, crappy overnights, etc. No, one leg a day and GOOD beer in London or Frankfurt, that's the ticket.

You have done an excellent job pointing out the idiocy of mainline pilot groups though recent history. That's exactly how it happened. Furthermore, that's exactly how it could happen for larger aircraft.

To carry your example to its endless conclusion, SkyWest, in 20 years, will do all flying for Delta and United (and Midwest and others) because at some point the last group of mainline pilots will sell out all that exists for one final payday push.

You think this will happen, and clearly want it to happen. That's fine. Go for it. If the mainline pilots are that stupid, you 100% deserve to do all the flying. Not only that, they will deserve to lose it. You can dance on their graves and they will have no right to complain. In fact, every mainline pilot will owe you a beer because of the big payday your years of future toil has provided them.

But mental "mathercise" aside, you have admitted that it is not your decision. It is up to the mainline pilot groups, not you. The same goes for the shiny large RJ's you currently fly. Your company's ability to continue to outsource them depends on two crucial things: mainline pilots continuing to allow that outsourcing, and your company's ability to always be the cheapest RFP of the year (month, week, etc).

But thanks for the prediction anyway. Nice pom poms by the way.

 

[~~~^~~~]

OK, THAT's the fundamental disconnect. You see an increase in passenger traffic. I disagree; I think that there is going to be a large dropoff in passenger travel.

If you look at the charts the line has remained right at 4% over the past 20 years now. While the legacies have shrunk they have been back filled by the SWA's, AAI's, JetBlue and DCI airlines in the grand scheme of things.

The flying has not gone away, we simply have negotiated & managed our way out of it. Boeing has good reports on the subject and they see no changes to their 20 year long growth line between 2.9 to 4.9%.

 

[maxblast72]

Just curious, how many 50 seaters at Mesa are going to be affected by Delta's decision to drop this contract?

 

[GogglesPisano]

Resolution: At least 50% of the MEC members and neg committee members at the legacies should be staffed by bottom-third FO's.

Can I get a "Seconded?"

 

[Yuppyguppy]

You guys with Big Jet Syndrome are mathematically challenged (1 MD-80 = 145 seats / 2 CRJ200's = 100 seats ) A given city could be served by 2 MD's a day or 6 RJ's with the same number of seats. Which do you think the marketing types would prefer. Want to trim capacity, cut one or two flights and retain frequency. One flight per day won't cut it. No legecy has the domestic narrow body capacity to take back RJ flying if they wanted to and they don't want to. All the legacies are focusing on growing international, that is where they make their money and REDUCING domestic capacity. Delta is not going to buy any more MD's, more likely they will park the one's they have. Money is tight, they will spend it where they can make the most money i.e. 777's.

The future won't look like the past and my crystal ball says in the future of domestic narrow body flying will all be outsourced to the regionals. In ten years the legacies won't do any of it.

Yep John your right...I told you to stop drinking you fool. Did you get your crystal ball from J.O.?

 

[~~~^~~~]

Just curious, how many 50 seaters at Mesa are going to be affected by Delta's decision to drop this contract?

How many do they have? That would be the correct answer.

Today, MAG Management announced, via press release and SEC filing, that Delta Airlines has served MAG with a Notice of Termination Due to Breach with regard to the 35 fifty-seat ERJ operated by MAG as Delta Connection.

MAG has serious financial problems. They had to post a 90 million dollar bond in the Hawaii litigation where they destroyed evidence (big no no) and the Aloha litigation is just getting spun up, which will likely follow the path of the Hawaii suit. MAG's island operation has always been a money loser and the Chinese appear to have backed out of the deal with Kunnenpeg (sp?). The Chinese are hard for anyone to do business with anyway. United is yanking flying and they have debt obligations of $150,000,000 due in the next 10 months.

When the lawsuits start flying in the numbers MAG has to contend with the end is usually close behind. At best management is distracted from running the company. At worst, the lawyers' billing just eat up any cash that is left to fund the day to day operation.

 

[sweptback]

Resolution: At least 50% of the MEC members and neg committee members at the legacies should be staffed by bottom-third FO's.

Can I get a "Seconded?"

It's a good idea, but how do you "force" somebody to run for office or to volunteer their time?

Until those pilots in the bottom third realize their input is needed to protect themselves, it won't happen. Usually by the time that happens they're no longer in the bottom third!

 

[Andy]

If you look at the charts the line has remained right at 4% over the past 20 years now. While the legacies have shrunk they have been back filled by the SWA's, AAI's, JetBlue and DCI airlines in the grand scheme of things.

The flying has not gone away, we simply have negotiated & managed our way out of it. Boeing has good reports on the subject and they see no changes to their 20 year long growth line between 2.9 to 4.9%.

We haven't experienced a financial downturn in the last 75 years like the one we're currently facing. And I could make reasonable arguments as to why it's going to be worse than 75 years ago.
Greenspan (I'm no fan, since he's a big reason why the last 20 have been mild and the next 10 will be violent) stated recently that this will likely be the worst recession since WWII.

Got a week? I'll be happy to discuss the economy indepth. It's gonna get bad; I tightened my chinstrap a little tighter before stepping onto the short schoolbus.

 

[cq43vt17t]

the JO letter.

Dear Fellow Employees,

We were recently notified by Delta Air Lines that they intend to terminate their agreement with Freedom Airlines with respect to our Delta Connection ERJ-145 flying. Delta’s intended contract termination does not affect Freedom’s CRJ-900 flying. As you can imagine, we are totally surprised and extremely disappointed by Delta's actions. We strongly believe they have not acted in accordance with the terms of our contract and I can assure you all that we intend to vigorously contest this patent violation of our contract.

In the meantime we will continue to operate all our Delta Connection flights as usual. I wish to stress that it is very important that we continue to maintain the focus on our operation and on serving Delta and its customers with the same professionalism you have always exhibited. Your contribution is greatly appreciated and very much valued by us all.

We understand that you will have questions and concerns and we will keep you posted as more information becomes available. A copy of the press release we issued a short time ago provides some additional information. Please take a moment and read it carefully. Freedom’s Chief Operating Officer, Joe Serratelli and his management team will be in the Freedom crew domiciles to meet with employees this afternoon and during the day tomorrow. In addition, as always please feel free to contact me directly.

This situation is of concern to all of us in the Mesa family but throughout our 25 year history we have faced a number of very challenging situations and we have always worked together to achieve a successful outcome. I am sure that with your support we will again work through this.

Sincerely

Jonathan Ornstein
Chairman & CEO Mesa Air Group

Mesa Challenges Delta’s Efforts to Terminate Contract

PHOENIX: April 1, - Mesa Air Group, Inc. (Nasdaq:MESA) (the “Company”) today announced that on March 28, 2008, Delta Air Lines, Inc. (“Delta”) notified the Company of its intent to terminate the Delta Connection Agreement among Delta, the Company, and Mesa’s wholly-owned subsidiary, Freedom Airlines, Inc. (“Freedom”), dated as of May 3, 2005 (as thereafter amended, the “Connection Agreement”). Delta seeks to terminate the Connection Agreement as a result of Freedom’s alleged failure to maintain a specified completion rate with respect to its ERJ-145 Delta Connection flights during three months of the six-month period September 2007 through February 2008. The notice issued by Delta is accompanied by a proposed temporary agreement pursuant to which Freedom would continue to provide Delta Connection services while the parties discuss the terms of a transition agreement. This termination does not affect Freedom’s CRJ-900 Delta Connection flying. Mesa vehemently denies there is any basis for terminating the Connection Agreement and intends to vigorously defend its rights thereunder.

The alleged failure to maintain the specified completion rate in the contract is due to Delta's own request of Mesa to remove flights to benefit Delta’s overall operation and/or to accommodate Delta mainline flights. These flights, among others, have always been taken out of Freedom’s performance calculations in the past and Delta acted consistent with this practice and has paid Mesa both its’ base margin and its’ incentive margin after crediting Mesa for the Delta mandated schedule changes and /or cancellations.

We appreciate Delta’s desire to reduce capacity as they publicly announced on March 18, 2008 but to do so unilaterally and in patent violation of their contract is not acceptable. There was no indication at any time from anyone at Delta that there was a potential issue and the notice comes as a total surprise to Mesa.

”We are confident that Delta’s actions are not supported by the terms of the Connection Agreement, that we have complied with all of our obligations under that agreement, and that Delta’s effort to terminate the agreement will not be upheld in a court of law.” said Mesa Air Group Chairman and CEO, Jonathan Ornstein.

Mesa currently operates 182 aircraft with over 1,000 daily system departures to 157 cities, 42 states, the District of Columbia, Canada, the Bahamas and Mexico. Mesa operates as Delta Connection, US Airways Express and United Express under contractual agreements with Delta Air Lines, US Airways and United Airlines, respectively, and independently as Mesa Airlines and go!. In June 2006 Mesa launched inter-island Hawaiian service as go!. This operation links Honolulu to the neighbor island airports of Hilo, Kahului, Kona, Lihue, Moloka’I and Lana’I. The Company, founded by Larry and Janie Risley in New Mexico in 1982, has approximately 5,000 employees. Mesa is a member of the Regional Airline Association and Regional Aviation Partners.
This press release contains various forward-looking statements that are based on management's beliefs, as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable; it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected or expected. The Company does not intend to update these forward-looking statements prior to its next filing with the Securities and Exchange Commission.

 

[Jon Rivoli]

You think this will happen, and clearly want it to happen.

I never said I wanted it to happen, but I believe it will and as you pointed out I will not be the one making the decision. This career is a minefield of mergers, consolidations and bankruptcy's, pick your path carefully. I have a friend who just finished ground school at Aloha, BOOM!

But mental "mathercise" aside, you have admitted that it is not your decision. It is up to the mainline pilot groups, not you. The same goes for the shiny large RJ's you currently fly. Your company's ability to continue to outsource them depends on two crucial things: mainline pilots continuing to allow that outsourcing, and your company's ability to always be the cheapest RFP of the year (month, week, etc).

Mathersize, it's called economics and I have a degree in it.

"Mainline pilots" are not a homogenous group each will act according to their percieved self interest. Senior pilots will get what they want at the expence of the junior pilots. Remember age 60, how'd that happen?

As for my company being the cheapest RFP. Sound management, a quality product at a reasonable rate, long term contracts and $3/4 billion in the bank. Some small jet providers aren't going to make it, I'm betting Skywest will.

Mainline will never be completely outsourced, no one is going to vote themselves out of a job, but look to the UAW or the United Steel Workers if you want a prolog.

 

[Bavarian Chef]

... the airlines use supercomputers to build their schedules.

JB uses a Casio Data Bank watch that IronCityBlue wore to the prom. He loaned it to them because their abacus was on the fritz.

 

[Andy]

JB uses a Casio Data Bank watch that IronCityBlue wore to the prom. He loaned it to them because their abacus was on the fritz.

I don't care who you are. That's funny stuff.

Thanks Chef; that was great.



Jon, you're going on the same premise as Fins; you're assuming that airlines are going to try to preserve frequency. I don't think that they will. I think that they're going to upguage and decrease frequency.
Going forward, airlines are going to be concerned about preserving capital. It's very inexpensive to cancel express partner contracts; all they need to find is a portion of the contract that the express partner is in violation. It's a very quick way for a major to cut expenses and reduce ASMs. The reduction in ASMs should allow the airlines to charge higher prices for tickets.
ASM reductions are starting to happen at many different airlines; we're just slow to recognize the change.

 

[IronCityBlue]

JB uses a Casio Data Bank watch that IronCityBlue wore to the prom. He loaned it to them because their abacus was on the fritz.

Yeah and now the equal sign and the number 4 don't work anymore, but Rivoli lets me copy off his sheet so they won't figure out I'm not that smart for a while longer.

 

[IronCityBlue]

I never said I wanted it to happen, but I believe it will and as you pointed out I will not be the one making the decision. This career is a minefield of mergers, consolidations and bankruptcy's, pick your path carefully. I have a friend who just finished ground school at Aloha, BOOM!




Mathersize, it's called economics and I have a degree in it.

"Mainline pilots" are not a homogenous group each will act according to their percieved self interest. Senior pilots will get what they want at the expence of the junior pilots. Remember age 60, how'd that happen?

As for my company being the cheapest RFP. Sound management, a quality product at a reasonable rate, long term contracts and $3/4 billion in the bank. Some small jet providers aren't going to make it, I'm betting Skywest will.

Mainline will never be completely outsourced, no one is going to vote themselves out of a job, but look to the UAW or the United Steel Workers if you want a prolog.

Congratulations on your degree in economics. Maybe one day you can join the leigions of airline managers and CEO's who have yet to make a profit for this industry. Parading your degree around as a credential for your opinion is pretty funny. You can get thousands of people with the same degree who will have wildly varying opinions on the same subject.

Are "mainline" pilots a homogenous group"? Of course not, but you still can't take trends of previous outsourcing growth and automatically predict those trends will continue. Will 50% plus 1 vote to give you all the narrowbodies in 10 years? Maybe, maybe not. You predict yes, I predict no. But in either case, it is 100% their decision to make, and you can point to just as much evidence that the trend is stopping as you can it is increasing.

I'm also betting SkyWest will make it as an SJP ACMI outsource provider for quite a while. I also predict they will go Indy Air eventually and bleed Delta and United many billions of dollars one day with the profits they have given your management in their shortsighted greed (all with degrees in economics by the way, just like Helicopter Bernake). And if you stay there, you WILL see mainline equipment one day as well, guaranteed. I just don't think you will see it under the Delta or United brand. And you will do it for considerably less than any legacy or LCC does it for, guaranteed. And you will brag about it too. And that's OK.

I'm glad you at least conceed that no one is going to vote themselves out of a job to a certain point. We just disagree where that point is. Legacy airlines are still 2/3 to 3/4 narrowbody aircraft. So to actually think all that will go your way just to pad their international pay scales is some bizzare economics indeed from a pilot perspective, and you are predicting those mainline pilots will see it wise to gut the vast majority of their flying in the near to medium term future. I disagree. But IF that happens, you deserve to compete to be the lowest bidder and do all Delta and United's 737 and A-320 flying. Maybe you can even deal Jerry another ace to make sure other ACMI outsource lift providers are underbid for the work, and you rule the world for all time with fast upgrades and hot FA's.

Seriouslly though, you guys put something in the water over there or what?

 

[SSDD]

Upgauging and decreasing frequency is a recipe for disaster. It can only work where the airline has an absolute monopoly, and there aren't many of those.

If you exchange 4 RJs for 2 MD80s two things will happen: a)the competition will fill in the gap, and take the "gravy", and b) The 80s will be operating with a lot of empty seats.

 

[Andy]

Upgauging and decreasing frequency is a recipe for disaster. It can only work where the airline has an absolute monopoly, and there aren't many of those.

If you exchange 4 RJs for 2 MD80s two things will happen: a)the competition will fill in the gap, and take the "gravy", and b) The 80s will be operating with a lot of empty seats.

I see where you're going with that, but I'm not so sure that it would hurt as much as you suggest. Another airline would need the ability to fill that gap, and I'm not so sure that any airline has a lot of ability to expand (save Southwest) in this environment.
In the last several years, each airline has been playing a game of chicken in terms of frequency, in spite of an increased cost. With the rapidly weakening balance sheets, I think that we're looking at an industrywide effort to 'shrink to profitability.'
I gotta believe that Delta's planning on doing some ASM reductions after cancelling Mesa's 50 seater contract. In order to do that, they're going to have to upguage and decrease frequency.