Tim,
I won't try to tear it into little pieces, but I do think both you and Otto are missing something and it is this.
Chautauqua didn't replace Comair in MCO because we did not have enough airplanes or, as some management types implied, the right type of airplane.
CHQ doesn't have enough airplanes either. Since they signed the deal with Delta they had to place an order for some 22 new aircraft and they did. They aren't exactly going to be "up and running" overnight. They will have to receive those aircraft and train crews to fly them both. That is not different from what Comair would have had to do.
The difference there is 220 pilot jobs and 110 captain upgrades that will go to Chautauqua pilots instead of Comair pilots. "No big deal" as someone said. Tell that to the guys that don't get the upgrade and the 40% pay raise that it brings.
The idea that we "couldn't service" some of Florida's airports was also BS. The shortest runway by far, that we've ever used is Key West. It hasn't been served by our jets in the past, but guess what. Service begins from MCO, on a Comair jet, on Sept 1. We've also announced new service from PBI to TLH. Meanwhile, CHQ has announced long range service from CMH to both MCO and TPA. Comair already serves CMH but not to MCO and TPA. Think we couldn't have? Easily.
IMO, the "insufficient aircraft" and the "wrong type of aircraft" are both myths. Placebos, courtesy of management.
Otto mentions that Delta would like to use ASA and CMR everywhere because the profits go directly to Delta. While he didn't say it in so many words, he's implying that owneship is a "better deal" for delta because the profits are bigger when you own. A flase premise.
Chautauqua will operate on a "fee per departure" basis, just like ACA and SKYW both do. That's a little gimmick that the airlines started introducing in early '99 or perhaps late '98. They buy all the seats and guarantee the seller a profit somwhere in the neighborhood of 9-10%. However, this isn't a cost plus contract. The seller makes an offer, based on it's own ability to control costs and Delta guarantees that cost plust the profit margin. So whoever alleges that he has the lowest cost, gets the contract.
What does Delta get? 1) Total control of the operation. DAL decides when the aircraft will fly and where they will fly, sells the tickets and gets all the revenue. It then deducts the "fixed" expenses based only on what it has to pay to the service provider. 2) Since the service provider bids as low as it can to get the contract, if it can control it's own cost it makes the 9-10%. Delta pays the same thing no matter what. 3) Delta has no capital outlay to setup the operation or acquire the equipment. No employess to pay, insure or provide benefits to, only one contract to negotiate and no worries about labor relations. It's the perfect deal for the major and all the risk goes to the contracting regional carrier. 4) Delta has an escape clause in the contract. If it wants out, for whatever reason, it can get out in a very short period of time and won't have a worry in the world as to what it will do with all those airplanes and the associated support equipment, not to mention a plethora of disgruntled employees. It's a near perfect deal for Delta. It sucks for the regional carrier.
So why then do the regional carriers do it? Simple. Airlines like those I mentioned, simply can't survive operating on their own. If they say no to Delta, a different one of them will say yes. Thus, Delta (and Delta isn't the only major that does this, they now all do) always gets the lowest bidder and the regional carriers scramble to control their cost and compete with each other for the business.
Notice that all three of these carriers have agreements with more than one major airline. That's the regional's way of hedging it's bets. If SKYW loses DAL, it has UAL. So does ACA. CHQ has USAirways, America West and American.
Noticed that both SKYW and ACA keep announcing double digit growth and much improved load factors? But what's happened to the value of their stock? It's tanked! Think that's 9/11? Wrong, it's lower profit margins due to fee for departure. The excellent returns that investors used to get on both those stocks have dried up inspite of the growth and the improved load factors, etc. Regional airline stocks should be booming, but they aren't. The high return days have ended and the investors have gone elsewhere. The companies grow, but the profit margins don't.
How do the regionals keep there costs low? Well, guess what the biggest cost item is at any airline? You got it, labor. Don't think of labor as just pilots, because it isn't. It's the whole shmear. FA's, ramp agents, CSRs, mechanics, secretaries, dispatchers, schedulers, every tom, dick and harry. Why can't labor get more at the regionals? Because it would remove the already low, single digit margin. The ball game is the same folks, but the rules have changed.
Before this "fee for departure" concept was initiated, code-share agreements (which is what the regional contracts were) involved revenue sharing. If the regional provided good service and got full airplanes, it split the revenue with the major for those passengers that connected to the major. If they didn't connect, the regional kept the revenue for itself. There is no revenue sharing on these new deals. Also, the big partner did not have total control of the flights and the marketing and the passengers. The regional had to provide certain feed as agreed in the contract, but it was also free to go where it chose and enter markets on its own.
That is exactly what made Comair the airline that it used to be. Sixty percent of the revenue and the passengers were not "shared". They didn't connect to Delta at all and all the revenue belonged to Comair. Comair could develop its own markets and not just go where Delta wanted it to go. If the revenue share in a proposed market didn't meet Comair's needs, it didn't have to go there. Independent market development was Comair's forte. The airline didn't depend on Delta to survive.
I'm not saying that the deal with Delta wasn't a good on. It was a great one and very beneficial to Comair. But the ability to do our own thing was far better and that's what we did. Comair was growing for the sake of Comair, the benefit of its shareholders and its employees. Today there is no Comair, it's Delta and Comair is just a memory and a name on a piece of paper.
While its only nostalgia, I don't mind telling you that its just not the greatest to go from being the "best lilltle airline in America" to becoming somebody's gofer. Truth is it sucks.
In contrast, ASA although also revenue sharing before its purchase by Delta, had a very different management from Comair and very little traffic of its own. Nearly 90% of ASA business was a "connection to Delta". ASA's owners were not as entrepreneurial as Comair's. They ran the company poorly, crapped on the employees, and wouldn't buy jets even when their success was proven by Comair. Delta literally had to pressure Bubba and company into buying the RJs. They didn't need them according to Bubba. They owned most of the old Brasilias free and clear and were making ton's of money on the Delta deal. Why spend all those big bucks and take those long term risks?
Eventually, they were forced into springing for the RJs due to pressure from big D and customer demand. However, the overall service didn't improve and eventually Delta was forced to buy them out in an effort to keep some semblance of service in its Atlanta hub. Bubba and company were tired of it anyway and more than happy to take the money and run. They didn't exactly leave in poverty.
Comair was acquired for entirely different reasons. 1) It was time to renew the code-share agreement and Comair flatly refused to accept the fee for departure concept. 2) It had become too big to replace conveniently. 3) The Delta CVG hub was neither profitable of feasible without Comair.
In trying to push that FFD concept on Comair, Delta did two things of note 1) It cut a deal in BOS with Trans States, knowing full well that it wouldn't and couldn't last. That put a lot of pressure on Comair (which had already set up all the planning for that hub) and immediately lowered the price of Comair stock. 2) Next it cut a deal with ACA in DC, again deliberately taking the ACA "low bid" on a FFD basis to further undercut Comair.
Comair still refused fee for departure and starting looking for alternatives to Delta. Aware that it had to s**t or get off the pot, Delta (having successfully reduced the price of CMR stock through the TSA and ACA deals) made its move for the unfriendly, friendly takeover. Comair refused the offer. Delta upped the anti and the Comair board, knowing exactly how long it would take to recover the stock price following a complete severance with Delta, accepted the offer. Comair was history.
Ironically, the market cap of all of Delta last Friday, was less than the price Delta paid to buy just Comair, only two years ago. We live in interesting times.
Maybe all that history isn't important, but it ought to give you a clear perspective on what happened to the Company called Comair, and particularly why it is cheaper for Delta to subcontract than to own.
One more aspect you should consider as you look at the potential future. If the Delta pilots are successful in reinstating their Scope ratios, DCI will have to shrink. If there has to be a reduction in DCI flying, which one of us do you think will be cut? Will it be a Chautauqa, ACA or SKYW job that goes down the drain or will it be an ASA or CMR job?
Now do you understand why I object to subcontracting (which is just another word for code-share)? It's a detriment to pilot careers, that's why.
Just my opinion, with a few facts here and there.