Apr
7
The Delta angle to the go! story
Filed Under Sunrise on KGMB9
Hawaii was focused on the Aloha and ATA shutdowns this past week and some may not have noticed a major development on the mainland affecting go! and its parent Mesa Air Group. That development, the potential loss of a fifth of Mesa’s business, has an intriguing and little-known Hawaii angle.
Mesa makes most of its money flying private-label regional feeder flights for big mainland carriers. United Airlines, Delta Air Lines and US Airways all use Mesa as a subcontractor. Mesa buys little planes, paints them as “United Express” or whatever, and brings passengers from small cities to hubs maintained by the big boys. One reason Mesa never went bankrupt in the bad old days after 911 was that it had a low cost structure and some of its contracts called for the big boys to pay the fuel bill.
Now, Mesa may not have filed for Chapter 11 in those days but all three of its biggest customers did: United, Delta and US Airways (twice). One of the most significant things about a Chapter 11 receivership is that the debtor-in-possession — the company, while under control of a bankruptcy court judge — has the power to back out of contracts it signed. In theory it can only accept or reject those contracts going forward, but in practice what happens is the company threatens to reject a contract and then renegotiates the terms to be more favorable. Usually the other guy goes along with it because it beats losing the business altogether.
There was an interesting case in the United bankruptcy where a Mesa-like subcontractor doing feeder flights to its Washington Dulles hub refused to agree to new terms, demanding that United accept the original contract terms or reject the contract altogether, allowing the airline to fly the same service on its own imprimatur and perhaps feed those customers to someone else than UAL at Dulles. United called its bluff, but the company really wanted to become independent, and indeed renamed itself Independence Air, and it might be here today had it not gotten cocky and bought bigger jets than it could fill. Mesa, meanwhile, was happily serving other United hubs and jumped in at Dulles. It flies there still. In fact, because seniority determined which Mesa personnel could work in Hawaii when go! launched, many of the people Mesa hired here wound up working out of Dulles.
Then Delta filed for Chapter 11, too, and it wanted to renegotiate terms with Mesa.
That’s when Mesa launched go! in Hawaii.
You can say what you like about Mesa CEO Jonathan Ornstein — a federal judge has said his company is guilty of predatory pricing to drive Aloha Airlines out of business, harming Hawaiian Airlines at the same time — but no one has ever said he isn’t capable of complex thinking. And I don’t think go! was founded exclusively for the purpose of opening a market in Hawaii. There was, I am told by an unimpeachable source at Mesa, also a strategic reason. The launch of go! sent a message to Delta, at a time when it was renegotiating its Mesa contract, that if it drove too hard a bargain Mesa was capable of launching its own regional service in competition with Delta.
The terms of the Delta contract might have been different if go! hadn’t come into being at the same time.
Ornstein was also looking for contracts in Asia and South America at that time — he eventually got a contract with China to launch a regional airline — and go! was a demonstration model.
If Mesa had settled out of court with Hawaiian and Aloha and gone out of business in Hawaii — it could have said it needed the planes elsewhere — some people would think of Ornstein as a price-slashing hero who was run out of town by the big bad legacy carriers. I’m sure this is so: even now there are people stupid enough to believe that anything above $50 is gouging, as if they haven’t noticed the price changes when they gas up their own vehicles.
Instead, go! stayed, Aloha is gone, and some people are rooting for Aloha to win a big judgement against Mesa later in the year. And Mesa is busy trying to get Delta to cancel plans to cancel a major contract with Mesa.
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4 Responses to “The Delta angle to the go! story”
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Aloha Howard: Mahalo for providing your Blog address. I do not think Aloha will win any money in their lawsuit like Hawaiian Airlines will. Like Eastern Airlines, Pan American and many other airlines I know of, Aloha is gone forever and that is the way Airline business goes. Donald Trump said it best when he said “the best way to become a millionaire is a have a Billion dollars and buy a Airline company.” Mahalo and Aloha.
I remember how fast independence air went out of business after the decided to split from United. The CRJ 200’s that they flew wound up going to an interesting place…Hawaii. The five planes that Mesa initially had out here were operated once by Independence Air, they ended with the tail # N—BR. Maybe those planes are just bad luck.
Aloha Howard : Your in depth analysis of the Airline industry and it’s effect on how people come to Hawaii is fascinating. Only in a Blog can you get this much important information. How much has the effect of the parity of the Canadian dollar vrs the US dollar effected tourism to Hawaii? Canadians are coming to Hawaii and getting much more for their dollars then just 3 years ago when it took a dollar and 50 cents Canadian to buy a US dollar. Canadians are happy about this rate of exchange and have told me so. Mahalo for the info about the complicated airline industry. Any more airline mergers you think might happen in the near future? Aloha.
Unfortunately Orenstein’s prior business model (which is defunct) disregards todays reality. His model is predicated on an endless supply of cheap labor- pilots who see a full fifteen hr duty day but are not paid for delays or cancellations and end up being paid solely for actual flight time regardless how much time spent on the aircraft in preflight or delays on the taxiways.The barrel has run dry with the acute pilot shortage coupled with the fact that Mesa is the last employer of choice as attrition winnows down the pilots on payroll.
His management has delayed frustrated and stalled talks between Mesa and ALPA to stave off having to finally give the pilots industry standard pay not to mention the disastrous foray into “purchasing” Hawwaaiian Air which only served to net the company a fifty plus million dollar loss yet the board seemingly has overlooked this massive mismanagement of a company that has suffered enough at the hands of an inept CEO. Mesa has actively had to defend multiple lawsuits while the stock has certainly declined almost ninety percent in the last year. What obvious questions can this raise?
Delta is well aware that for another regional to break off and pull an “Independence Air” would be foolhardy- look at how Xpressjet is languishing with their point to point service using 50 seat ERJ’s and paying the fuel tab.