The continuous cost-savings quest being pursued by carriers has upset a cosy regional/major relationship: ExpressJet, the Houston-based regional spun off from Continental Airlines, faces the loss of a quarter of its capacity under an edict by its former parent.
After the failure of negotiations to lower the cost of ExpressJet feeder service, Continental said it would withdraw 69 of the 274 Embraer regional jets it subleases to the carrier for Continental Express service. Mark Erwin, Continental senior vice-president of Asia/Pacific and corporate development, says: “We didn’t want to take this action, but we were not able to reach an agreement with ExpressJet to lower our cost.”
Continental says it will invite proposals from other regional operators to take over operating the jets, starting early next year. ExpressJet, the sole provider of regional jet feed to Continental, was spun off in 2001, when the mainline carrier owned an 80% stake. Its share is now under 10%.
Mesa Airlines is a prime candidate to replace ExpressJet, says Raymond James & Associates regional analyst Jim Parker, who adds that SkyWest and Republic could also bid for the work. But Goldman Sachs analyst Glenn Engel believes that Continental and ExpressJet will reach an agreement this year.
ExpressJet has been profitable when Continental has not, although the mainline carrier is seen as likely to be among the first network carriers to return to the black. Continental has gained concessionary labour pacts from its three main unions and in December raised $172 million from the sale of some of its stake in Panama-based carrier COPA. However, it has warned it will post a loss for 2005.
If Mesa were to bid on the ExpressJet flying, it would confirm its role as the fastest growing regional and the sector’s low-cost provider at a time when no feeder operation, even a profitable one like Pinnacle or ExpressJet itself, is immune from cost-cutting pressures.
Mesa’s December capacity grew 17% year-on-year and its boardings increased 15% in the period. It has exceeded analyst earnings predictions for five consecutive quarters and has more than $280 million in cash on hand as it has picked up contract flying by under bidding incumbents. ■
Source: Airline Business
