Archive for the 'SkyWest' Category

Houston – Aspen: A Very Interesting Addition from United

Published
by
Dan Webb
on September 10, 2010
in Continental, SkyWest and United
. 1 Comment

Some interesting route news came out this week – beginning on January 4, United will launch once-daily service from Houston to Aspen, operated with SkyWest CRJ-700s. The seasonal service will run through April 2.

Photo Credit: SkyWest.

The new flights complement United’s existing service to Denver (the busiest route), Chicago, Los Angeles, and San Francisco.

OK – enough with the facts – time for speculation! (Because that’s more fun!)

I think it’s a fair argument hat this route wouldn’t be happening if United was not merging with Continental (or, at the very least, codesharing).

The timing of this announcement is also very interesting. It would make me think that Aspen-Houston service has been on Continental’s radar for awhile, but just could not do it on their own.

I saw that because Aspen is a funny little airport. Local ordinances prohibit aircraft with a wingspan over 96 feet from operating there. Plus, takeoff runs are longer at high altitude, futher restricting the type of aircraft that can fly and/or payload. (A recently-approved runway extension project should help with this.)

So if we look at Continental’s regional fleet, I just don’t think they had the aircraft to do it, at least without serious weight restrictions. The ERJ-145 and CRJ-200 are probably a no-no, and same goes for the Saab 340. Dash-8 aircarft have been used out of Aspen – Mesa used to fly them for US Airways and United, and Frontier uses the Q400.

But the longest route I can find is Aspen to Phoenix – and a flight to Houston is 86% longer, so it might not work out as well. Plus that means Continental would have to move Colgan and/or Commutair aircraft over to Houston.

So it would appear that the SkyWest CRJ-700 is the best aircraft for the route – and it has the legs for it – as it was used by Delta to fly to Atlanta.

And I think this is a smart move from a network perspective – Houston opens up a bunch of connection opportunities.

But the big question this opens up – how will a merged United adjust its regional network? This is something Delta has done. For example, one can now find CRJ-700s flying out of Detroit.

And realigning regional networks also makes me think of scope. Since Houston is a Continental hub, the regional flying that can happen there is limited. The only allowed 70-seaters are props. So it would be interesting to see if any other CRJ-700 flights pop up in Houston.

Scope is a big issue for all pilots – but especially so at United and Continental, as the former’s scope clause with its pilots is much less restrictive. And the merger presents a big opportunity for the two pilot groups to make a big change about outsourcing – something that they are already taking very seriously.

Guest Post: SkyWest and ExpressJet

Published
by
Dan Webb
on August 16, 2010
in Expressjet and SkyWest
. 2 Comments

Well, here’s another guest post from my friend Courtney – this time he shares his thoughts on SkyWest/ExpressJet, which are a bit different from mine:

I almost didn’t post this week because so many people were covering the Skywest acquisition of ExpressJet and, wouldn’t you know it, that was what I wanted to blog about. I finally decided to throw caution to the wind and post my verbose rendition of what it means now that Skywest has an accepted offer to acquire ExpressJet.

The deal makes a ton of financial sense, but strategically we’ve been focusing on the wrong things. The intrinsic value of XJT is about $150-$180 million and Skywest paid about $133. Heck, they offered $180 two years ago with a crappier CPA agreement, and ExpressJet turned them down. They’ve got about $70 million cash that can be applied directly back to the investment. I’m surprised Warren Buffet didn’t jump on ExpressJet at those prices. Why didn’t he? He’s too smart to touch an airline, but I digress. With all of the lawsuits out from the ExpressJet shareholders, I would expect the purchase price to rise North of the current offer.

I’m surprised Warren Buffet didn’t jump on ExpressJet at those prices.

So financially, this immediately makes sense, but the strategy behind it is where the interesting stuff starts to poke it’s head out of the woodwork. First of all, this isn’t consolidation. I read articles about how the airlines are consolidating, and while it’s technically true, there is no real consolidation going on. These are CPA agreements, not competing airlines in charge of their own network. Nothing will change. The overhead savings on a 250 aircraft fleet is infinitesimal and shouldn’t even be counted. So that leaves 696 aircraft when you count Skywest and ExpressJet separately, and 696 aircraft when they’re together.

Photo Credit: ExpressJet

So what are Skywest’s plans with ExpressJet? Beyond the actual intrinsic value Skywest was able to extract from ExpressJet, there’s very little, what I would call intrinsic strategic value. A mixing of terms, I know but bear with me. ExpressJet, in their current strategy, has very little value other than a declining future. The reason? The 50-seater is dead. Skywest might as well have bought a dealer lot full of Edsel’s.

The 50-seater is dead. Skywest might as well have bought a dealer lot full of Edsel’s.

So Skywest gets to diversify their operations, which they don’t really get to do because diversifying between two companies who become the same company is exactly the opposite of diversifying. A saying comes to mind about a whole lot of eggs and one basket. Assuming the UA/CO merger goes through, which is all but a foregone conclusion, Skywest will have exactly the same number of partners it has today. As for bargaining power, perhaps. But I would suggest lessons learned by airlines such as Delta during the Comair strike have taught the industry to not let any one carrier have too much power. Besides, the regional industry is a commodity. Considering that the remaining financially solvent competitors to Skywest all have solid operations, the only thing left is price, and Pinnacle or Trans-States can compete just as easily on price as Skywest can.

Of course there will also be one less competitor, which is convenient, but let’s be honest: when has ExpressJet really ever competed against Skywest? Ok, they won the 22 50-seaters at United, but again…50-seaters. They’ve no experience nor ability to successfully compete where Skywest sees it’s future; in the 70+ seat categories. ExpressJet has effectively competed with Skywest on new aircraft CPA’s as successfully as Skybus. Ok, I retract that. Nobody should ever be compared to Skybus, and ExpressJet is one of the best run airlines around, but competitively, you get the hyperbole.

I’m convinced the negotiations to make this deal happen didn’t take place between Skywest and ExpressJet, rather Skywest and Continental.

All that being said, there is value in ExpressJet’s remaining 50-seat CPA with Continental, which Skywest will be able to extract, but that’s only guaranteed to end. So exactly where is this “extrinsic strategic value” I’m alluding to? I’m convinced the negotiations to make this deal happen didn’t take place between Skywest and ExpressJet, rather Skywest and Continental. from Aviation Week:

“SkyWest has reached a 10-year deal with Continental, ExpressJet’s biggest regional partner, to operate 206 aircraft. Continental is either the head-lessee or the owner of these aircraft, and the deal allows Continental to drop aircraft as their leases expire. But SkyWest has retained replacement rights for those aircraft, Rich said.”

Aha! This is better than removing a competitor, it’s removing all competitors. They essentially have exclusive rights to upgrade ExpressJet to 70-seaters, should it become available. Scope clause negotiations aside, Continental wants and needs 70′s. Skywest has guaranteed they’ll have first stab at replacing a 206 aircraft fleet. Does that mean 206 70-seaters, I don’t know, but if it’s half, or even a quarter of that, it makes a whole lot of sense for Skywest, especially when you consider Continental is on the hook for the 145 leases, not Skywest. We have a technical term for this in the industry: “cha-ching.”

Did Skywest just lay the Queen of Spades on Trans-States’ MRJ LOI?

What does this mean in a merged United world? The details of the new CPA are of course confidential, but I would have to think it becomes interesting when New United brings on more 70′s. If ExpressJet 145′s happen to be leaving the property at the same time then are any new 70′s replacement aircraft? If so, does that exclude Trans-States? Me thinks it might. Besides, Trans-States won’t be replacing any 50-seaters at new United. They don’t have any. Which begs the next question. Did Skywest just lay the Queen of Spades on Trans-States’ MRJ LOI?

So let’s review the new competitive landscape. Skywest has exclusive 50-seat replacement rights at Continental. Trans-States can bid on current United replacement flying (of which Skywest now flies 100%), but not much else. Pinnacle has the Q400, which has been quite a boon for them, but the question still remains whether that will be considered ExpressJet replacement flying in the future, in which case it appears Skywest might have first crack. Republic is out of the game. Nobody’s going to sign a cost-plus CPA with a direct competitor, especially United with Denver. That leaves Mesa (probably sold off to the highest bidder. Skywest?), Air Wisconsin (completely out of the 70-seat competition), and… well…that’s about it.

We shouldn’t be surprised after the deal they got from Delta in 2005 with ASA.

What’s next? There are three airlines publicly up for sale: Mesa, American Eagle, and Comair. Mesa’s up a creek, which poses a Skywest-esque opportunity. Eagle would finally diversify their customer base to the three legacies up from two. As for Comair, Skywest CFO Rich has expressed interest. Again, the deal won’t be Comair, it’ll be the renegotiated CPA with Delta. Watch that one closely.

I would consider the ExpressJet deal a coup. The perceived value of the deal is not the true value, and no surprise, Skywest is again the winner. We shouldn’t be surprised after the deal they got from Delta in 2005 with ASA.

United breaks guitars, American kills puppies, and Skywest stages airline coups. Sounds about right.

Courtney is the co-creator of the Airplane Geeks Podcast, founder of AirlineEmpires.net, currently works for a commercial aircraft OEM, and is a self-proclaimed stud muffin. You can contact him through the Things in the Sky contact link.

Some Thoughts on SkyWest And ExpressJet

Published
by
Dan Webb
on August 9, 2010
in Expressjet, SkyWest and United
. 0 Comments

I swear. I’m cursed. A big announcement always happens at the worst time for me – like during an exam period at school or, in my case last week, when I take a day off of work when SkyWest decides they want to buy ExpressJet, where the Continental Express provider will be merged into the Atlantic Southeast Airlines (ASA) division. I figure by now everyone has heard about the story, so I wanted to share some thoughts.

The news probably isn’t a huge shock to anyone considering SkyWest tried an acquisition that failed back in 2008.

So why do it again? I see a couple of reasons.

One is diversification. SkyWest’s flying is (roughly) split 50-50 between Delta and United, with a smidge of that for the small operation out of Milwaukee for AirTran. Adding another carrier to the mix helps SkyWest as it mitigates risk – if a carrier is to duck out, it represents a smaller part of SkyWest’s operation.

But this move makes a lot more sense to me if we look at this deal in the context of the Continental and United merger, which still looks on track to close later this year. For fun, I decided to figure out what regional would have the biggest share at a merged carrier, if everything were to continue as it did today. This graph is organized by parent company, so SkyWest, ASA, and ExpressJet are all rolled up into one, here.

A couple of caveats – the graph does include the 10 ERJs ExpressJet is flying for United this summer. Also, I’m including at-risk/pro-rate flying as well, which SkyWest does with some CRJ-200s and E-120s for United, and what Colgan does with its Saabs for both airlines. I figured that it can be hard to figure out how much is at-risk or under a CPA, especially with some of the smaller airlines. Which leads me to another exception – in many cases it’s a bit hard to find a very accurate fleet count for some of these regionals, so this is my best guess.

Either way – I think the point gets across. SkyWest will be a very powerful regional partner with a lot of bargaining power at a merged United, assuming it goes through. Let’s break down that 68.6% for Skywest. That’s composed of 36.7 points worth of ExpressJet, and 31.9 points for SkyWest.

So, basically, SkyWest more than doubles its presence at a merged United by acquiring ExpressJet. That makes them very powerful, and dare I say it, more irreplaceable. When all the divisions are combined, SkyWest now has over 400 regional aircraft at the combined carrier. There are other players out there for sure, but replacing that many aircraft would probably require a decent-sized order, perhaps with the cash of the mainline partner.

But what about the future of ExpressJet here? Many have (rightly) said that there are too many smaller RJs in the market and the planes just aren’t all the attractive. And the fleet of ExpressJet E135s sitting out in the desert is a testament to that. 70-seaters have been all the rage for the past couple of years.

Unfortunately, ExpressJet has a very uncompetitive fleet as they’ve been wedded to the Continental scope clause, which doesn’t allow larger regional jets. (Hence the use of Q400s.) So why buy the airline? And what happens in the future?

Well, SkyWest got a ten-year capacity purchase agreement from Continental, so they can put off worrying about it for awhile. Plus the ERJ’s are Continental’s problem – even better.

As to the future fleet, more 70-seaters are natural, but the exact future is completely up in the air right now thanks to the merger. I am very interested in how the scope clause at the new United looks. As I mentioned earlier, Continental can’t use large RJs, while United has a crapload. Scope will undoubtedly be a big issue as a single contract for both pilot groups is worked out.

Meanwhile, I wonder what the feelings are among ExpressJet employees right now. I get the sense that things haven’t been the greatest ever since the airline’s attempt to go independent didn’t work out all that nicely. On one hand, there will be a loss of seniority, but this does look like a more stable future.

SkyWest For AirTran – Early Performance

Published
by
Dan Webb
on April 22, 2010
in AirTran and SkyWest
. 1 Comment

A few months ago AirTran and SkyWest announced an interesting partnership together. SkyWest, looking for a new home for idle CRJs, decided to fly them out of Milwaukee in partnership with AirTran. But instead of a traditional regional agreement, SkyWest would be doing this flying at risk, and is currently flying the CRJs to six cities in its own colors. The DOT traffic data for January just came out, and that includes data for the first four cities (the last two came in February), so I decided to take a peek. Here are the load factors:

Akron-Canton’s performance wasn’t too hot. It was a brand new city for Milwaukee service. Indianapolis, Pittsburgh, and St. Louis performed much better – especially the last of the three. These three cities were all large enough to merit mainline service from AirTran, though the carrier felt that RJs would work better schedule-wise, apparently – and I agree. With three CRJs you only have a bit more capacity than a 737-700 but with a more convenient schedule.

Of course, we can’t derive revenue performance from these results but loads do give us an idea. Plus, AirTran’s schedule moves also provide good hints. Each of these cities started with three daily roundtrips. Akron-Canton has since been cut back to two daily roundtrips, and Omaha, which started in February, sees a similar cut.

This is certainly an interesting partnership, and we’ll have to wait and see how it develops. I wonder, will SkyWest add any more cities out of Milwaukee? Could this partnership be extended to other AirTran hubs?

SkyWest to Begin Flying for AirTran

Published
by
Dan Webb
on November 5, 2009
in AirTran, Midwest and SkyWest
. 0 Comments

The drama in Milwaukee does not want to end.

Remember Midwest Connect? Technically, every aircraft in a Midwest scheme now has Midwest Connect titles, but I’m talking about the service that used to be flown by Midwest subsidiary Skyway, which only handles ground operations at this point. That flying was then taken over by SkyWest. When Republic came in, the agreement with SkyWest was terminated, and the service is being replaced with ERJs flown by Republic subsidiary Chautaqua.

So, SkyWest needed to find a home for the CRJs, and it has been announced that they will be operated for AirTran out of…Milwaukee. Yep. It really doesn’t get any better than this. Continue reading ‘SkyWest to Begin Flying for AirTran’

ASA Will Operate For United Express

Published
by
Dan Webb
on October 21, 2009
in ASA, SkyWest and United
. 2 Comments

Buried in United’s earning release yesterday was the fact that it would get a $129 million boost in liquidity from SkyWest. That made sense when soon after SkyWest issued a press release saying that subsidiary Atlantic Southeast Airlines (ASA) will begin flying as a United Express carrier.

oct21

Photo credit: Chris Weyer. Used with permission.

The first part of the deal is “a secured term loan in the original principal amount of $80 million. The term loan bears interest at a rate of 11%, with a ten-year amortization period.” Next:

SkyWest Airlines also agreed to defer certain amounts otherwise payable to SkyWest Airlines under the existing United Express Agreement. The maximum deferral amount is $49 million and any amounts so deferred accrue a deferral fee of 8%, payable weekly.

ASA has traditionally been a Delta Connection carrier, and was acquired by Delta in 1999. Six years later, ASA was sold to SkyWest, which is a current United Express carrier.

This move in sensible because otherwise, ASA would have a bunch of idle aircraft in a few months. ASA is currently operating ten shiny new CRJ900s for Delta, and part of that deal was that twenty CRJ200s would come out of service next year, so ASA needed to find them a new home. Thirteen jets will fly for United along with one spare aircraft. Eight will shift to United in February, with six more at the beginning of May. According to a message sent to ASA employees, the company is “working on plans for the remaining six CRJ200s.”

In the same employee message, the company reports that its “United Express schedule will concentrate routes out of Washington (IAD) and Chicago (ORD),” and that “ASA is planning to open a new crew domicile within our United Express network,” though a city has yet to be selected.

There’s been no official word on what routes ASA will be operating, and if United will use the additional jets for new routes or if they will replace other service. ASA reported, however, that “we will start out averaging more than 50 flights per day when we launch United Express service on Feb. 11 with eight aircraft.”

So, the move makes sense. United needs cash, and SkyWest has it (for a nice 11% interest rate, of course). SkyWest needed to find a new home for 20 CRJs, and they were able to working out deal. Let’s see how this  partnership develops further over time.