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I was spot on a year ago when in this post I talked about the END of the CRJ-50 seat jets. Not only are these Barbie jets incredibly uncomfortable for anyone over 120 lbs and taller than 5’5″, but they are not very fuel efficient compared to today’s modern regional jets. The question was if Pinnacle would survive. I did not think so with the current plotted course and basically, Delta agreed with me, so they will run the airline with CRJ-900′s. As you can read about here in the Atlanta Journal-Constitution, Delta will purchase 100% of Pinnacle Airlines (PA) but keep it flying as an independent company owned by Delta.
But what I want to talk about is why? Why did Delta bother to buy yet another regional airline? Back in August I had a post describing how, of the 8 remaining Delta connection carriers, they are only owned by 4 companies.
What is one thing we know about Delta and the current management? They are all about making money, and are doing a good job and the share price of DAL reflects that, and they are also all about control. Control? Check this out:
- C1) Fuel. Trainer Oil Refinery, even though it did not make money starting up last year, has already had an impact on negotiating fuel prices out of MSP. Control of fuel is just HUGE to any airline.
- C2) Employees. Delta has successfully kept FA’s non-union. Remember they, the FA’s that is, voted to stay this way. They feel the company is rewarding them so well the way it is that they see no need. While I’m not saying unions are good or bad, this does give more control to the company.
- C3) Routes. International is where the money is. Look at the HUGE amount of flights Delta now has EACH DAY to Europe. Control of such a huge block means they can dictate much of the price to get there and compete fiercely if need be in a price war or bonus offer.
- C4) Jets. Rather than committing to a ton of new jets, Delta is banking on a modest new order of 737-900′s and running a ton of MD’s of all flavors. Remember Delta has one of the biggest jet maintenance companies in the world. Control to sell jets if they need to and service the ones they have.
The last one brings us to why to buy PA. Delta needs the partners to bring “us” to the hubs so we can fly those lucrative international routes. If there are fewer players in this market, prices may just go up. Now, since Delta will own PA, they can run them as they want from the cost side. Just like with Trainer, control and power over that arena! To be able to dictate terms to those you buy from is an amazing advantage and smart business.
The one thing Delta should never ever forget about is us. As I talked about Sunday, if Delta upsets its most valuable customers it does not matter how much control they have over every segment of the business if there are no passengers to fly! – René
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