Pinnacle Airlines has suspended negotiations with its labour groups as it returns to the drawing board on its new business plan, following discussions with its sole partner Delta Air Lines on reductions to its 50-seat regional jet fleet and additions to its 76-seat regional jet fleet.
John Spanjers, chief executive of Pinnacle, says that the airline needs to "reformulate" its business plan due to the tentative labour agreement Delta reached with its pilots union last month, in a letter to employees today.
The airline amended its capacity agreement with Delta to fly 140 50-seat Bombardier CRJ200s for the carrier though 2017 with extensions through 2022 in May. It also has an agreement to fly 41 76-seat CRJ900s for the airline through 2022.
Pinnacle is in the process of restructuring under chapter 11 bankruptcy protection.
Delta would reduce the number of 50-seat regional jets at its regional partners to 125 from 343 in May, and add 70 76-seat regional jets for a total of 223 if the new contract is approved, according to the Air Line Pilot Association (ALPA) that represents the airline's pilots. Voting on the agreement ends on 29 June.
"The bids they've [Delta] received from other regional carriers on two-class flying were significantly below what they pay for Pinnacle's CRJ900 flying," says Spanjers in the letter. "It's clear that we are competing with carriers that have significant cost and pilot seniority advantages over Pinnacle."
He specifically names Trans States-owned Compass Airlines and GoJet Airlines as lower cost competitors.
Delta and Trans States did not comment by press time.
Spanjers' comments have implications for all of Delta's regional contract carriers. Comair, SkyWest and Republic Airlines all have cost structures - especially surrounding pilot seniority according to Spanjers - that need to be addressed, according to recent comments from the airlines' executives and sources. They could be forced to address these issues sooner rather than later as part discussions with Delta over modifying their existing capacity agreements.
Older regionals tend to have high numbers of senior pilots, which can be a result of last-hired-first-fired stipulations in some union contracts, that cost the companies more than new hires. As new airlines without these seniority costs enter the market they are able to undercut more mature carriers for contracts from major airlines like Delta.
"To be successful we need to have a cost structure that allows us to compete for growth - specifically with two-class regional jets - and currently that is not the case," says Spanjers.
SkyWest says that it is in discussions with Delta regarding its contracts with the carrier but declines to comment further.
Republic declines to comment on any on-going negotiations with Delta.