As the major carriers unload the last of their regional subsidiaries, the regional airline market continues to consolidate. Only American Eagle, which is on the block, remains as a subsidiary of a major airline.
Delta has sold two of the regional carriers it acquired from Northwest, Mesaba and Compass, to Pinnacle Airlines and Trans State Airlines, respectively. Delta’s disposition of the two carriers nets $82 million, and also solidifies the position of Pinnacle and Trans States, who are already Delta regional carriers in their own right. In the near term, nothing changes in terms of schedules and operating certificates, although consolidation is expected into more streamlined operations, with better scale economies, as the carriers are integrated into their new parents.
Labor relations and scope clauses are two reasons behind the divestiture of regional carriers by major airlines. With the size of regional jets creeping up, and the next generation with capacities of more than 100 seats, scope clauses require those routes to be served by mainline operations, not regionals. In Delta’s case, with Northwest’s former carriers more heavily unionized than Delta, it made sense for Delta to divest these operations in the post-merger integration process.
What was once a gulf in labor costs between mainline and regional carriers in the 1990s has diminished greatly in the post-bankruptcy environment today. While regional carriers will always be needed to serve smaller markets, the average size of a regional jet is rapidly rising – past 70 seats and soon to approach 149 with the C300 from Bombardier. The times are changing, and major carriers are divesting what were once essential regional subsidiaries to stronger, multi-carrier regional operators capturing economies of scale.