Mesa Airlines is going all in with its partners United Airlines and DHL after being dropped by long-time associate American Airlines, the latest shakeout from the U.S. pilot shortage.
The news broke Saturday that American, which has partnered with Phoenix-based Mesa since 1992, would sever ties with the longtime American Eagle operator on April 3. And, as part of that transition, the regional airline would enter a new five-year contract with United that could include some or all of the 38 Bombardier CRJ900 aircraft that it currently flies for American. Mesa will also continue its existing contract to fly freighters for DHL.
The entire situation came about as a result of the pilot shortage. Mesa was forced to raise pay rates in order to retain crew members and remain competitive. American appears too have declined to cover those rates thus the regional airline’s shifting allegiances.
“The exit of the American contract is not a surprise to us and, given our belief that American is not agreeing to absorb the higher pilot wage rates,” Raymond James analyst Savanthi Syth wrote Sunday.
The higher pay rates Syth referred to, and which Mesa agreed to in August, were a direct reaction to American bumping up the wages of pilots at its wholly-owned affiliates — Envoy, Piedmont Airlines, and PSA Airlines — in June.
“Mesa’s pilot attrition was significant as larger airlines continued to poach experienced pilots to staff their operations,” Cowen & Co. analyst Helane Becker wrote Monday. “This level of attrition made staffing the American operation difficult.”
Becker added that American and Mesa appeared to already be at odds. “American has spent the past few years reducing the aircraft Mesa flew operated as American Eagle,” she said.
Airlines across the U.S. have struggled with the pilot shortage this year. The situation, which has affected regional carriers the most, has forced many to park aircraft and prompted the loss of air service to smaller cities across the country. American, Delta Air Lines, and United have exited a combined 65 destinations to date since the pandemic began in 2020, according to a recent analysis by Ailevon Pacific Aviation Consulting. While only two cities have lost flights on a network airline entirely — Toledo, Ohio, and Williamsport, Pa. — the rest face an uncertain future of less air service and higher airfares.
And the situation is unlikely to get better for some time. Speaking earlier in December, Delta President Glen Hauenstein said the carrier does not anticipate being able to fully recover its regional capacity to pre-pandemic levels until the end of 2023 at the earliest, but more likely in 2024. But Delta, as Hauenstein pointed out, is in the lucky position of having small mainline aircraft like the Airbus A220, and used Boeing 737s to backfill that capacity; the airline aims to fully recover 2019 capacity levels by summer.
United faces a more challenging situation. While it has benefitted internationally from not retiring any planes during the pandemic, its narrowbody fleet remains the smallest of the U.S. Big Three, and its regional partners have been among the most challenged attracting and retaining pilots. United lost affiliate Air Wisconsin to American. This situation, as the Ailevon Pacific map shows, has forced it to exit more small markets than either American or Delta. And while United has lots of aircraft on order that should allow it to grow, near-term deliveries are delayed and the balance will not arrive for years.
Enter Mesa. The regional will shift all of its pilots and other staff to supporting its United operation beginning in March. They will initially remain at the airline’s existing American bases — Dallas-Fort Worth, El Paso, Louisville, and Phoenix — but eventually transition to a new United base in Denver and potentially four more yet-to-be-disclosed locations. Mesa already has United bases in Houston and Washington, D.C.
“Once finalized, our expanded agreement with United is expected to both solidify our operations and, in conjunction with our amended agreements with key stakeholders, significantly improve our financial position,” Mesa CEO Jonathan Ornstein said Monday. “Most importantly, after years of reduction in service to smaller and rural communities, this agreement will help turn the tide and is expected to add over 100 regional jet flights into the United network.”
What is not clear is just how many American Eagle planes Mesa can transition to its new United Express contract. The regional operator already flies 80 Embraer E175s for United that, along with its other affiliates Republic Airline and SkyWest Airlines, is at the maximum number of regional jets with 76 seats allowed under the scope clause of its pilot agreement. Mesa’s CRJ900s are all outfitted with 76 seats. United can only contract up to 153 aircraft with 76 seats, and up to 102 aircraft with 70 seats.
“United is already at their cap on these types of airplanes. Anything beyond that limit must be flown by United pilots,” the airline’s pilot union, the Air Line Pilots Association (ALPA), said on Monday. The union added that it was, as yet, unaware of the details of the new agreement with Mesa.
United CEO Scott Kirby, in a video of him speaking with Mesa staff on Monday viewed by Airline Weekly, described the deal with Mesa as being “all about pilots.” The network carrier is not flying its E175 fleet at full utilization but, by replacing some of those underutilized aircraft with CRJ900s, it can increase the number of hours flown with 76-seat regional jets while staying in compliance with its pilot scope clause.
“We’ll use the pilots to fly fewer [aircraft] but more hours,” Kirby said.
United and ALPA are also locked in contentious negotiations over a new contract. And, on the matter of regional jet scope, recent agreement-in-principal between Delta and its pilots reduced the number of small jets allowed in that airline’s feeder fleet rather than increased them as United could be trying to do.
Despite the potential scope issues, Syth at Raymond James on Monday called the new Mesa-United agreement a “net positive” for both airlines, and a “slight net negative” for American. However, she continued to express uncertainty around the full ramifications of the pilot shortage on the industry writ large.
“Longer term, while we expect the regional industry pilot/captain supply issue to be resolved sometime in 2024, there is still a high degree of uncertainty around the size and profitability of the regional industry as a result of the significantly higher pilot wage rates,” Syth wrote.
Updated with comments from United CEO Scott Kirby to Mesa employees.