Something Stinky in the Air – Part 1

As many of you know, I travel a lot. Most of this travel is by air, due to the long distances that I have to make in a short period of time. This year alone I’ve been on over 30 flights into and out of Memphis, as well as other locales. Most of this travel is on NWA because it’s a hub out of Memphis, and I like to consolidate my travel to one airline if possible. Many of these flights out of Memphis end up being regional jets either operated by, or like those operated by Memphis carrier, Pinnacle Airlines. Several days ago I read an article in the CA about stalled contract negotiations with Pinnacle that, understandably, piques my interest.

First of all, the notion that the person responsible for my life is getting paid as little as $18,000/year is disturbing. Assuming that this person is single and has no children that is just under twice the 2006 poverty level.I don’t know anyone who can live on $10k a year (poverty). I have no doubt that the effective poverty rate is actually higher than that because we all know our current administration would never screw with numbers to make themselves look better, would they (/snark)? Still, $1500/mo. 50 people’s lives in your care several times a week seems disturbingly low.

Another disturbing fact, brought out in the CA is that Pinnacle seems willing to absorb revenue losses from NWA, their largest client, as a result of their inability to settle this contract dispute. As reported:

Pinnacle has taken several blows for not having a pilot contract. Last year, NWA, its biggest customer, said it would withdraw planes if there wasn’t a contract by March 31.
NWA began subtracting planes last fall, dealing Pinnacle a revenue blow. When the process is finished, Pinnacle will have 124 50-seat regional jets on its contract for Northwest, instead of 139.
NWA also penalized Pinnacle for canceling flights last year because it did not have pilots to fly them. In all, NWA withheld $4.5 million in the first and second quarters.

This tells us several things. 1. Pinnacle probably has high turnover as a result of the low pay. 2. They are willing to absorb losses as a result of this.

There are lots of reasons to pass on extra business, particularly if the revenue the business generates is less than the cost, but 15 additional aircraft flying in an environment where the airlines are running at near capacity levels doesn’t pass the smell test. This action, or inaction as it may be, implies that the leadership of Pinnacle is more willing to maintain an adversarial relationship with labor than build their business. It’s a condition that alarms employees, and is a cause for concern for investors.

Pinnacle Airlines (PNCL) has seen a steady decline in stock value since it’s peak at $19.84 in February of 2007. In the year and three months that have past, the stock has lost more than half of it’s value, closing yesterday at $7.68. Certainly, some of this is due to the increasing cost of fuel, but the willful loss of revenue from NWA as mentioned above, and the acquisition of the fledgling Colgan Airlines have also been a strain on the company’s bottom line.

In my next post, we’ll talk to a member of the ALPA (Air Line Pilots Association) to find out more about this adversarial relationship, how the current administration has complicated the matter, and the role a certain challenger in the TN-09 Democratic primary plays in the mix.

Stay Tuned…

Part 1
Part 2
Part 3

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