MINNEAPOLIS - Pinnacle Airlines applied for Chapter 11 bankruptcy this week. The impact was immediate in Minnesota, where the regional carrier is the only daily service in several cities.
Pinnacle is based in Memphis, Tennessee. It is the airline that absorbed Colgan Air in 2007 and Eagan-based Mesaba Airlines in 2010. As a result, Pinnacle is a major player in the Twin Cities air market, under the Delta Connections label.
Delta takes all reservations for Pinnacle and sells the seats on flights. Part of Pinnacle's problem, according to the smaller airline, is that Delta's payments to Pinnacle are too low, making Pinnacle unprofitable.
"Pinnacle flies nearly a hundred of Delta's 430 or so flights a day out of this airport," commented Patrick Hogan, spokesperson for the Metropolitan Airports Commission. "The good thing is they do their flying for Delta (as Delta Connection). People buy tickets on Delta and Delta pays for the regional carrier to fly them. So, if worst case scenario, Pinnacle is not able to emerge from bankruptcy 'whole', presumably Delta would have another regional carrier fly those flights."
Alfred Marcus, Ph.D. Professor of Strategic Management at the Carlson School of Management in Minneapolis, says the bankruptcy could impact fliers in the pocketbook.
"For Minnesota, I think it means that the cost of some flights are going to be higher. There are going to be fewer flights. Some of the planes are going to be smaller. This is the trend in the airline industry in general," said Marcus.
Marcus expects there will be layoffs in a smaller, post-bankruptcy Pinnacle. Analysts expect the Memphis-based airline to jettison its relationships with United and USAir, but maintain the contract with Delta, which accounts for 80-percent of Pinnacle's business.
Independent Airline Expert Ray Neidl of New York's Maxim Group said that the high cost of fuel is forcing regional carriers, including Pinnacle, to take a closer look at the bottom line. He agreed that Pinnacle "will be smaller" and there "will be layoffs."
Pinnacle employs approximately 1,200 Minnesotans as pilots, flight attendants, mechanics and ground workers.
"If they fly fewer flights, there are going to be (layoffs). There is less need for employees," said Marcus. Also, employees can expect lower pay in the future.
"The reason why they (the large airlines) use them (regional carriers) is because they are less expensive. The crews, the employees, are less expensive than the regular crews and employees that Delta has on its typical (regular) airlines," said Marcus.
Officials at several Minnesota airports expressed the belief that they will not suffer a loss of air service by the Pinnacle restructuring. Airports like International Falls, Chisholm-Hibbing and Brainerd depend on Pinnacle (Delta Connection) for their only daily commercial service.
However, those locations benefit from the U.S. Department of Transportation's "Essential Air Service" Program, which subsidizes service to small and rural U.S. airports. In fact, Great Lakes Airlines, based in Wyoming, has bid to replace Pinnacle as the contract airline under the Delta banner at International Falls and several other Minnesota airports. A decision from the U.S. DOT is pending.
Service at Duluth and Rochester is not expected to be greatly impacted since several carriers provide daily service at both airports, including flights through Minneapolis/Saint Paul.
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