Pinnacle's management shake-up to have unknown consequences

Pinnacle Airlines Holdings has lost two top managers in recent weeks with the departures of CEO Phil Trenary and CFO Peter Hunt. During the recent Regional Airline Association meeting, it was confirmed that part of the reason for Mr Trenary’s departure was a meddlesome board.

At least one analyst was pushing for Mr Hunt to get the CEO nod but the company tapped former Frontier CEO Sean Menke for the post which forced speculation that was the cause for Mr Hunt’s departure to become CFO of Virgin America, where he will likely oversee the quest for profitability as well as an IPO.

The management shifts at Pinnacle are interesting and come at a time when the company is restructuring with the merger of Mesaba and Colgan operations into a turboprop regional leaving Pinnacle as the sole jet operator in the company. It also comes as regionals are forging a new future based on far fewer growth prospects and changed contracts for CPA operations such as those at the Pinnacle subsidiaries. Even so, the changing CPA contracts will be in Pinnacle’s favour beginning next January and its bet on the Q400 could also prove a keen call if oil prices continue rising.

Mr Menke, now a managing partner with aviation consultancy Vista Strategic Group, has no regional airline experience, other then a brief stint at Republic after Republic Airways Holdings acquired Frontier. Otherwise, Menke, who takes on his new post on 1-July, hails from Air Canada and Frontier, both of which have been through bankruptcy.

He has his work cut out for him just with merging the Mesaba and Colgan operations along with the re-fleeting for the two carriers. He must also regain performance for its mainline partners especially since Delta fines its regional partners for failing to meet targets which has bit into its profitability recently. First quarter penalties rose to USD2.1 million. That means his honeymoon period must necessarily be short.

On the other hand, both Mr Trenary and Mr Hunt left the company in excellent shape despite the hard times it is experiencing this year. New rates kick in next year which improves Pinnacle’s future prospects. The higher costs expected on the Mesaba/Colgan integration, coupled with higher pay rates will be offset beginning next January with higher Delta Connection rates.

Mr Hunt expressed excitement about the next two years during the last earnings call owing to the  one-time payment from Delta of USD18-20 million on the new pilot increases next year. In addition, Delta rate increases are expected to be worth USD14-17 million annually tied to pilot labor and training costs during the integration period. It’s first normalized rate adjustment under its original Delta contract will kick in and will be worth approximately another USD14-17 million. He reported that beyond the next two years, Pinnacle will exceed profitability levels experience over the last few years. 

Mr Menke’s experience includes posts as chief commercial officer at Air Canada. At Frontier, he served as COO as well as senior vice president-marketing and in the planning and revenue management departments. He has also held positions at United, the short-lived LCC Western Pacific Airlines and America West.

Virgin America to benefit from Hunt public company experience

For Mr Hunt, the move comes as Virgin America is trying to expand and gain profitability at the same time. He will likely guide the San Francisco-based airline through an initial public offering despite the fact that currently, the market remains hostile toward the airline industry as reflected by Spirit Airways disappointing IPO results. However, he must first steer the troubled carrier to profitability after it lost USD68.7 million on USD724 million in revenues. The carrier, launched in 2007, lost USD80.8 million on USD547.6 million in revenues in 2009.

"This was a difficult decision," Mr Hunt said. "I love working at Pinnacle and am very proud of the success we achieved and how we met the challenges that are inherent in the airline industry. I have confidence in Pinnacle, its people and its future growth prospects, and am proud to have been part of shaping that legacy."

Mr Hunt joined Pinnacle in December 2004. During his tenure, he helped guide the acquisition of two regional airlines. In 2010, Pinnacle earned revenues of more than USD1 billion with a fleet of nearly 300 aircraft as one of the largest and most versatile regional airlines in the world.

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