In case you are wondering why stocks of regional airline stocks took a nosedive Monday — the answer is pretty simple. But it’s not one that the managements of these airlines like to admit. That answer is this — prices paid to these airlines to provide services to the major airlines are going to continue to decline.

As regular readers of PBB know, I have not been a keen fan on investing in this particular subset of the sector for years. Why? Because the writing was on the wall. Major airlines were not going to sit idly by and watch regional airlines continue to rack up profits — while the major airlines themselves continued to post losses.

As a result — the regionals have been under more pressure than ever to perform as efficiently as possible. But — at the beck and call of their major airline partners. And at lower reimbursement levels.

Not a business plan I particularly like.

Last week, the arbitrator who was handling the case between Continental Airlines and ExpressJet over the issue of contract payments ruled — and ExpressJet lost some $14 million in compensation as a result of the decision.

While $14 million is not that much in the bigger scheme of things — it does reflect what is happening with the regional sector as a whole.

Investors took the news as it hit Monday and ran with it — right out the door with regional airline shares. Not one regional airline stock was immune from the sell-off. Today, results are a bit mixed, with some stocks back to where they were (more or less) before the news hit, and some still trading lower.

Coupled with the increasing issue of trying to hire and keep flight crews, increased pressure from major airline partners to become more efficient, and with regional airlines taking the brunt of much of this summer’s delay problems — no, it’s not a business plan that looks particularly attractive right now.

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