any news on ACA with UAL's deal?

[hotwing]

Just kind of curious if anyone has heard anything out there regarding ACA. It looks like ACA may be given a chance to grow with this stuff... ? Anyone out there have any news or ideas?


Swimming in the pool

 

[CRJ puppy]

WAY too early to tell. This could go many different ways. For the time being, it will be status quo, unless the bankruptcy judge decided to liquidate UAL, which ain't gonna happen. So count on status quo for now. The big question 1 or 2 yrs. down the road is the plain (plane?) fact that UAL will emerge a better, but leaner, smaller, more efficient airline. The problem is....if they are smaller, then what planes are the people going to get onto when we bring the passengers to the airport? Delta's? American's?

Remember, ACA gets paid once the a/c goes WOW regardless of how many people are on board. While there is no doubt that ACA and others will take over some less profitable routes for larger craft...some of our less profitable routes (for UAL, not for us) will get cut. It could end up being a draw. SO as I said: status quo for now...look into your crystal ball or ouiji board for the future. No one REALLY knows for sure (not even the board of directors at United).

Don't you just love the world of aviation?!

------------------------

"you're cleared into position and wait..."

(the Canadians had it right all along..!)

 

[B1900DFO]

"Remember Aca gets paid once the A/C goes regardless of whether anybody is on board."

I wouldn't be surprised if UAL tries to back out of that arrangement in BK court. My guess is that they will force the regionals to start taking on some of the financial burdens of a down cycle....

 

[generaltso]

I hear people talk about how "UAL will emerge a better, but leaner, smaller, more efficient airline"

Did people think this about Pan Am?

 

[throttlejockey]

I agree with B1900FO:

The Regional Feeders at UAL will probably have to renegotiate their contracts, and UAL/BK Judge will ask them to take more risk.

The current "fee for departure" agreements may be history, and "pro-rata" risk sharing may become the new "norm".

As a result, I would expect increased flying by the RJ operators, because "pro-rata" flying is extremely cheap for mainline (mainline takes much less risk), and SCOPE may be diluted by the BK Judge. This increase in flying is only good for RJ Operators in the short term.

In the long term, it will be detrimental to the RJ Operators. The increase in financial risk will create increasing financial pressure on the RJ operators and profits may evaporate. The higher cost RJ operators will be pressured by the lower cost ones (Mesa, etc.) and those that can't hack it may disappear.

The next few years is going to be difficult for all involved. But do not let uncertainty change your plans for the future.

 

[dogg]

A little off of the subject:
With the exception of Horizon Air which flies under its own colors, has its own res centers and does not operate under any sort of agreement are there any other regional carriers still doing there own flying.

It has been my understanding that in a "fee for departure" program, the cost of an RJ is made up by putting that passenger on a mainline flight. I understand that many passengers on RJ flights never get on a mainline flight and I wonder if those flights generate any real profit on there own or if they are being used just to keep people flying on United or Delta etc..
I would certainly hope that management at the "fee for departure" carriers are looking at those scenarios and determining if a non-affiliated all RJ carrier can make it on its own.

In other words, can Atlantic Coast Airlines go back to being a stand alone, painted in their own colors, with their own res centers type of airline where their only affiliation is the old fashion code-share agreement.

It would be interesting to see the true direct and indirect operating costs as well as outright purchase/lease costs of a 50 or 70 seat RJ.

 

[Marko Ramius]

Good posts

Dogg, throttlejockey, B1900DFO make many good points and raise good questions. The fee per departure agreements will likely disappear or get dramatically changed along with everyone's contracts in this Ch11 IMO. This has been a sore point at UA for some time now. UAX operations currently show as a loss on UA's balance sheet. Now the loss generated by UAX is likely significantly LESS than it would be if mainline service were used instead because most routes are money losers in the current environment. That is the current benefit of RJ's in the UA system-they allow UA to maintain market presence while stemming the cash flow loss from operations. Long term, this can't work for either party because UA can't lose money forever and UAX can't collect checks from a defunct partner. At UA's last quarterly conference call, a couple of the analysts were giving Rono Dutta a hard time about how UA could sustain it's RJ operations in this manner long term. Rono admitted that the UA makes no money unless a passenger gets on a mainline flight, and that some of the UAX carriers(read ACA primarily, and to some degree Skywest) have pretty much extorted UA on their fee per departure deals. It was suggested that UA would have been better off to convert some A320's to all coach and fly them on the routes instead-something he agreed with oddly enough.

So going forward, where does that leave them? Still too early to know for sure, but I think it's likely that things will change somewhat. Even if UA doesn't want it, I doubt the creditors will be interested in UAX carriers pulling 14% profit margins when UA is losing money and competitor carriers have 3-4% margins. UA is looking at another Shuttle product, and will likely include that as part of their reorganization plans. Unlike other similar products, UA will have the opportunity to negotiate changes to all contracts at one time not just the pilots. The cost advantages they obtain may or may not have an effect on the express carriers. I suspect that some markets may become a hybrid of express and mainline. A renegotiation of the fee per departure agreements may force changes to express carrier labor contracts, and won't that be lovely! Especially considering that ACA and Skywest fly for both UA and DL so this could spread to affect ASA, Comair, and Chautaqua. I suspect that it will be worse, if they go to pro rata agreements instead of fee per departure. This type of deal would probably put more pressure on the Express carriers to deal with the higher CASM's of the RJ. If the scope clause is eliminated or modified to allow 70 and 90 seaters, maybe that's the route the carriers will go to offset the increased risk and cost with lower CASM 70 and 90 seat aircraft. Alledgedly these are some of the reasons that Horizon chose 70 seat Canadair's instead of 50 seaters. Whatever happens I think the pain of this bancruptcy will be felt by more people than realize it thus far.

 

[throttlejockey]

Dogg:

You raise a very good point - are these carriers prepared to make it on there own? I certainly hope so or else there will be a lot of out of work RJ pilots in the future.

When an RJ is compared to a 737 or A320 on a segment cost basis the RJ is far less costly. But the RJ can only generate 40% to 50% of the revenue. You cannot compete against low fare carriers with RJ's nor can you compete with higher capacity mainline aircraft unless you choose the right routes.

Midway Airlines tried to compete using RJ's and found them to be uncompetative. You cannot fill enough seats at the right yield to make sense.

I do not know of any Regionals that currently operate RJ's on a "pro-rata" basis. Almost all of them are operating on a "fee for departure" basis. However, there are many Turbo-prop operators that operate on a "pro-rata" basis:

Trans-States (J41/ATR) for U and AMR
Colgan (SF34/B1900) U
Shuttle America (SF34) U
Great Lakes (B1900) UAL and FRNT
Gulfstream (B1900) CAL
Mesa (DH8/B1900) AWA and U
Horizion (DH8) Alaska
Corporate Airlines (J32) AMR

Those are a few.

 

[Beantown]

Trans-States (J41/ATR) for U and AMR
Colgan (SF34/B1900) U
Shuttle America (SF34) U
Great Lakes (B1900) UAL and FRNT
Gulfstream (B1900) CAL
Mesa (DH8/B1900) AWA and U
Horizion (DH8) Alaska
Corporate Airlines (J32) AMR
---------------------------------------

Actually, Mesa's Dash 8's at AWA are one of the only "Fee for departure" turbo prop operations out there. -Bean

 

[filejw]

Dogg, I would check that Horizon info.They are owned by Alaska and have had an agreement with NWA from the begining [18 plus yrs].The pilot contract at NWA had at one time language concerning Horizon.I think it is still in effect but not sure.

 

[dogg]

Actually, Horizon is owned by the Alaska Air group which happens to also own Alaska Airlines inc. However Alaska Airlines and Horizon Airlines are on equal footing with each other when it comes to which airline is being paid for or losing money etc... as far as the deal with NWA that is a simple code share.


I guess my question is how many of the regionals ie skywest, comair, aca etc can you call a res line and buy a ticket that says skywest, comair, aca etc. on it and when you get to the airplane it has a paint job that is unique and says SKYWEST down the side of it etc...

I think if you look at the economics of a regional, Horizon is what the model might look like. They had no where near the explosive growth of the other regionals who were really being subsidized by UA, DAL, USAIR, NWA, AMR etc. While the other big regionals have been showing profits and dumping turbo props etc Horizon has hung on to their turbo props and they seem to only cautiously get RJ's. And only as a replacement for the retiring F-28's.

I am not saying that Horizon is doing it right only that they may be a more realistic view of what is to come for the other regionals when the "fee for departure" dream hits the ground as it surely will in UA case... just food for thought

 

[Marko Ramius]

Frontier Jet Express?

Dogg,

I may be mistaken, but I believe that the Frontier Jet Express flights that Mesa operates for Frontier are not fee per departure. They must live or die on their own two legs. I don't know how successful they have been, but I do know that they pulled out of at least one route DEN-STL due to lack of profitibility.

 

[dogg]

I remember reading that they were not on a fee for departure out of DEN. And that they were free to come and go as profits come and go.

How about Air Wisconsin and Airtran does anyone no how Airwis is being paid. These non fee for departure deals will be the test of wether an RJ can stand on its own. And should point to the future success or failure of the RJ concept. I know the public does not like props but I doubt that they will pay a premium to ride on a jet if it comes down to that.

 

[sideshow]

One point. The fee for departure arrangement that so many regionals now have, and ACA specifically, came about fairly recently. In the last 2 to 2 1/2 years. Prior to that, United paid for a certain number of seats and ACA did their own marketing and had much more flexibility over how they ran the operation. One of the big things United got for chaning the contract to fee-for-departure is much greater operational control over their regional partners without having to go buy them as some of their competitors have done. Now, they may re-evaluate that arrangement but I'm not sure how ACA extorted money from UAL when UAL wanted the arrangement in the first place.

 

[Marko Ramius]

I should have been clearer, sideshow

I know that it was UA who wanted the current fee-per-departure agreements. The reasons were about control as you said, primarily because Comair gave Delta a bit of scare IMO. UA has largely resisted the idea of owning its regionals outside of the Air Wisconsin debacle, so these 10 year deals were negotiated instead. Better deal for UA anyway, because by the time UA would have been interested in buying its regionals, their asking price would have been too high to make it worthwhile. The extortion I was referring to was the yearly renegotiation of the subsidy rates for each UAX carrier. There is alot of information to suggest that ACA management played serious hardball with UA and won hefty increases from UA when the carrier was in trouble. Skywest wasn't as aggressive, but still won increases from what I understand, an Air Wis stayed at last years rates. Perhaps ACA didn't think it would come to this, and felt that playing hardball on the rates would pay off as UA outsourced more in it's restructuring-who knows? What is known is that something has to change with these current deals. There are projections out there that have UAX flying 41% of UA domestic flying, up from the mid twenties right now. UAX's connectivity would increase dramatically, which under the current deals means revenue would decrease almost as dramatically. Remember that UA only makes money if a UAX passenger gets on UA metal-UAX, Star(excluding LH), and UsAirways don't count. Outside of that they are largely throwing money out the window in an effort to maintain market presence. It's great for ACA, Skywest, and Air Wis that they are recieving this money and making profits, but how can this be expected to continue in this fashion long term? UsAirways' CEO Dave Siegel is learning this as well, the RJ's aren't working as well profit wise when they aren't in house like CoEx was. I think the operational control issues aren't as big as UA management thought they were. Where are ACA, Air Wis, and Skywest going to take the majority of their aircraft if they don't like the deal given to them by UA? Nowhere because there aren't enough big time dance partners left, and certainly not ones offering the same profit potential as their current partners. Look at Mesa and Chautaqua. Both have faced challenges with their major partners over the last four years or so, and have looked to expand their portfolios. The results haven't a ton, Mesa was able to add Frontier and Chautaqua was able to add some DL feed. However there main breadwinners pretty much remain unchanged. Why else is JO so hot to get back in bed with a company he once sued(UA) and so pissed at Air Wis for getting the AirTran JetConnect deal. There's only so many crumbs to go around. The solution for UA coming out of BK has to be finding a way to make money on many of these routes with their own metal combined with a more rationalized approach to UAX that keeps those companies stable but forces them to are in the risk of flying airplanes for profit.

 

[100-1/2]

Hey, Let us clarify and contemplate...

First, Hats off to Marko to bother regurgitating half of that above to an audience (probably) eyes-glazed and brain-fried by some of the theory and information presented here. I for one appreciate the insightful information. Vastly unusable or applicable in current form; it allows one to become inlightened and knowledgable on management decisions and programs as they affect little-old us in the front office driving around suckers to clever advertisement and wholesale outlets such as orbitz, priceline and travelocity.

On the matter of Regionals losing money for United(on their books), this can be misinterpreted as Regionals being unprofitable and should be stated clearly to reflect: poor UA Mgmt decisions resulted in more money being farmed out to various regional air carriers than was harvested back from them (pax revenue). Some regional operators may have actually given UA a return on their money while others did not or barely broke even. That should be a reflection on the Regional Operator(case by case). This could not necessarily be considerred a bad thing for UA, for anything that doesn't make money to increase your tax liability counts as a loss to lower it (very small difference in divedends for minority stockholders).

Remember...Regional air carriers were not originally created to operate over mainline routes. They were intended to serve more rural and near distant communities with service under the guidlines of feeding the mainline hubs of the Majors. The development of the RJ allowed "near" distances to be stretched without increasing operating costs (more efficient and faster aircraft). This fooled Majors into believing they could operate these newer aircraft on mainline routes cheaper than their aircraft that were not profitable (not enough buts in the seats) while still contracted to the terms of RJ Coded Flights. Responsible and Reverent Management would figure out how to fill the seats and make it happen or cut the route all together. Since the Rj came around, I have not heard as much emphasis placed on Revenue Passenger Miles. Certaintly this calculation with contract rates for the RJ would have remain unchanged with the only difference being the 50 Seat Rj is now full compared to the once 35% capacity Airbus.

Remember Sept 11, 2001? fourty-something people on a B767 transcoastal departure within an hour of a B757 (with similar passenger load), late-summer Tuesday Morning flight. That right there is an indication that mismanagement and refusal to give up passengers to the competition(UAL,AAL,DA) started this snowball from hell way before these clowns raped four flights of ALL their Life. Their actions simply launched this snowball over a cliff. Consider that they also spent weeks prior casing these flights for their low pax loads.

Sorry, abit offtrack but 'boggle-worthy' of one's mind if considerred.

The abuse of RJ service by mainline management to fly their colors to more locations and those once served by their larger mainline aircraft has brought about their own demise. Jesus walked by a Fig tree once that had no figs about it when it should have ( I don't know anything about figs but the Bible says they were in season then). So, Jesus cursed the tree that is should die for it was useless and produced no fruit. Rose bushes should be pruned periodically so they may bring forth more buds. If a route is not making any money, and their is no passengers to transport (or your competition is prostituting themself for the mediocre passenger count while you can't afford it)... STOP FLYING THERE!!! Let the competion have them. Sure this abuse brings business to the Regionals and hiring is "Booming?"(briefly). But, if you are going bankrupt years later as a result, EVERYONE ENDS UP A LOSER! That Regional that has been flying your colors gets a reputation just like yours (UA), consumers lose confidence and the regional will be lucky if Judge lets them operate if you don't. National didn't get Govt Help after Sept 11 and judge ordered them to Cease Ops. CH11 protection is a privilage not a right. A company should be better after govt help not worse off.

Just my turn on the soap box here, but, CEO should resign and forfeit earnings and reduced salary for period of degrading Company performance. Owes it to stockholders and employees for they stand to lose vastly in this deal. Just read about 4th generation family stands to lose job, 401K and ESOPs.

I used to travel extensively on a lawn-dart, death-tube Metroliner used by a regional where I once lived. These EMB Rj are not much spacier than the garrett sister's pad and I have spent more time traveling on EMB's over more distances than ever imagined on the Metro.. Oh, but IT'S A JET!!! I cannot be the only passenger that is out there avoiding at all cost anything less than a CRJ which for some legs is itself an unacceptable form of travel. Certaintly, an air carrier route partially loading an airbus or B737 will lose pax when sub'd with an RJ.

Okay, let me have it! Flame away!!
Kindest Regards,
100-1/2

 

[throttlejockey]

No flames here!

I believe that the "RJ Revolution" will turn out to be a tragic mistake for all involved in the long run.

1) Mainline will suffer when the beancounters determine that there isn't enough revenue to be had from operating RJ's. They will learn that you cannot compete with low fare carriers Narrowbody CASM when your RJ CASM is double EVEN AT REGIONAL PAYSCALES!

United would be smart to take all the First Class seats out of its B737's and A320's, modifiy contract language to get better crew utilization and run those planes on routes being flown by RJ's.

2) Regionals will suffer when mainline forces them to take more risk, and the profits that they have learned to love fade away into a sea of red ink. This will put additional pressure on pay scales at Regionals.

3) Small communities will suffer when the RJ's start pulling out of town and the terminals in small-town American turn into ghost towns.

The only folks that may (potentially) not suffer will be the last remaining Turboprop operators who will come into those markets and operate profitably without subsidy's from the government or mainline.

throttle

 

[Marko Ramius]

100 1/2

Outstanding post!

 

[Marko Ramius]

It didn't take long....

Well the worm has officially turned for UAX(along with the rest of UAL). I just got finished perusing some of the court documents UA presented to the judge, and it looks like the pain will be definately shared by the UAX carriers. UA has targeted between 70-80 million in cuts as needed from their express carriers, and claim that they are already in talks about this with them. Might explain some of the random cost cutting and other erratic behavior going on at some places. While the affadavit doesn't say who did what, it pretty much places the cost burden right where I said it would be. The document said that two of the Express carriers have negotiated increased subsidy rates that they claim are too costly, while one has agreed to remain at 2001 rates. So the gun is squarely pointed at ACA and Skywest, using Air Wisconsin as the foil initially. But Air Wisconsin's "cush," position doesn't seem like it's going to last long: the affadavit also mentions that two other regionals have offered to fly flights for UA at a significantly lower cost. Looks like the boys over at Comair are going to have to take a break from blaming the regional industry's labor woes on Skywest and start picking on Mesa and Chautaqua. It appears that the scope clause will not protect (how this for irony) will not protect the UAX REGIONALS in this case. By that I mean that right now, they aren't any RJ's available to go to additional carriers because UA has already alloted the deliveries provided for under the current UA pilot scope clause to it's three regionals. The court document seeks unspecified changes to these limits which UA has been largely ignoring anyway, so that protection will not be there to keep away the Mesa and Chautaqua threat. This has the potential to spread across the rest of the regionals, especially since ACA and Skywest serve both UA and DL. Another interesting tidbit in the document was that at best RJ's provide about a %4.25 unit revenue advantage over the CURRENT mainline cost structure under 500 miles despite at %52 lower unit cost. The document didn't draw any firm conclusions but seemed to imply that if mainline costs were lowered that a mainline jet would work better, once again proving Herb correct.

 

[Caveman]

Not all RJ operators use the fee for departure setup. Comair doesn't and never has. As I understand it DAL wanted a FFD arrangement with Comair but CMR management refused it outright so they bought us instead.

Comair serves about 120 cities with 800 daily departures. You can get from any one of those cities to any of the others with one stop in CVG and never get on a 'real' Delta airplane. I forgot the exact numbers, but less than half of Comair's pax ever see the inside of anything bigger than an RJ.

Comair, as one example, doesn't depend on mainline. If big D were to disappear tomorrow we would definitely feel the hit but there is no question we would recover nicely. We have own own hub and spoke system that pretty much covers the eastern half of the country.