"Drawing the line"

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http://www.flightglobal.com/Articles/2006/05/16/Navigation/177/206574/Drawing+the+line.html

16/05/06
Flight International
Drawing the line
Mary Kirby / Philadelphia

For now, 100-seaters like Embraer’s E-190 will continue to be operated by mainline carriers rather than feeders.

New pilot accords at US mainline carriers are paving the way for more 70-plus-seat flying by their regional affiliates but have effectively quashed management’s hopes of breaking through scope-clause restrictions that prevent the outsourcing of 100-seat aircraft. With limited exception, a new boundary has been set at the 76-seat level, ensconcing the Bombardier CRJ700/900 and Embraer 170/175 in the US regional fleet, but forcing management to begrudgingly accept that the Embraer 190/195 must be operated in-house.

Speculation was rife last year that scope relief trends – led by the spectre of Chapter 11 bankruptcy protection – would continue in earnest, allowing regional feeders to fly 90- and potentially even 100-seat aircraft for their major partners. But as regional players prepare to gather for the annual Regional Airline Association convention in Dallas, Texas from 22-25 May, those heady expectations have already been tempered with a firm dose of reality. And a clearer picture has started to emerge of how the industry will be reshaped over the multi-year duration of the latest pilot contracts.

Major airlines have now firmly broken through the 50-seat barrier that once consigned their regional affiliates to operate small, less economical aircraft. Even the 70-seat benchmark in place at American Airlines and United Airlines has been eclipsed. Indeed, it has inched up to the 76-seat level in the latest deals reached by the Air Line Pilots Association (ALPA) with Delta Air Lines and Northwest Airlines. The latter agreement, ratified earlier this month, represents a significant departure for Northwest, which had maintained a pilot contract preventing feeders from expanding past 50 seats. An exception was made for Northwest Airlink affiliate Mesaba to fly Avro RJ85s, but these are now being culled from the regional’s fleet.

Such gains in scope relief represent “an incremental improvement” over the 70-seat level, “which ultimately will squeeze in perhaps one or two more types” into the regional fleet, says Velocity Group partner Doug Abbey. But, he adds, it appears the proverbial line has been drawn in the sand, as each major carrier is “mindful of its labour, its pilots, the concessions that they have given, and [management’s] guarantees to keep pilots employed”.

Only one US major has, for now, surpassed 76 seats. Essentially, the carrier’s feeders can fly “anything below the E-190”, says Scott Kirby, US Airways executive vice-president for sales and marketing. This is stipulated in the transition agreement brokered by ALPA with America West Airlines and US Airways prior to the two carriers’ merger in September and US Airways’ exit from bankruptcy protection. The pact, now guiding the collective bargaining process at the merged carrier, divides scope protection among multiple classifications of regional jets. It allows “what we would describe as 93 90-seaters”, says Kirby, of which 38 86-seat CRJ900s are already operated by Mesa Air Group under its long-standing contract with America West. This means that 55 more aircraft in that category can be added to US Airways Express, says the airline.

Mesa has also expressed interest in expanding its CRJ900 operations for the merged carrier. Separately, Republic Airlines flies 72-seat E-170s for US Airways after parent Republic Airways Holdings acquired 28 of the type from the US major. The deal included airport slots and resulted in the dissolution of the major’s MidAtlantic Airways division, which will perform its last scheduled flight on 27 May. Republic is in talks with US Airways to boost seating capacity on the E-170s to 76 seats.

Scope to expand

Air Wisconsin, which flies 50-seat regional jets for US Airways, may also benefit from scope relief. The air service accord between the two – part of a $125 million investment by the regional in the America West/US Airways merger – stipulates that the two firms “may agree that Air Wisconsin will add CRJ900 regional jets to the fleet of aircraft used by it in the provision of service” and that this could occur either in addition to or as “replacements for” certain CRJ200s flown by the carrier as US Airways Express.
But union officials may yet demand scope language be further tightened at US Airways before a final merged contract is agreed. An allowance for more large-sized regional jets is “not totally palatable”, but was “what we were able to negotiate in bankruptcy”, says master executive council (MEC) president Jack Stephan. “As we prepare the scope section of our contract, we have every intention of not giving an inch, but shoring it up and making it more prohibitive to exercise those rights.”

There is apparently one battle that US Airways, and other US majors, are no longer willing to fight – the operation of E-190s outside the mainline fleets. US Airways last summer issued a request for proposal to Air Wisconsin, Mesa and Republic Airways for the operation of up to 25 of the type. But the proposal quickly met opposition from ALPA units at America West and US Airways even though a clause in the US Airways pilot contract then allowed for up to 25 E-190s to be flown by affiliates under certain provisions.

Ultimately, while management failed to steer E-190s to regional affiliates, it did secure pay rates that are competitive with US low-cost carrier JetBlue Airways, prompting the US major to convert 57 undelivered E-170 orders into 25 of the larger variant. Reaching this concession from pilots was crucial, and set the precedent for other carriers to follow suit. “What JetBlue is doing with the E-190 is looking for a sweet spot that the majors can’t touch. The majors are going to have to respond to that,” notes Abbey.

US Airways’ ALPA unit stresses it was “very important” for the pilot group to secure E-190 flying. “That aircraft is a mainline aircraft...there is nothing regional about that aircraft,” says Stephan. “That’s a [99-seat] airplane. We used to fly Fokker 100s that seated just 10 more. He says the regional term sometimes used by managers to describe the E-190 “is so deceiving” because “you are flying these things from Washington to Houston...what’s regional about that?”

Indeed, the 100-seat level “has important implications for manufacturers and labour” because it represents a psychological or symbolic limit, says Richard Aboulafia, an aviation analyst for Virginia-based Teal Group. That Bombardier’s large regional jets are based on the manufacturer’s 50-seat CRJ200 while Embraer’s E-170/190s are new-technology aircraft is also impacting how mainline pilots perceive the types.

It appears, for instance, that Bombardier’s largest variant, the CRJ900, is considered a regional aircraft in the eyes of mainline pilots, says Bombardier vice-president marketing and communications Trung Ngo. At the same time the aircraft “is able to satisfy the needs of the airline to increase the seating capacity that they would like to have in their regional fleet”. He says mainline pilots have drawn the line “both in terms of certificated maximum capacity and also in maximum takeoff weight” and to that extent, the CRJ900 “is probably a very good fit for what the agreements have spelled out in terms of allowances for operating regional jets”.

However, it has not stopped Bombardier from working on introducing a larger CRJ derivative, the CRJ900X, which would have up to 100 seats. For now, “in so far as satisfying the needs of regional carriers, the CRJ900 is probably one of the ideal platforms for them to use,” says Ngo.

Embraer, meanwhile, is confident its E-175 fits nicely within the boundaries created by the 76-seat cap and the latest maximum take-off weight limits. If a major wants to have the same brand as its mainline fleet, especially when connecting to international services, the E-175 “can be configured with two classes and meet the 76-seat limit”, says Embraer director of market intelligence for commercial aviation Luiz Sergio Chiessi.

He believes the Embraer 190 “is not comparable with the CRJ900” because the E-190 in a one-class configuration is a 100-seater that offers 32in (81.3cm) pitch, while the CRJ900 is an 86-seater at 31in pitch. Chiessi says the CRJ900 should really be compared to the Embraer 175, which can “accommodate the same number of passengers” as the CRJ900, or in two classes with the CRJ705 (essentially CRJ900s with 75 seats).

 

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Velocity Group’s Abbey insists that “pilot perception and management’s appeasing or accommodating this awkward, not market-based constraint” leaves the industry in a grey area in terms of the 70-to-100-seat market. The effect is perhaps most evident at Air Canada. Pilot concerns led management to place its new CRJ705s at regional affiliate Jazz, while 73-seat E-175s and 93-seat E-190s are operated by the mainline carrier. Bombardier’s Ngo says Air Canada Jazz has “been very innovative in its use of this type of aircraft in market development, flying 4-4.5h stage lengths, and getting extremely well accepted responses from the public”.

Embraer’s Chiessi adds that Air Canada pilots’ decision to “concede in accepting lower salaries” enabled them to find “a point that is pleasing both sides”. The same can be said for deals signed at Delta and Northwest. Brokered in mid-April just days before a threatened pilot strike, Delta’s tentative pilot agreement – which still requires member ratification – sets an E-190 pay rate competitive to that agreed at JetBlue. The Delta agreement relaxes scope limits to 76 seats from the current 70-seat restriction and imposes strict caps on 76-seat flying to encourage mainline growth.

From 1 January, Delta Connection can operate 15 aircraft with 71-76 seats with a maximum gross take-off weight of 39,044kg (86,000lb), and increase that figure to 30 aircraft one year later. More 76-seaters can be introduced, but only on a ratio of three for every one mainline growth aircraft added. And the number of 70- and 76-seat jets may not exceed 200.

Notwithstanding these limitations, Delta partners Mesa, Republic and SkyWest – three operators whose brand flexibility has allowed them to forge numerous relationships with US majors – are confident their status with bankrupt Delta is secure.

Mesa’s Freedom subsidiary is contracted to operate up to 30 regional jets for Delta and it is in the processing of fulfilling this agreement by transferring 50-seaters in operation at US Airways to Delta Connection. From early July, Mesa will also begin flying the first of an additional 12 37-seat Bombardier Dash 8-100s in support of Delta’s expanding operations at New York Kennedy. Mesa feels “very confident that our relationship is secure and expanding, and I’d like to say hopeful that it will continue to expand,” says chairman and chief executive Jonathan Ornstein.

Two of Indianapolis, Indiana-based Republic Airways’ regional subsidiaries, Chautauqua Airlines and Shuttle America, operate services on behalf of Delta with Embraer ERJ-145s and E-170s, respectively. Although neither these nor Mesa’s feeder deals have yet been assumed by the US major in bankruptcy court, Republic’s chief executive, Bryan Bedford, says nothing has been “told by Delta to either us or Mesa of any fleet risk”.

SkyWest, on the other hand, appears better insulated from the uncertainties surrounding Delta’s bankruptcy. The company last year acquired Atlantic Southeast Airlines (ASA) from Delta, paying $350 million in cash and a further $125 million after Delta retained both ASA’s and SkyWest’s feeder contracts. At 31 March, the two regional units operated a combined 203 jets for the US major, a mixture of CRJ200s and 700s. But SkyWest also has converted orders for CRJ700s to 17 CRJ900 orders, which vice-president of finance and assistant treasurer Michael Kraupp says “will definitely go into the Delta system”, although Delta has not yet indicated where.
70 seats...for now

Significantly, the CRJ900s will be delivered to SkyWest configured with only 70 seats. “If we buy 70-seaters, we’re locked in [to that capacity]...but when and if there is scope relief, we wanted to create the flexibility to configure the aircraft for additional seats if that is what Delta chooses they want us to do,” says Kraupp.

The move highlights one of the creative ways in which regional carriers are responding to scope restrictions as well as passenger comfort. Bankrupt Northwest is also studying a reduced-seat CRJ900 for its new regional subsidiary, Compass Airlines. The regional will operate either CRJ900s, with 12 first- and 64 coach-class seats, or E-175s with 11 first and 64 coach seats, according to a recent filing with the US Department of Transportation.

Northwest had hoped Compass would be able to fly 105 aircraft in the 77- to 100-seat range. But after pilots refused to accept this, management reconciled that the subsidiary will be capped at the 76-seat level. Ratified on 3 May, the deal allows Compass to contract for 55 aircraft configured with 51 to 76 seats. “This number approximates the number needed to replace the remaining 35 Avro aircraft, upgrade some existing 50-seat aircraft routes, and perhaps explore new route opportunities,” Northwest’s ALPA unit told members before the ratification vote. An increase in this cap to 90 51–76-seat aircraft has been agreed should Northwest launch Compass. “The additional 35 aircraft will allow Northwest to expand into new markets and rationalise current flying by adding frequency and/or shifting McDonnell Douglas DC-9s to other routes,” says the union.

Increases above the 90-aircraft limit are “one for one tied to mainline growth aircraft”, and pilot positions at Compass must be offered to furloughed mainline pilots, says the union, which believes the deal “provides for superior protection against outsourcing of mainline flying to small jets than Delta’s tentative agreement”.

Northwest plans to launch Compass in June using the operator’s certificate once held by liquidated low-cost carrier Independence Air. The regional will initially use the failed airline’s Washington Dulles base, several of its top executives, and one of its Bombardier CRJ200 aircraft for almost a year until the new unit can evolve into a 76-seat operator. An aircraft order is imminently expected.

Even as scope restrictions have relaxed from 70 seats to 76, it seems apparent that 100-seaters will, for now, be the domain of mainline carriers and low-cost operators like JetBlue. But precedent may yet be set.
Alaska Airlines’ pilot contract contains nothing to contractually prevent its regional sister, Horizon Air, from operating E-190. In an internal message to employees, Horizon admits it is looking at the E-190 as well as the CRJ900 and other aircraft that may be candidates for growth. However, the carrier recently told employees it is “still quite a ways from making a decision on this, or any other type of new aircraft”.

Another twist could see a regional operator flying E-190s outside of a feeder deal. Mesa is looking to acquire eight to 10 E-195s for its new Hawaiian inter-island carrier Go. Ornstein previously said the aircraft would be also used as leverage with Mesa partners, but in light of the latest 76-seat cap, the Mesa chief is now considering an E-170 purchase for this purpose.