http://www.centreforaviation.com/ne...ing-to-eliminating-regionals-suggestion/page1
US regional aviation outlook: More than posturing to eliminating regionals
8th September, 2010
After Continental Master Executive Council Chair Jay Pierce blasted yet another strategically placed shot across the regional industry’s bow last week in suggesting that the next contract for the merged United/Continental would rid the carrier of outsourcing to regional airlines, newly installed Allied Pilots Association President David Bates suggested much the same thing.
It seems the elimination of outsourcing may be more than a positioning strategy after all, according to The Street. “American [Airlines] pilots are also concerned about scope, which limits the number of regional jets the airline can fly,” wrote The Street columnist Ted Reed. “At American's Chicago hub, Bates points out that it's a lot of ‘trouble finding an American jet.’ The number of locally based pilots has declined from 2,200 in the mid-1990s to about 1,100 today. As airlines reduce capacity, American's fleet has fallen from about 900 aircraft to 619 today. The contract limits American to 47 70-seat jets, while the use of 50-seat jets is largely unlimited.
“A solution, Bates said, might be for American to buy hundreds of 100 to 120-seat jets, eliminate its American Eagle subsidiary and take over the routes flown by 50-seaters,” Reed continued. “American could then hire the Eagle pilots. The per-seat cost would decline and passengers would be happier with the bigger planes, but not so happy with the reduced frequencies. ‘I'm hoping that's part of the plan going forward, although I haven't yet broached it with management,’ Bates said.”
Bates certainly has chosen a propitious moment to make the suggestion as the only thing clear about American Eagle’s future is the fact that AMR wants to get rid of it. But it will also likely derail any efforts for the sale by creating uncertainty. Even so, the asking price is too high, it has too many 40 to 50-seat RJs which are no longer economic and then there is the Chapter 11 risk for the buyer should AMR reject CPA contracts after any sale. The higher costs and the consequent dramatic changes needed to turn Eagle around have no doubt kept suitors at bay. Likewise at Comair.
Regardless of labour issues, regionals face a tough future
The comments by Pierce and Bates as well as similar attacks against the sector by mainlines themselves seeking better contract provisions and lower CPA costs, aptly illustrate the upheavals the industry continues to face including the the long-overdue debate within the Air Line Pilots Association about how to resolve the conflicting interests of mainline and regional pilots. Bates’ solution of hiring Eagle pilots seems to accomplish that but at least one regional airline executive has called it a fairy tale. Even so, it does indicate the need to resolve this issue industry wide.
Even so, it seems the real question will be whether or not the entire issue will become moot, as suggested by Fltops.com President Lewis Smith, whose organisation is a pilot hiring clearing house. It also provides guidance for those wanting a piloting career. Indeed, he suggests that far from eliminating regional flying, they will be sucking up their pilots into their own pilot corps as a matter of course.
“The major US airlines are just beginning the longest and largest pilot hiring binge in history and the ‘wake turbulence’ will be very disruptive to smaller flight operations who feed them pilots,” he said. “During the last 20 years the US major airlines hired more than 46,000 pilots. The next 20 years will see that number double.”
Still, Smith thinks Pierce’s suggestion should be taken seriously. “The pilot union negotiator mindset is now: If the passengers are willing to pay USD25 for their Samsonite, then surely they will pay a few extra dollars for a Sullenberger,” the former mainline pilot told CAPA. “So, I don't think the proposals to integrate the pilots from the feeder airlines with the mainline pilots is just posturing. It's a serious attempt to reduce the outsourcing of mainline flying and improve the career progression of mainline pilots. The recent proposals from unions to eliminate outsourcing was an inevitable development. The question is: Are they willing to strike over it?”
Regionals more than just watch and wait
For their part, regionals can only hold their collective breath as they observe the proceedings. Even so, real changes are deemed highly unlikely because “major airline executives are too smart to let the unions draw them into killing off the flexibility of regional outsourcing,” according to a retired regional airline executive, who asked not to be identified. “They fought too hard and gave up too much to get the scope relief necessary to make the regional business what it is today. If they kill it off, they will inevitably have to pay a big price in the future to buy back the scope relief they have now.”
Still regionals are moving toward the future by consolidating and diversifying such as what Air Canada Jazz and Republic Airways Holdings are doing. Jazz is launching a new contract for Thomas Cook in November using 757s for the north-south charter service, while Republic diversified into low-cost carrier service with the acquisition of Frontier and Midwest Airlines.
The main challenge for regionals is lowering CPA rates. Thus the lower the regional cost structure the more contracts they will win. Consolidation is designed to do just that as mainlines put pressure on their regional partners and as low-cost carriers capitalise on the unpopularity of 50-seat jets by rolling out competitive services with mainline aircraft. That service is considered far superior since it not only offers passengers larger jets but goes point to point versus the regionals’ connecting service.
Plenty of pilot jobs expected along with major regional airline disruption
The former regional exec also pointed out the dire consequences of Bates’ suggestion. “While the thought of bringing regional flying in house may be appealing to mainline unions, it would mean thousands of regional pilots would lose their jobs as their airplanes went to the ground and the airlines shrank or failed altogether,” he said, adding he disagreed with the hiring scenarios. “The suggestion that this all works out for the benefit of those regional employees as the surviving majors would hire these displaced pilots is a fairy tale. They would be hired only after recall of the thousands of mainline pilots already on furlough and would be hired at the bottom of the seniority list.”
Indeed, Smith thinks the legacies are on the verge of a pilot hiring binge. “I don't believe the major airlines in the US will experience a pilot shortage, but that doesn't mean they won't be impacted,” said Smith. “Their primary source of pilots are the feeder airlines and operational disruptions are almost certain as the pilots leave the feeders for the majors. We expect the major US airlines to hire more than 40,000 pilots in the next 12 years but there are only 20,000 pilots flying for the feeders in total.” More importantly, the inevitable disruptions about which Smith is speaking could turn into reasons CPAs could be terminated.
But he doesn’t think massive hiring campaigns will breed peace between management and labor. “US airlines will experience several more pilot strikes and midnight showdowns,” he said. “Union negotiators want to charge all the market will bear and figure if another competitor is paying a certain rate and still making a profit, then their company can surely afford the pilot pay raises. Besides, in the union leaders mind, it’s good business to have the highest possible pay, to prepare for the inevitable pay cuts which are always around the corner in this feast or famine business.”
This means that, clearly, unions are not buying that this time will be different and the conservative business plans managements across the industry are pursuing will be successful. Indeed, they expect that past will be prologue when it comes to jobs and pay.
Smith explained two other trends afoot in the industry, pay at foreign airlines and the changing mindset of management. “The foreign airlines will need to modify their requirements and compensation considerably if they wish to continue harvesting pilots from the US market,” he said. “I believe one can expect serious shortages among the foreign carriers who can't afford to pay what it takes to attract qualified pilots.”
“In addition, after the 9/11 tragedy, harmony with front line employees took a back seat to survival,” he said. “Many CEOs are now re-evaluating the wisdom and profitability of more harmony with the pilot group, especially those that are unionised.”
But that does not sync with what United Chair Glenn Tilton was saying earlier this year. Tilton’s suggestion that there would be no sacred cows as airlines made fundamental changes in how they do business was clearly aimed at labour. “The industry has made expedient decisions, when it was seemingly affordable or comfortable to do so, and regretted them thereafter,” he said.
Loss of frequency or loss of service
The only downside to the scenario outlined by Bates, is the loss of frequency in many of the markets now served by Eagle. But the regional airline executive disagrees. “The whole rationale for the idea is that the uneconomic, small RJs will be going away,” he said. “But so will the markets they were ‘right-sized’ to serve. The majors won’t replace that uneconomic capacity so those are jobs that will never come back. It also takes fewer pilots to produce capacity on bigger airplanes so even fewer pilots will be needed.”
(continued...)
US regional aviation outlook: More than posturing to eliminating regionals
8th September, 2010
After Continental Master Executive Council Chair Jay Pierce blasted yet another strategically placed shot across the regional industry’s bow last week in suggesting that the next contract for the merged United/Continental would rid the carrier of outsourcing to regional airlines, newly installed Allied Pilots Association President David Bates suggested much the same thing.
It seems the elimination of outsourcing may be more than a positioning strategy after all, according to The Street. “American [Airlines] pilots are also concerned about scope, which limits the number of regional jets the airline can fly,” wrote The Street columnist Ted Reed. “At American's Chicago hub, Bates points out that it's a lot of ‘trouble finding an American jet.’ The number of locally based pilots has declined from 2,200 in the mid-1990s to about 1,100 today. As airlines reduce capacity, American's fleet has fallen from about 900 aircraft to 619 today. The contract limits American to 47 70-seat jets, while the use of 50-seat jets is largely unlimited.
“A solution, Bates said, might be for American to buy hundreds of 100 to 120-seat jets, eliminate its American Eagle subsidiary and take over the routes flown by 50-seaters,” Reed continued. “American could then hire the Eagle pilots. The per-seat cost would decline and passengers would be happier with the bigger planes, but not so happy with the reduced frequencies. ‘I'm hoping that's part of the plan going forward, although I haven't yet broached it with management,’ Bates said.”
Bates certainly has chosen a propitious moment to make the suggestion as the only thing clear about American Eagle’s future is the fact that AMR wants to get rid of it. But it will also likely derail any efforts for the sale by creating uncertainty. Even so, the asking price is too high, it has too many 40 to 50-seat RJs which are no longer economic and then there is the Chapter 11 risk for the buyer should AMR reject CPA contracts after any sale. The higher costs and the consequent dramatic changes needed to turn Eagle around have no doubt kept suitors at bay. Likewise at Comair.
Regardless of labour issues, regionals face a tough future
The comments by Pierce and Bates as well as similar attacks against the sector by mainlines themselves seeking better contract provisions and lower CPA costs, aptly illustrate the upheavals the industry continues to face including the the long-overdue debate within the Air Line Pilots Association about how to resolve the conflicting interests of mainline and regional pilots. Bates’ solution of hiring Eagle pilots seems to accomplish that but at least one regional airline executive has called it a fairy tale. Even so, it does indicate the need to resolve this issue industry wide.
Even so, it seems the real question will be whether or not the entire issue will become moot, as suggested by Fltops.com President Lewis Smith, whose organisation is a pilot hiring clearing house. It also provides guidance for those wanting a piloting career. Indeed, he suggests that far from eliminating regional flying, they will be sucking up their pilots into their own pilot corps as a matter of course.
“The major US airlines are just beginning the longest and largest pilot hiring binge in history and the ‘wake turbulence’ will be very disruptive to smaller flight operations who feed them pilots,” he said. “During the last 20 years the US major airlines hired more than 46,000 pilots. The next 20 years will see that number double.”
Still, Smith thinks Pierce’s suggestion should be taken seriously. “The pilot union negotiator mindset is now: If the passengers are willing to pay USD25 for their Samsonite, then surely they will pay a few extra dollars for a Sullenberger,” the former mainline pilot told CAPA. “So, I don't think the proposals to integrate the pilots from the feeder airlines with the mainline pilots is just posturing. It's a serious attempt to reduce the outsourcing of mainline flying and improve the career progression of mainline pilots. The recent proposals from unions to eliminate outsourcing was an inevitable development. The question is: Are they willing to strike over it?”
Regionals more than just watch and wait
For their part, regionals can only hold their collective breath as they observe the proceedings. Even so, real changes are deemed highly unlikely because “major airline executives are too smart to let the unions draw them into killing off the flexibility of regional outsourcing,” according to a retired regional airline executive, who asked not to be identified. “They fought too hard and gave up too much to get the scope relief necessary to make the regional business what it is today. If they kill it off, they will inevitably have to pay a big price in the future to buy back the scope relief they have now.”
Still regionals are moving toward the future by consolidating and diversifying such as what Air Canada Jazz and Republic Airways Holdings are doing. Jazz is launching a new contract for Thomas Cook in November using 757s for the north-south charter service, while Republic diversified into low-cost carrier service with the acquisition of Frontier and Midwest Airlines.
The main challenge for regionals is lowering CPA rates. Thus the lower the regional cost structure the more contracts they will win. Consolidation is designed to do just that as mainlines put pressure on their regional partners and as low-cost carriers capitalise on the unpopularity of 50-seat jets by rolling out competitive services with mainline aircraft. That service is considered far superior since it not only offers passengers larger jets but goes point to point versus the regionals’ connecting service.
Plenty of pilot jobs expected along with major regional airline disruption
The former regional exec also pointed out the dire consequences of Bates’ suggestion. “While the thought of bringing regional flying in house may be appealing to mainline unions, it would mean thousands of regional pilots would lose their jobs as their airplanes went to the ground and the airlines shrank or failed altogether,” he said, adding he disagreed with the hiring scenarios. “The suggestion that this all works out for the benefit of those regional employees as the surviving majors would hire these displaced pilots is a fairy tale. They would be hired only after recall of the thousands of mainline pilots already on furlough and would be hired at the bottom of the seniority list.”
Indeed, Smith thinks the legacies are on the verge of a pilot hiring binge. “I don't believe the major airlines in the US will experience a pilot shortage, but that doesn't mean they won't be impacted,” said Smith. “Their primary source of pilots are the feeder airlines and operational disruptions are almost certain as the pilots leave the feeders for the majors. We expect the major US airlines to hire more than 40,000 pilots in the next 12 years but there are only 20,000 pilots flying for the feeders in total.” More importantly, the inevitable disruptions about which Smith is speaking could turn into reasons CPAs could be terminated.
But he doesn’t think massive hiring campaigns will breed peace between management and labor. “US airlines will experience several more pilot strikes and midnight showdowns,” he said. “Union negotiators want to charge all the market will bear and figure if another competitor is paying a certain rate and still making a profit, then their company can surely afford the pilot pay raises. Besides, in the union leaders mind, it’s good business to have the highest possible pay, to prepare for the inevitable pay cuts which are always around the corner in this feast or famine business.”
This means that, clearly, unions are not buying that this time will be different and the conservative business plans managements across the industry are pursuing will be successful. Indeed, they expect that past will be prologue when it comes to jobs and pay.
Smith explained two other trends afoot in the industry, pay at foreign airlines and the changing mindset of management. “The foreign airlines will need to modify their requirements and compensation considerably if they wish to continue harvesting pilots from the US market,” he said. “I believe one can expect serious shortages among the foreign carriers who can't afford to pay what it takes to attract qualified pilots.”
“In addition, after the 9/11 tragedy, harmony with front line employees took a back seat to survival,” he said. “Many CEOs are now re-evaluating the wisdom and profitability of more harmony with the pilot group, especially those that are unionised.”
But that does not sync with what United Chair Glenn Tilton was saying earlier this year. Tilton’s suggestion that there would be no sacred cows as airlines made fundamental changes in how they do business was clearly aimed at labour. “The industry has made expedient decisions, when it was seemingly affordable or comfortable to do so, and regretted them thereafter,” he said.
Loss of frequency or loss of service
The only downside to the scenario outlined by Bates, is the loss of frequency in many of the markets now served by Eagle. But the regional airline executive disagrees. “The whole rationale for the idea is that the uneconomic, small RJs will be going away,” he said. “But so will the markets they were ‘right-sized’ to serve. The majors won’t replace that uneconomic capacity so those are jobs that will never come back. It also takes fewer pilots to produce capacity on bigger airplanes so even fewer pilots will be needed.”
(continued...)
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