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Question on Scope and Regional Growth

surfnole

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I have been interested in this debate on scope between major airlines and the regionals and had a few questions.


1) How can a major airline limit flights at a regional which is not a subsidiary of that airline? Lets use Skywest as an example. How can Delta limit growth at Skywest?

Can they limit growth by saying that Delta can only codeshare X flights a month with Skywest where X is a certain percentage of the total number of Delta flights during the month?


2) In the past, I understand that one of the major drivers of regional revenue was the ability to codeshare with a major airline. Is this still true? Or is that changing?

If Skywest knows that lots of people use Delta to fly from Fresno to Portland via LAX, wouldn't Skywest be smart to schedule a direct flight from Fresno to Portland and cut Delta out of the picture completely? Is there anything to prevent that?

3) Does an airline like Delta make as much money from an airline such as Skywest than it does from ASA or Comair?

If Skywest is a competitor of Delta/ASA/Comair, it seems like Delta ought to eliminate the codeshare with Skywest and expand operations at Comair and ASA to include the entire US. In short, Delta should try and put Skywest out of business since they are a competitor.
 

Andy Neill

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1 - The control as to what aircraft are flown where are in Delta's hands as the one granting the codeshare. DALPA would have the right to restrict how much CRJ flying is done with Delta codeshares through the scope clause of their contract.

2 - I think this is absolutely true. I see no viable business plan for any regional airline without codeshares. We rely on our senior partners' reservation system and larger market to fill our aircraft. In return, we serve many more communities with greater frequency at higher load factors than the mainline could while maintaining the mainline standard of service. If the mainline can fly a full aircraft with a 737, they should fly it and not run 2-3 CRJs on the route (disregarding the frequncy preference of the marketplace). Their cost per seat mile will be less. If they cannot, it makes good sense to maintain the market with a codeshare who can turn a profit with 30 of the 50 seats filled until such time as the market can be profitable for the mainline.

3 - I don't have a clue on this one. I presume since Delta keeps SkyWest and ACA as codeshares, it is working out for them economically. When those two operators cannot deliver a quality product at a competitive price, I am sure the codeshare will go away. One other factor that MIGHT play into this is the non-owned codeshares' access to airframes that might not otherwise be available to them. I think this is definitely the lesser of the two factors involved.
 

publisher

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point

The reason to the last point is that the Comair strike told Delta how vulnerable they were to labor actions at their prime feeder. They are taking steps to reduce that reliance.
 

skydiverdriver

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No, Delta is not taking steps to reduce it's alliances. It's taking steps to own more of it's own feed. It looks like Skywest and ACA are opening routes for Comair and ASA, and they will eventually take over for them. If they could increase the size of Comair and ASA rapidly, they would drop the codeshare agreements with the non wholly-owned airlines. Yes, they do make more money on the wholly-owned's, as they get all the ticket profit instead of a fee for departure agreement.
 

~~~^~~~

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SDD:

Good theory, I sort of agree with it. However, another reason for ACA and Skywest is that it is a low risk way of operating connection.

The aircrafts' capital acquisition costs (cash flow) are carried by the codeshare partner and if the Delta MEC wins their grievance it is easier to sever the codeshare relationships than it is to put the owned Connection assets on the market.

I don't have the numbers as to how far Connection has exceeded the scope cap yet. But, if we were limited to 4% growth before 9-11 and mainline has shrunk by 18%, it means Connection is probably more than 10% larger than we should be under the Delta scope.

This is going to get interesting sports fans...
 
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