WO's vs Contract Carriers

[172driver]

At the risk of sounding ignorant, can someone break down for me the difference between the wholly owned regionals (CMR, ASA) and the contract carriers (CHQ, SKYW)?

What are the advantages and disadvantages to Delta, for instance, of allotting flying to a company they own as opposed to one they contract with? More profit, more risk, better writeoffs, ownership of assets? What do they pay a contract carrier and who sees the money from the tickets? Why would a contract carrier ever create more profit than a wholly owned, since there is another hand in the cookie jar?

 

[RUhiring?]

Airplanes at the WO's are basically purchased by the mainline airline. Airplanes at the contract carriers are purchased by the contract carriers. See the cost advantage?

A simplistic view, yet an important one.

 

[aewanabe]

Another simplistic view, from the contract side. Like RUHiring said, us contract carriers buy/lease the airplanes ourselves, so Ma Delta or Airways or AMR doesn't have to make the payments on them everymonth. With the fee-per-departure system, after paying the fixed fee to us, the codeshare airlines keep ALL the money generated by that flight... so no exposure to daily variations in fuel costs, depreciation, irregular ops, etc. (All these things are covered by our contract, and set fee.) As many have pointed out, it is generally believed that a WO carrier makes the parent more money on high-yield routes, while the contract carriers will more consistently produce a profit on low-yield routes.

And finally (I'm in a rant mode this morning....insert Delta where appropriate in the following and it still applies) a word about the idiots who are constantly yelling about contract carriers providing sh#tty service on the individual employee and product level. Knock it the f#ck off. I do 98 percent of my flying on the USAirways side. All of my anouncements reflect USAirways. I smile, greet customers, thank them for flying USAirways, help with bags, give kids wings, etc. The interior of my airplane is decorated as USAirways (with the exception of the 3 generic system spares). 95 percentof my coworkers and I bust our asses to make sure that our product is first rate, because we realize that #1: the customer doesn't know, or care, if they're on Piedmont, Allegheny, CHQ, MESA, etc.... they just want, and deserve, a good travel experience (as good as it can be when we're flying 3-hour stage lengths in the sewer tube). #2:If we provide a crappy product, we screw ourselves either by losing the codeshare, or by contributing to the overall demise of Airways. Neither of which helps me in the long or short-term. Ok, end of rant for now.

 

[SkyWestCRJPilot]

Contract carriers are other companies competing on flying with wholley owned carriers. They compete on everything which boils down to being the most efficient regional. The carrier that operates with lower costs, better customer satisfaction, higher safety, etc., is the carrier that has the advantage. Just like how the majors and low cost carriers compete against each other, the regional airlines compete against each other for contract flying.

It's hard to compare operating costs of a regional to a wholley owned. For example, at SkyWest we have the leases on our gates in SLC and so does ACA in IAD. Whereas many wholley owned regionals appear to have lower costs but that's because those costs are hidden because the mainline company pays for them.

I'm not sure of the history of all of the airlines but I know that one reason Comair was bought was that they were operating with incredible operating margins, around 25%, so they were a good buy for anyone and hence Delta bought them. There are other factors involved though.

Recently after 9/11 many carriers have considered divesting themselves of their wholley owned carriers mainly for reasons of obtaining cash. ExpressJet was spun off from Continental via an IPO to get some cash. I believe Continental may still own a majority of the shares though. United never owned any of it's regionals and then after it's bancruptcy told each one to put in their lowest bid. The lowest bidders won the contracts and ACA didn't want to bid any lower, hence they've decided to go it alone as a LCC. Best of luck to them.

Contract carriers generally have more leeway in picking up contracts from mulitiple codeshares, thus diversifying their risk. Wholley owned regionals seem to have less leverage in this area, though I know American Eagle operates as a Delta regional out of LAX.

Employees at wholley owned regionals seem to blend in closer to mainline employees at least in terms of bennefits. When it comes to overall significance to our major partner many times us at SkyWest feel like the red-headed step child for our three major partners: Delta, United, and Continental. Kind of like second-class citizens in the eyes of mainline pilots as well as wholley-owned pilots. They may feel we are taking their flying away from them. They may feel so rightly or wrongly, but I guess the only way out of that is ultimately doing what ACA is doing, gaining their Independence.

 

[LearLove]

WO vs Contract

Its a good discussion, but one that cant really be backed up because the true numbers aren't available, especially in the U system.

If we look back in history (something many should do) we can see that there was a time, comming up on ten plus years ago now, when the contract guys were getting the shaft and the WO were the way to go (alot of that last statement has mostly to due with the U carriers). Many guys here where I work were ex Presidential, Pocano, Mall, Mohawk II, brockway (sp?) ect. that were contract carriers that went out of bizz while at the same time WO were getting the flying so they all beat feet to ALG and PDT thinking that was the way to go, well just look at us now. Also some of remember when CHQ was down to 7 J-31's up here in NY and we all thought they'd be history, well who woulda guessed.

So what do we see from the above? What I get is that knowbody can forcast this bizz, grab the carrier that you like or the one that hires you and HANG THE F%CK ON.

Anyway - maybe we could look at some stuff we do know wrt the WO vs Contract carriers.

Contract Carriers
Good aspects wrt the mother main line -
No aircraft or flt crews to buy/pay.

Just pay a fee for service, no capital to take care of.

They can CX the contract for poor service (there may be legal issues) or they don't want the service anymore, aka the America West pulling from CMH and dropping CQ. Flexable

BAD
The contract carriers can pack up and leave (again may be legal issues, but that what lawyers are for) if they want.

Because its a contract carrier it may be hard for the mother airline to control the quality of the product

Mother airline doesn't own or lease the aircraft so the ownership and tax advangates don't apply.

As many contract carriers are "fee for departure" at some point the mother airline looses $$ depending on the load where they may have made $$ if they kept all the revenue if they owned the flight.

Now for the WO (basically the reverse of the contract guys)

Good stuff -
you have control

all the $$ you make go to you not somebody else

tax and ownership advantages of buying and leasing

Bad
Not as flexable

So where does this leave us? Well maybe you (the airline CEO) should have some of both. Just my thoughts but if I were running the show at an airline that say needs 250 rj's and 50 turboprops to compliment its mainline fleet of say 300 airbus aircraft. I'd have a combo of contract and WO. I'd have one WO with 150 RJ's (50 and 70 seaters) and 2 contract carriers with 50 rj's and 25 TP aircraft each.

My WO rj would be put on the runs that yeild the best so I'm getting the most and put the Contract guys on the thin rev routes so I'm just paying "known" fee to operate them. The TP aircraft will do small community and EAS routes and we (the contractor and the mother airline) agree to split the profit from the EAS service.

This way I have control and flexability so say another 911 happens I need to reduce capacity I tell the contract carriers go away for awhile (again legal issues but then again there are lawyers and that force majure stuff) and spread my mainline and WO guys over the profit flying in the bad times and when the bad time go away pick up the other stuff with contract carriers.

My airline consists of
-Mainline fleet (300 single type boeing or AB aircraft)

-WO RJ fleet (150, 50 and 70 seaters)

-Contract RJ/TP fleet I (75, 50 seaters and 25 TP)

-Contract RJ/TP fleet II (75, 70 seaters and 25 TP)

We do some hub and spoke - where it makes $$, but mostly point to point.

 

[DDpaysoff]

[.

It's hard to compare operating costs of a regional to a wholley owned. For example, at SkyWest we have the leases on our gates in SLC and so does ACA in IAD. Whereas many wholley owned regionals appear to have lower costs but that's because those costs are hidden because the mainline company pays for them.
. [/B]

The cost of equipment is amortized over usage. The charge may take place on equipment based on cycles, time, anything you can imagine. Although, these costs can be accounted for, there is not a neutral auditor who can go into enough detail on the 'financials' to accurately determine the charge each subsidiary takes. Therefore; it is nearly impossible to tell exactly what a wholly owned subsidiary's CASMS really are. I know AMR used to charge eagle a much higer cost for using company equipment than AA. Not a dollar figure moved, but the casms may be greatly affected by the company to produce bargaining leverage or to influence shareholders in some way. Appearance is the beauty of accounting. With regards to codeshares and equipment usage Delta in MCO is a good example. When Comair uses a gate they incur a charge on paper not a dollar actually changes hands, just columns. Chautaqua on the other hand is charged to use that equipment, it may be as simple as a quarterly check sent to DAL or it may be factored into the terms of the agreement, either way it affects chautuaqu's operating margin, that usage is not free.
I learned a lot looking at continental express financials regarding this subject. Take a look for yourself and do some DD, compare COEX with mesa or acai, although COEX is now its own entity it brings about some interesting questions looking at the numbers. The parent company of a wholly owned regional subsidiary has a lot of advantages in keeping it as wholly owned and not spinning it off, COEX on the other hand and possibly AEagle have advantages in being a separate entity. When you elect a chairman you are electing a philosophy, it is amazing how different philosophies we have out there right now at the majors!
As far as less risk at non-wholly owned's becasue the risk is spread, well that is an opinion, it is a good point but there are also advantages for working for a wholly owned (regardless of the contract, work rules etc.) depending on which one you go to. Do some homework before you decide who to go to, and make sure you decide who to go to, don't let them decide where you go. Good luck.

 

[sleepy]

WO = Better Pay + Better Benefits.

Contract Carriers = Bottom feeding timebuilders who hope to take flying (growth) from the WO's by flying for lower pay and lesser benefits.

WO's - Contract Carriers = A strong piloting profession.

WO + Scope = No more Contract Carriers.

WO + Mainline = The end to airline management's ability to whipsaw pilots.

 

[aewanabe]

Sleepy = Flaimbait, or maybe flaming f@g.....

Nice job hijacking what was actually a civil, for a change, WO vs. Contract thread, douchebag. BTW, former J41 driver: no wholly-owned has ever flown the mighty super junkstream, so where were you "bottom-feeding" at? Jackass.

 

[I.P. Freley]

aewanabe,

Well... You DID see it coming, right? It's practically impossible for "that type" of person to keep their yap shut when they see a civil discussion going on that can be turned into a flame-fest.

Then again, what do I know? I have never flown for any WO carriers, so I am just feeding at the bottom trying to... And this is my all-time favorite meaningless insult... "Steal their flying".

Mmmmm.... Scraaaaaaaaps....

 

[Shark]

aewanabe,

I believe it was you that was in a rant mood this morning. Did you miss your early morning run - evidently you're one that loves that race to the bottom. Now I’m sure you've got same smile on face that you greet customers with that you do when mgnt bends you over and slides one in. If you believe your product is first rate then stand up for a first rate contract, first rate pay, first rate QOL. Maybe one day you'll be able to hold you head high when surrounded by others in this profession, instead of being a one who lead the race to the bottom.