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March 22, 2012

Regional Jets: The Cure or the Disease?

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By: Phil Derner Jr.
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Prior to commercial airline deregulation in 1978, airlines typically flew twin-engine, piston-powered interstate aircraft, as well as four-engine intercontinental jet airliners. The traveling public living in smaller cities had limited choices, and would often have to fly multiple carriers when traveling to foreign destinations.

In the 1980’s, airlines rapidly expanded their domestic networks. With the blessing of the pilot unions, the service to smaller communities was outsourced to regional carriers under the guise of “Express,” “Connection” or “Commuter.” Although the public was traveling on multiple airlines, the tickets and service were all under the operation the one operator.

The following decade, Bombardier of Canada and Embraer of Brazil introduced 50-seat regional jets. Although these aircraft had far higher operating costs than the turboprops, they quickly replaced them in response to the public demand. The pilot unions, focusing on larger equipment, and thus pay, permitted the regional flying to be continued to be outsourced, but with limitations. These limits included such metrics as number of aircraft, number of seats, and percentage of flying. The term for this these restrictions is “scope”.

Tough Times

After the severe slump in air traffic post September 2001, airlines rapidly grounded aircraft requiring more than two flight crew members like the Boeing 727, and aging fuel inefficient aircraft like the Douglas DC-9. Under pressure from the threat of bankruptcy, and rulings from bankruptcy court judges, airlines were able to lower crew costs by forty percent, as well as expanding the outsourcing of the regional service. The number of airframes and seats permitted under the renegotiated union contracts rapidly expanded, and scope became the line in the sand that moved on an annual basis.

Airlines cited the low operating costs of these regional jets as a necessity to compete with the rapidly expanding low cost carriers. Indeed, the crew costs at these outsourced carriers was half of that of the even recently renegotiated wages of their in-house crews.

One of the most important figures in airline management is Cost per Available Seat Mile, or CASM. Low cost carriers routinely had CASM figures one quarter or more less than traditional or legacy U.S. carriers. Prior to September 2001, customers were quite willing to pay the premium to fly with one of the legacy carriers, but after September 2001, customers became far more cost conscious, and the service differentiation between the low cost carriers and the legacy carriers narrowed.

To compete with low cost carriers, several legacy carriers experimented with internal low cost operations both prior to and post September 2001. Although some of the aspects of these operations were later incorporated to regular operations, these experiments as a whole failed.

The CASM for most outsourced regional operations was reported to be similar to that of the low cost carriers. This provided the justification for the replacement of legacy service as well as the expansion of service, both to new and existing destinations with these new fifty seat regional jets. The RJ revolution was considered a success, and today as much as nearly half of the domestic departures at legacy airlines may be on regional jets. A roundtrip flight connecting through a carrier’s hub might be conducted on four different airlines, none of which directly operated by the carrier who bears the name on the ticket.

Airline pilot unions have seen scope restrictions greatly reduced in the last decade. Currently, regional jets may have up to ninety seats, and there are few restrictions on the amount of turboprop and fifty seat jets that may be done by outside contractors. The unions representing the pilots at legacy carriers have seen their pay and their numbers cut nearly in half. Several union contracts are currently in negotiation, and several more will soon be entering talks. The unions are demanding that there should be no further relaxing of scope restrictions, and may even demand a reduction in the current amount of outsourced flying to regional carriers.

And this is one time when management should listen to labor.

 
 

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    Awesome freaking post and great insight on this.  Keep up the good work!