DAVID FIELD TAMPA
The Regional Airline Association's (RAA) annual meeting in Tampa, Florida, was marked as much by absences as by those present.
Hanging over the meeting was the shadow of absent Comair, the Delta Connection carrier that was the first and is the largest regional jet operator, but which has been grounded since late March after its Air Line Pilots Association chapter struck.
Comair is traditionally a major presence at any regional gathering, but had no visible representation at the RAA. The Cincinnati-based carrier grounded itself in March when its pilots walked off the job - but was still on centre stage in Tampa. Jim Parker, managing director of Raymond James & Associates, a consultancy specialising in regional airlines, told the meeting that the entire industry is watching the pilot's "jihad or holy war" against Comair, saying: "Whatever goes on at Comair will set the pace for the industry."
There "probably would not be a strike if Delta had not acquired Comair," he believes, adding that rising labour costs would encourage major carriers to spin off their regional subsidiaries. Such spin-offs "might mitigate pilot demands. They would be a victory for pilots, who would be able to say: We made them get rid of us," says Parker.
Delta has denied that it is planning to sell all or parts of its Comair or Atlantic Southeast Airlines subsidiaries, while Continental would not comment on reports that it may spin off its Continental Express unit. But Parker says steps such as these are logical. "Stay tuned. It's real. If one does it, then watch out. The others will get in line," he says of possible spin-offs.
The flotation of regional airlines should be attractive to investors, says Parker, because of the fixed-fee code-sharing contracts with major airline partners that are common to regionals. Divestitures with such cost-plus "capacity buys" are protected from fuel-price swings and from fare wars because the regional carriers are guaranteed a profit margin. Parker estimates the margin at 10-15% in most contracts. The contracts, many for as long as 10 years, are the steady sources of income that investors like.
And even though major carriers can cancel these contracts, generally on 180 days' notice, Parker says, "practically, that's not going to happen". In an economic downturn, the major carrier is likely to outsource its business even more to its code-sharing regional partner. That, Parker says, makes it all the more important for regionals to control their costs - making the outcome of the situation at Comair and pilot wage-demands there even more crucial to the regional airline industry.
Also highly visible by its absence from the meeting were Mesa Air Group and its high-energy chairman, president and chief executive, Jonathan Ornstein. Mesa is by no means small, but it too sent no one to RAA, from which he resigned earlier this year. It did, however, gather a first-day buzz with Ornstein's announcement that he had founded a separate lobby group, the Regional Airline Partnership.
But RAP, Ornstein insists, is not out to "raid" RAA members. "We're building a base of power that will include communities, not just the airlines. Instead of going into a Senator's office with just someone from the airline to talk about rural service or other issues, we'll go in with people from the airport and from the community. That's what they'll listen to on Capitol Hill," says Ornstein.
The new group has hired Maurice Parker, a Mesa board member and former National Mediation Board mediator, and has a pledge of $100,000 in support. "We're planning to be accessible to grass-roots groups like business leaders, even hotel operators, any one who wants to keep rural air service," says Parker.
As of mid-May, though, Mesa was the only member of RAP. Parker says the group will have a public presence by mid-June, by which time it hopes to enlist more members. It will use the Internet and other media to lobby to keep 19-seat turboprop air service from becoming an endangered species.
Andy Price, RAA chairman, welcomed RAP. "Two voices are better than one," he told reporters diplomatically. Ornstein had quarrelled with the RAA earlier, and says that the association did not do enough to oppose Federal Aviation Administration regulations on 19-seat turboprops.
Source: Airline Business
