The US regional airline industry will be watching two separate but closely related sets of labour negotiations over the coming months. The outcome of these ongoing talks between pilots and management at Delta Air Lines and United Airlines will have a major impact on the future shape and size of regional jet (RJ) aviation in North America.
Waiting and watching in the wings are representatives from both sides at American Airlines, Northwest Airlines, Trans World Airlines (TWA) and US Airways, all of whom will face off over the next three years and hammer out new pilot contracts. "United and Delta will be the watershed," says Capt Duane Woerth, president of the Air Line Pilots Association (ALPA).
For some of the country's financially strained major carriers the question of RJ scope clauses has ramifications far beyond simply adding more jets. US Airways chairman Stephen Wolf and president Rakesh Gangwal, in a recent letter to the local ALPA chapter, contend that the need for more RJs "has not only been identified, but become a factor in our survival."
Scope is hardly a new issue, but the runaway growth in regional air transport over the last three years has propelled it to the top of the negotiating agenda. US regional domestic traffic grew by an astounding 25% in revenue passenger kilometres (RPK) last year alone, compared to less than a 5% expansion in major mainline RPKs, according to Walsh Aviation.
Continental Express' traffic growth was close to 38% in 1999 and touched 50% in March, which, says president, Jim Ream, was in no small part due to the jet. "It's a combination of doing well from jet efficiency and the ability to service more markets, and customer reaction to the product itself stimulating demand," he says.
Ballooning orderbooks
This is clearly reflected in ballooning orderbooks for the three main RJ suppliers: Bombardier, Embraer and Fairchild. Total jet orders of all types worldwide totalled 543 aircraft in 1999, compared to 441 the previous year, while the delivery backlog has tripled to 900 RJs since 1997, estimates Walsh. The US fleet of RJs alone now totals over 550 aircraft - or about a quarter of the entire 2,187-aircraft regional inventory.
US airline appetite for RJs shows no sign of waning, with a number of major "binge orders" announced this year. Delta has signed a $10 billion deal for 94 new Bombardier CRJ-200/700s plus 406 options on behalf of its two Delta Connection carriers, Atlantic Southeast Airlines (ASA) and Comair.
This comes fast on the heels of Mesa's order for 36 Embraer RJ-145s plus 64 options, while Chautauqua Airlines owner Wexford has bought a further 35 ERJ-145s and taken options on 45 more, adding further pressure for a rollback of scope restrictions. "Five hundred RJs is kind of an 'in your face' way of negotiating with your pilots," observes Bill Swelbar, of Washington-based consultancy GKMG and author of last year's Proposition RJ study,criticising scope clauses.
It's not just sheer volume of numbers that has mainline pilots feeling threatened, but the growing size of RJ types now in development. While individual scope agreements vary from carrier to carrier and, in some cases, place no restrictions on the number of smaller 35/50-seat aircraft, most contain a ceiling on the maximum permissible size. With the exception of America West, none currently exceeds 70 seats.
Seemingly oblivious to this, the regional aircraft industry is fast at work developing a new generation of larger RJs that fly in the face of scope clauses. Embraer and Fairchild will both deliver new 70-seaters in 2002 - the ERJ-170 and 728JET, respectively - to compete against the CRJ-700. While these might be regarded as marginal in terms of scope compliance, the follow-on 90-seat 'plus' CRJ-900, ERJ-190 and 928JET and are most definitely out of bounds.
Industry's attitude appears to be, if the jets are built and there is a demand, then carriers will buy them. "Airlines are working diligently to provide platforms that address the market. Smart people usually find ways to get it done - maybe not in the volume in the early years they would like, but these are elements of negotiations and accommodation that inextricably moves this forward," says Charles Pieper, Fairchild chairman.
The argument over scope comes down to how and where RJs are used and how they affect mainline operations. GKMG's report estimates only 9% of RJs have replaced mainline services. A recent Bombardier market outlook put the figure slightly higher, at 15%. Both concur that over half the RJs have supplemented services or replaced turboprops and another third have pioneered new services.
No dispute
Most RJ flights are to or from airline hubs, which ALPA has no dispute with as long as the use of lower cost regional partners or subsidiaries does not affect parent operations. The pilot union, contends that rather than opening up previously unserved destinations, RJs are now being used to down-gauge and increase frequencies on mainline routes.
In a recent presentation to the American Bar Association, ALPA pointed to the case of the 73 daily RJ services, totalling 3,650 seats, between New York La Guardia and Atlanta, a city of 3.5 million people. It further submits that only 17 cities with a population under 100,000 now have RJ connections, representing only 1% of total RJ operations. Of these,14 are seasonal resorts.
GKMG's Swelbar counters that previously idle routes - such as the former United Washington Dulles-Charleston service - have been revived by partner carriers using smaller, more economic aircraft as in the case cited, which involves Atlantic Coast Airlines (ACA). Furthermore, when new routes expand, such as American Eagle's Knoxville-Dallas, mainline jets can be added. "ALPA fails to recognise this." he adds.
Delta says that where it has replaced short haul mainline services out of Atlanta with ASA RJs, it has been able to increase revenue and capacity and aircraft utilisation, and free up an aircraft for more efficient use elsewhere. Furthermore RJs have helped offset revenue loss to competitors over-flying or using RJs to divert traffic to their own hubs, says the airline.
But these arguments fell on deaf ears last year when Delta allocated three of its eight Washington Dulles-Boston flights to a Comair CRJ-100. ALPA then took legal action to block the move.
However strong the win-win case that can be made for RJs, most observers contend that the bottom line for ALPA is job security and pay. In this respect, scope lends considerable leverage at the collective bargaining table. This inevitably works to the advantage of mainline pilots, which for a major carrier like United, number 10,000 or more and wield more clout than their much fewer regional brethren.
The average US narrowbody pilot earns around $150 per hour or about twice that of a RJ pilot. While some might contend that the pay gap is narrowing as pilots move from regional turboprops to larger, longer-range and more sophisticated jets - Continental's ERJ-145 first-year captains now earn over 40% more than their turboprop counterparts - major discrepancies still exist in seniority, health and retirement benefits. Some observers contend that with the move towards mainline carriers owning their regional feeders, led by Delta's acquisition of ASA and Comair and American's purchase of Business Express, the opportunity is there to create one seamless organisation. The major barrier is keeping regional costs low and maintaining competiveness.
"We've not looked at anything like that formally," says Continental Express' Ream. "I really think that the industry is still digesting the performance of regional jets and what it means strategically. No one has yet come up with a master vision of what all this means in 10 years from now."
Most parties would agree that some form of scope clause will remain for US carriers for years to come. The immediate focus is on relaxing limits at severely scope-constrained airlines such as US Airways and United and putting them on a level playing field with those major airlines currently enjoying more liberal terms and conditions. A dangerous imbalance has already been created in fleet ordering.
A number of carriers have already concluded major deals, locking up regional jet production in Montreal and Sao José dos Campos and for the next few years. Continental Express and American Eagle collectively account for 359 of the 612 ERJ-145/135s ordered to date, while Delta's latest order increases to 224 ASA/Comair's CRJ100/200 fleet out of a total sales of 702.
Future orders
"If I go back to any of my partners and they want additional aircraft, they're probably looking at 2002," says Mesa chairman Jonathan Ornstein. But, he adds, "You've got Delta out there ordering 500 jets and they have the ability to take apart other people's systems. People have to to be able to respond without restrictions." Mesa flies for America West and US Airways.
Carriers like ACA have tried to cover themselves with a conditional order for 55 328/428JETs, hoping that United can secure some or all of the 284 additional RJs it is asking ALPA to agree to. At the same time the Washington DC-based regional has sent United a warning of its discontent by announcing a new ACJet partnership with Delta.
Chautauqua has similarly moved to reduce its reliance on US Airways by launching a TW Express operation to be equipped initially with 15 newly ordered ERJ-145s. It now needs a home for the remaining 20 50-seat jets on order. "We can give Embraer 90 days' notice of any cosmetic changes before delivery," says Chautauqua chief executive Bryan Bedford.
US Airways is among the most competitively disadvantaged airlines. Its main Charlotte and Pittsburgh hubs rely heavily on regional feed, yet none of its three wholly-owned subsidiaries Allegheny, Piedmont and PSA is currently equipped with RJs. ALPA has agreed to 35 more RJs in addition to the 38 already allocated to Mesa and Chautauqua, but this falls far short of the 422 US Airways management sought.
In the meantime, Continental and Delta look to take advantage of RJ provisions contained in the newly passed FAIR-21 bill, with requests for 342 slot exemptions at La Guardia, right on US Airways's doorstep. In their letter to ALPA, Wolf and Gangwal warn: "We face a new uncompetitive phenomenon which may again result in the company not being able to grow and, once again, it will be our pilots who pay the price."
There are encouraging signs that negotiators on both sides may be ready to accept a more equitable industry-wide solution. In return for the pilot unions agreeing to increased numbers of 50-seat and smaller RJs, airlines may concede to tighter controls on jets with over 70 seats.
The upper ceilings will be better defined according to specific aircraft types, rather than arbitrary size restrictions now in place, resulting in carriers like Northwest Airlines' Mesaba having to operate their Avro RJ85s below capacity at 69 seats. Future restrictions will instead be based on certified weight and seat, says ALPA.
"I think we're going to get a clear picture when the Delta and United contracts are concluded and I'd be shocked if there are any difference between them. You'll see a pattern throughout all the major network systems, the smaller the aircraft the less restrictions," predicts Woerth.
Source: Flight International
