David Field Washington DC
Mainline pilots still hold the power to put a brake on the US regional jet revolution and seem prepared to use it.
The US flying public has already made clear its love affair with the regional jet. The major carriers too have been enthusiasts, expanding their express jet fleets at a breakneck pace. However, that is not the end of the affair. Mainline pilot unions still have a casting vote over the extent to which RJ fleets can grow and are showing every sign of using these scope clause restrictions as a powerful bargaining chip. RJexpansion has already arisen as a key issue in the protracted contract negotiations taking place at several majors.
Delta Air Lines is a case in point. Over the past couple of years it has emerged as a driving force in RJ expansion after acquiring its main Delta Connection feeder carriers Atlantic Southeast Airlines (ASA) and Comair. Now its mainline pilots union is using the question of the scope of these operations as a significant point in current negotiations, alongside the basic issues of pay and conditions.
Delta is not alone. Most US majors are governed by scope clauses which rule the size and capacities of the regional jet fleet. In some cases they even specify the types of routes on which they may be used and many now have complex formulae linking RJgrowth to the size of the mainline fleet (see table on page 52).
The bargaining power of a pilots union at any carrier would clearly be diluted if members of another union (or even another chapter of the same union) were free to fly proxy or substitute services on behalf of that airline. That is true whether or not the aircraft have express, airlink or connection painted on their side.
Duane Woerth, president of the Air Line Pilots Association (ALPA) suggests that the issue is indeed being viewed by pilots in global terms: "With the growth of international code sharing and with domestic code sharing growing the way it has, pilots feel squeezed both from above and below."
For years, the question of scope seemed to matter little. US regionals functioned mainly as small-scale feeders whose product could not possibly be confused with that of the mainline partner. After all, the regionals were mostly flying little turboprops and were never much more than secondary operations.
The RJ has since radically changed the shape of the industry. Over the past five years the size of the US regional jet fleet has grown from only 90 aircraft in 1996 to 569, according to the Federal Aviation Administration's latest survey. The number of airports served by RJs has risen from 85 to 200. Average stage length on an RJ flight is 685km (425 miles) with almost three times further. For the regional industry as a whole the average is closer to 565km.
So while regional passenger numbers have risen by just over 40%in the past five years, the longer route lengths have helped passenger miles soar by 67%. The FAA expects traffic to continue to average 8% annual growth through over the next five years. The advent of RJs has played a key role in such growth but now faces constraints in the form of scope clauses that are as potentially restrictive as any international bilateral.
In the last few years, scope has become an issue of "basic job security", perhaps as basic as the issue of foreign ownership and cabotage, Woerth says. Scope, he maintains, protects the jobs of pilots who could easily be replaced by lower-paid RJ pilots.
The lower cost of providing RJ service rests on lower operating costs and, most importantly, lower labour costs. The first contract specifying an hourly rate reaching $100 for RJ pilots - to go into effect in 2005 - was agreed in January at United Airlines affiliate Atlantic Coast Airline (ACA). In contrast, few mainline pilots make less than $175 an hour.
Proposition RJ
Accelerating the issue's importance was the release, two years ago, of an ambitious study dubbed "Proposition RJ". Intended to create an alliance of small communities, airport operators, regional airlines and regional airframers, the study by GKMG, a Washington DC consultancy, argued that scope clauses were keeping as many as 1,000 US city pairs from getting non-stop RJ service.
Not only would a thousand new markets blossom, went the theory, but regional jets would loosen airline hold over hubs, giving consumers held captive to the local fortress hub a vehicle to escape hub fares. Public awareness of these benefits, went the Proposition RJ strategy, would lead to pressure to loosen scope clauses. This, for a variety of reasons, has not happened.
Although Proposition RJ helped spur public debate, scope clauses have stayed alive at the biggest US carriers, becoming as strategic to both sides as pay rates. The recent agreement between management and the pilots at United is a case in point.
At United, the landmark 2000 ALPA contract limits RJ growth through a complex formula tied to mainline growth, with significant liberalisation confined to freedoms to replace turboprops. Specifically, the agreement allows United to replace 150 turboprops now flown by its feeders with jets of 50 or fewer seats, and links further growth in RJs to growth in the mainline fleet.
The provision states that for every widebody added to the fleet, United Express will be allowed to add five more RJs; for every narrowbody of 100 or more seats added to the mainline fleet, United may add three RJs. Mainline aircraft additions in the 70-99 seat category earn RJs on a one-to-one basis.
At other carriers, the issue remains unresolved, with change coming slowly or not at all. At US Airways, for instance, a doubling of the number of small jets allowed - from 35 to 70 - is hardly a significant step toward the airline's goal of adding over 400 as regional feeders. Similarly, an agreement at American Airlines, which would have allowed the carrier's American Eagle subsidiary to increase its RJ fleet, went down to defeat along with a larger tentative agreement.
But Delta is the next big battleground. Scope has been made a key issue in long-running pilot contract negotiations that may reach a crisis this month or next. Delta's ALPA members see gaining a scope clause as vital in their need to make up for what they see as past concessions. Capt Andy Deane, a Delta/ ALPA official, says: "Scope has become a central issue because it is what the B Scale was - it perpetuates a two-tier wage situation."
The B Scale, which was one of the most hated management creations of the 1980s, was a provision under which pilots beginning work after a certain date received lower hourly rates for their first few years than those hired earlier.
As with the two-tier wage scale, two classes of pilots, one on a mainline jet and one on an RJ, do very much the same work, Deane says. They are, of course, members of different unions when it comes to RJ flying, but Deane says that the issue has the same emotional importance.
So the Delta pilot group feels it has reason to use every tactic, tool and weapon it can. And scope has become as tactical as pay - especially since there is no domestic scope clause in the Delta contract that specifies regional jet flying limits, says Deane.
Delta limits
Delta is willing to accept limits on RJ flying, including a 50-seat cap and agreement that 80% of Delta Connection flight segments must be under 1,600km. But the airline wants to fly all 75 of the 70-seat RJs it has on order as a "grandfathered" exception. This size of aircraft may be where the union draws the line. Deane says: "I'm not sure we can accept [these aircraft]. That's a pretty fair-size fleet. And once you start talking about a 70-seater, next you're really talking about a regular, full-size jet."
The financial community also has its doubts. Jamie Baker, airline analyst at UBS Warburg, says: "I think there is a real chance that Delta won't be able to grandfather in all of the aircraft on firm order and may have to go to Bombardier and convert the 70-seaters on order to 50-seaters at some sort of conversion ratio."
Such a move would require reworking the landmark, almost $10 billion, April 2000 Delta Connection order for up to 500 of Bombardier's regional aircraft. For its part, Delta says that "rejigging the order is not on the table".
Barry MacKinnon, director of program strategy at Bombardier Regional Aircraft, says that his company views scope clauses as "evolutionary" and "fully anticipates" that Delta will take "all the firm aircraft they committed to".
Long-term drama
Other RJ manufacturers see scope as a long-running drama, one that in the USA at least may come in more acts than they had thought.
Barry Eccleston, executive vice president for business development at Fairchild Dornier, says that "two years ago we had optimism that scope would disappear, that simple market pressure would ease restrictions. We're disappointed: it's pretty clear that union leadership is taking a hard line." Fairchild Dornier already has major components in production for its 70-seat 728JET.
Similarly, Embraer is committed to rolling out its 70-seat ERJ-170 by the end of the year and is also committed to building the 98- and 108-seat ERJ-190s.
And while Bombardier is celebrating a recent order by America West affiliate Mesa Airlines for 40 70-seat CRJ-700s and 86-seat CRJ-900s, it also has cause for concern. The order has drawn fire from America West ALPA leader Roger Cox, who says it will make scope a main issue in the union's upcoming contract negotiations with America West.
In any case the 70-seat RJ is not necessarily reliant on US customers argues Doug Abbey, consultant at AvStat Associates. They will be "primarily a European phenomenon and the manufacturers know it", he says.
However, with some 38,000 RJ seats still to be delivered in the US market, regional manufacturers are closely watching the latest round of airline negotiations.
Morgan Stanley Dean Witter regional airline analyst Jordan Sherman says that "when this round of contract negotiations is over, you'll see scope language covering all sizes of small jets and you'll see it with a ratio that's tied in to mainline growth." Scope will join pay in the airline industry tradition of each contract following the last contract in patterns, he says.
But the pattern will not, at least in this round of bargaining, be one that opens the RJ floodgates, especially since US majors - preparing for economic slowdown - are already looking for ways to moderate short-term mainline growth.
The pilots at Delta are keenly aware of the pattern. The United contract is the main driver of their salary demands and in their push for an industry-leading contract, says Baker at UBS Warburg. Delta faces a more complex situation, cautions airline labour expert Brad Bartholomew of the Newfoundland Group. Complicating the situation is the fact that Delta pilots are members of a chapter of the same union that represents Comair's pilots, who went on strike in late March, asking - among other demands - to be merged with the mainline pilot union.
Some believe that eventually this will occur, leading to a campaign for single-carrier status at Delta and elsewhere. That would be likely to narrow the difference between small-jet and large jet pay rates, eliminating one of the chief cost advantage carriers enjoy with the small jets.
That could spur the incipient trend of spinning off wholly owned regional subsidiaries. The trend began with the US Airways proposal in early March to sell off three of its Express subsidiaries to Atlantic Coast Airlines after its planned merger with United is consummated. At Comair, which Delta bought out in 1999, such a move is possible, given the militant stance Comair's pilots have taken since they began their strike in late March, says Bartholomew. "Delta is going to be hard line on this," he says. Doubtless, so also will be the pilot unions.
Source: Airline Business
