US regionals have become labour's fighting front line against growing demands for lower costs.
Work rule and pay disputes are hitting even strong and profitable regionals, as a decision by Northwest Airlines to purchase at least 72 and up to 300 regional jets for its proposed new Compass subsidiary further pressures Northwest Airlink carriers Mesaba and Pinnacle.
Mesaba entered bankruptcy in October 2005, just weeks after Northwest, while Comair sought protection at the same time as its parent, Delta Air Lines, in September 2005. Northwest and Delta are now pushing down all its regional partners to lower costs, with Northwest forming a new regional subsidiary and Delta demanding all its incumbent feeders compete against new bidders for future Delta Connection business.
Given the "increasingly commoditised character of the sector, management's ability to increase revenues in response to labour demands is waning", says George Hamlin, a consultant at Morten Beyer & Agnew Associates. Awash in deficits, majors have capped revenues for regionals, but unions are demanding a bigger piece of that shrinking pie. In effect, says Hamlin, "a collision course is being set up and there's no avoidance mechanism in place".
The powers that bankruptcy confers to alter or throw out contracts complicate the dynamic. At Comair the demands only grudgingly led to 11th hour concessions pacts with flight attendants and machinists, just ahead of a deadline Comair had set to throw out the labour contracts. But Comair's pilots continue to balk, hobbling Comair's bid to win Delta's nod to continue flying in its colours. Delta plans to announce its regional selections in November.
At Mesaba, labour defiance of concession demands has taken the carrier and its three main unions deep into conflict. Spearheaded by its flight attendants association, the Mesaba unions vow to strike against a company in bankruptcy, testing new legal territory. Jon Ash of consultancy GA2-Intervistas says: "This is farther than we have seen labour-management confrontations go."
If a strike forces Mesaba to shrink or liquidate, Northwest may have problems quickly replacing it because Bombardier and Embraer do not start delivering CRJ900s and E-175s to Compass until 2007. Northwest holds enough options to also replace its McDonnell Douglas DC-9 mainline fleet, possibly setting up another union confrontation over which labour group does the flying.
"After this wave of new business there does not appear to be any substantial incremental growth for regional airlines until legacy carriers get their pilots to further ease scope-clause restrictions," says Raymond James and Associates analyst Jim Parker.
Source: Airline Business
