Scope, Scope, Scope!
The most important contract since deregulation.
US regional growth could hinge on major airline labor negotiations
Thursday March 11, 2010
The current round of pilot negotiations at US major network airlines "will be the most important since deregulation" and could determine the future growth path for the regional airline segment, according to William Swelbar, a research engineer at MIT's International Center for Air Transportation.
Speaking yesterday at the FAA Forecast Conference in Washington, Swelbar said that if unions representing mainline pilots agree to relax restrictions on the size and number of aircraft that may be operated by regionals in codeshare with majors, the pilots will become "irrelevant in the US domestic market 25 years from now." Currently, scope clause agreements typically limit the size of regional jets that may be operated under codeshare to 76 seats or fewer. But if, as some suggest, mainline pilots agree to raise the limit to up to 125 seats, regional airlines simply will assume most domestic flying.
Regionals already operate 53% of all US domestic departures and are the majority service providers at many major airports, Regional Airline Assn. President Roger Cohen noted. For example, they operate 52.3% of departures at Chicago O'Hare, 56.4% of Houston Intercontinental departures and 52.1% of New York LaGuardia departures.
Much of this transition occurred during the last major round of scope clause relaxation before and during airline bankruptcy restructurings. According to Swelbar, regional ASMs increased 178% between 2000 and 2009 while mainline domestic ASMs fell 27%. But much of this growth represented a bubble as US majors raced to dump capacity following 9/11 without shedding market presence rather than taking a realistic look at the revenue potential of the domestic market: "Does Jacksonville, N.C., really need nine flights per day when five or six would do?" he asked.
While they may be poised to resume growth after a brief hiatus, regionals face their own challenges. As independent analyst George Hamlin noted at the conference, regional airline profits are not as high as they once were owing to increasing pressure from major partners to accept lower fees under capacity purchase agreements. Furthermore, majors are expected to continue to dump 50-seat RJs from their regional partner fleets. Swelbar said 486 50-seat RJs are under expiring capacity purchase agreements through 2016 and could leave the fleet. "We are in a state of flux," Hamlin said.
From ATW.