Regional crew wages in perspective.
 

"We can't raise aircrew wages, the company would go broke/become noncompetitive." Says regional management.

But seriously, how big a proportion of total costs are aircrew wages? They are, in fact, a relatively small portion of total costs. Let's consider one cost that most people don't even think about - the cost of capital.

Capital cost can be thought of as - well, opportunity cost really. What does it cost me just to OWN that piece of equipment? That can be a difficult question to nail down with precision, but decent estimates are pretty easy to make.

An Embraer-175 lists for $40 million, but I doubt anyone actually spends that much for one. Advertised prices are deeply discounted, especially for quantity buys. Republic just agreed to buy 100 of them and I'd be surprised if they paid a whole lot more than $30 million a unit, so that's a pretty good approximation of the cost of one. Even so, Republic didn't just write a check for $3 Billion to Embraer. Almost certainly they financed the purchase, either by getting loans or by selling bonds. So OK, how much does THAT cost? Well, that varies by industry, but there are people who keep track of that.

Cost of Capital

For the airline transport industry, currently, the cost of capital is about 6% annually.

What that means is that the $30 million E-175 sitting out on the ramp is costing the company about $1.8 million a year - just to sit there. Now during that year, the aircraft will probably fly about 5000 hours, basically a thousand hours each for every five FOs and five Captains.

It's weighted average cost of capital (WACC) is going to be about $1,800,000 annually or right at $360 a flight hour. Even if the crew is making $150 a flight hour ($100 for the captain and $50 for the FO), the contribution of the crew salaries to the cost of a flying hour is not even near the capital cost.

And capital cost per hour is sort of trivial in comparison to per hour costs of capital amortization, fuel, maintenance, insurance, gate fees, etc.

Yes, aircrew salaries ARE an expense item, but don't let anyone kid you that they are the major driver in the balance sheet at least unless they are too LOW.

Because if you can't fill those two seats up front, you sure can't fill any if the seats that actually generate revenue to pay any of those other expenses and some of those costs, like WACC, go on even if the aircraft is just sitting.

Imagine raising ticket prices by one dollar per seat, per leg. Inconsequential in the grand scheme of things but would sure attract pilots. Poof, no more staffing crises.

Ahh yes. The economically ignorant excuse to raise the price of XYZ.
The truth is that airline fairs are pretty inelastic. Airfare search engines list prices in order, and yes an $1 difference in tickets can make a difference.
Perhaps the higher cost of aircrews can be sustained by higher airfares, but that isn’t the call of regional management anyway. Even WOs don’t control their ticket prices, though they may have more input. Other FFDs have almost no input in ticket prices. They compete against each other and yes, ever penny counts and can make a difference between winning a contract and getting more flying and losing a contract and seeing flat growth or a decrease in flying. That results in long upgrades which... well, how do long upgrade times play in the regional industry? New hires don’t give a crap about contracts and pay. They care about upgrade time:

Judging by the number of regionals paying fat bonuses for direct entry captains,they care more about QOL and living in base, actually.

Aircrew wages account for less then 1-2% of all operating costs, but it's pretty much the only operating cost they can possibly control.

-tangent-
An coal miner was leading a donkey into a dangerous tunnel that was closed until the engineers reinforced it. The foreman saw and began yelling at the miner, telling him he was putting the animals life in danger, and asking him why he was so stupid. The union rep muttered that the coal miner was also putting himself in danger too. The foreman replied, "Who cares? I can hire another worker, but I have to buy another donkey!" -true story.

Regionals exist for one purpose only: To control labor costs. Other costs are not really relevant.

Gonna whine to mainline about wanting a bigger piece of the pie? They'll just transfer your flying to someone who will do it for less.

Gonna complain to the mainline union (might even be the same union you have)? A bigger piece for you means a smaller piece for them...

It's not about what's fair or what's possible, it's about money: Specifically, as little for you as possible.

Don't like the reality? Two choices:

1) Get Out (either to mainline or some other job).
2) Form a national regional union. You might get a little more, but if you get carried away, they'll just shut the regionals down and bring it in house. Regionals which don't do it for less have no reason to exist.

Or option number 3..

Grab some popcorn and sit back and watch the regional industry implode in a few years once they realize these bonuses and flow programs to spirit and frontier are bandaids with limited adhesion.

Majors don't care. They'll drop service to Podunk Falls (since 100 seats is about the minimum size they'll consider at mainline), and put narrowbodies (fewer of them) on fatter routes.

Congress might care, so those 50-seaters might end up doing subsidized EAS under "Brand X" instead of "mainline express".

So its the unions fault for letting them get away with it?:confused:

I think he is saying its the pilots fault for needing a place to start out, and getting stuck there for 1-2 decades while mainline relaxed scope a little at a time to increase their own pay short shortsightedly at the expense of their jobs and advancement opportunity. There is a reason why regionals are f scale. f = **** those guys

Option four: something like Moxie or Amazon Prime Express selling tickets online and running 80-130 seat aircraft that steal the medium city market away from the biggies.

How is Sears Roebucks' catalogue business doing against Amazon? Or individual video stores against Netflix?

Leave a market untapped or even underserved for very long and some one will find a way to take that market away from you.

I love it when the RAA says smaller communities will lose their service due to the pilot shortage. If there is money to be made in Podunk Falls, the service will continue. The minute it is not profitable, service will cease to exist, and efforts to utilize resources will be concentrated on routes that are profitable.

You can't replace airliners, professional crews, mx, support infrastructure, etc. with an app.

Ticket sales have already migrated to the digital realm.

The only money to be made in startups is to leverage low labor longevity, and hope you can sell the thing off before unions, labor longevity, and economy of scale catch up with you. Airline startups have an abysmal success rate.

Genius entrepreneurs who think they can do it better come and go, there's been a steady parade of them for decades.

Oh, I'm well aware of the old joke:

Q: What's the fastest way to become a millionaire?

A: Be a billionaire and buy an airline.

;)

But notwithstanding that, entrepreneurship is not altogether dead. You MAY be right, but that doesn't mean someone might not try it - or even be nimble enough to make it work. Time will tell.
And if those 60 C-series (whoops, Airbus 220) orders become actual aircraft, it will at least make an interesting little footnote in Air Transport history.

When the regionals fall apart, mainlines will still have to fly the small jets if they want to keep their market share, and anti-trust immunity. Unless they can get the government to change small jet policy, but in 30+ years, they haven't made progress.

The only "small jet" policy which applies is the majors don't want to pay mainline wages and benefits to people flying RJ's (< 100 seats). This has been a consistent theme for many years, and I actually believe them when they say it would not be economical... they've consistently put their money where their mouth is on that.

Bear in mind that all or essentially all labor agreements are structured so the junior-most CA gets paid more than the senior-most FO. They don't want to pay a 50 seat CA more than a widebody FO :eek: At some price point, most pax will drive or take a bus to a larger town... there are few places in the lower 48 where a 2-6 hour drive would not get you to a mid-size town with narrow-body service.

If the problem is a pilot shortage, then mainline won't have to worry about competition filling a vacuum (except EAS, which is not "competition").

In the past there has been a theory that regional flying can be operated at a loss if it fills mainline seats... that has been proven to be unreliable formula for success, in general RJ flying needs to operate in the black on it's own.

That's true, and several other reasons, for why RJ flying is off the mainline list. Keep in mind however, mainline is flying a massive amount of routes with mainline aircraft in slots that are allocated to RJs. Subsequently, the RJs are flying elsewhere in the system. If mainline gets rid of the RJs, those slots then go up for bid to other airlines. It's usually the RJs that get canceled when bad weather starts restricting traffic. Mainline simply can't give up the RJs, they have to operate them at mainline eventually.

Slots are important at the hub, but no shortage in Podunk Falls. Some hub slots would be used for expanded NB service, but you're right they would need to get creative to hang on to most of them.

But bringing flying in house is permanent... they'll try everything else first. The good thing about regionals is they can always pay them now if need be and then COMAIR them later when the labor market is more favorable.

Why did ALPA never do anything to prevent Legacy’s from the whipsaw. Maybe a regional senority list so you don’t lose 20 years when they give away your flying to the lowest bidder for saying no to a crappy contract.

I could understand if regionals were small but they are 20k plus Pilots.

I think its been laid out pretty clear that mainline ALPA is 100% senior. They dont give a **** about their own people below their collective seniority level. They dont give a **** that they outsourced their own peoples flying. All they cared about was their bonuses and money. What makes you think they give a flying **** about anyone getting stuck flying a regional jet for decades?

Well if mainline doesn’t want to pay decent wages or mainline B scale wages then let the RJ’s die along with the regionals. But I’m sure they’ll keep trying to find ways to find cheap labor in order to keep those flights to BFE going.

Mainline unions BENEFIT from low labor costs at the regionals, they are not going to expend negotiating capital to reduce their own slice of the pie :confused:

ALPA National knows which side of it's bread is buttered too.

How does cheap labor benefit the union? It benefits the company by a margin. It benefits the senior main line captains who sold scope for pay. That is all. Junior main line pilots are often beginning over again at seniority year zero. And they have reduced opportunities for upgrade due to the smaller fleet. One would even argue the reduced pay and therefore reduced dues hurts the for profit union.

Unions get their money from the senior guys (who will trade scope for $2)

Junior mainline pilots today are VERY interested in scope. But that's not the same as wanting the RJ to make more money at their expense.

I never said anything about wanting to make more money at a regional. I answered someone elses question about it. Literally. Thanks for proving that ALPA represents the regionals in bad faith. Now we just need a few thousand disgruntled 2 decade rj captains to finally sue the corrupt bamboozlers at national for it

You quoted me. I was elaborating on your response, not really disagreeing.