What's stopping the majors?
 

Pardon the dumb beginner question, folks. As you can tell I'm a total noob to the 121 industry.

But my question is: What's stopping the majors from bringing all regional flying in-house? In most cases they already own or lease the aircraft being flown by their regional partners (Skywest being a bit of an exception, in that they own quite a lot of their fleet.) So they've already got the airplanes, the gates, the routes, etc. The pax wouldn't notice a difference; they already book their tickets on the mainlines, and I'd guess that most of them haven't a clue whether they're actually flying on Mesa, or GoJets, or what have you.

Anyhow, it seems that if the majors were to take back all the aircraft and flying, and simply tell pilots, "OK, if you want to hire on with us, you have to go fly turboprops and RJs for X number of years at a reduced pay scale. Then once you've done that, you can join the mainline crews at the mainline pay scale."

Such a move would not affect existing pilots at the majors, because all the current regional guys would be brought in below the most junior current pilot at a major. It would solve the regional pilot 'shortage' in a heartbeat. And just think of the cost savings to the majors, who now don't have to spend all this time bidding routes to any regional who will take it.

Such a move would also help regional pilots, because now they'd all have a guaranteed career progression. I bet that'd dramatically reduce attrition in the regionals. And it's not like the majors would have to demand further pay cuts; they could keep their costs flat, simply by bringing in the regional guys at their current pay rates.

t seems to me that if an airline can just do away with thousands of retiree pensions (UAL, for example...and AA is trying to do the same)...then such a move would be relatively easy for it to make.

I'm clearly missing something obvious. I just don't know what it is :o

Having regionals, lowers the market value for pilot labor. Instead of poaching off the other legacy carriers, regional pilots will work for anything better than what they currently have. Thus, pay at mainline is cut in half, and thousands of apps remain on file.

It's not only the pilot costs, there are many economic factors that make it cheaper for mainlines to outsource flying. Outsourced flying does not cost the mainline anything for MX, fuel, labor costs, aircraft costs, etc. Also there is less liability for the mainline carrier on the outsourced route. It sucks but thats business in the US today.

I thought (am I wrong?) that in many cases, the mainline takes care of fuel and MX, leaving the regionals to basically provide pilots and FAs.

As for liability...with the Colgan 3407 crash and that other bird that departed the wrong runway at dawn in Kentucky or somewhere, did the major carrier not get named in the resulting lawsuits? Or was it just Colgan?

There is a big difference in being named in a lawsuit vs found liable.

Ask Air Canada. They had CRJ200's. Lasted pretty long then dropped them in favor of the E175/E190. Then dropped the E175 to a cheaper regional.. Think the 190's are kind of the cut off point.. Its been tried before in the USA Midway airlines 737 and CRJ200's. USair has dabbled in it... Just not long term ideal for the Majors to invest millions of $$ in a 76 seat plane. I see a shift of majors spending money to "refleet" there widebodys..
Stability in it..

Mainline usually takes care of the fuel and if they own the planes they probably take care of Mx too. Regionals provide cheap labor.

Back when regionals were called commuters and flew metroliners and beech 1900s it made sense to outsource those routes. Somewhere along the way regionals got bigger but the model stayed the same. Now it's a bubble that's about to burst. Maybe it's time for majors to get the flying back.

Some mainlines pay for fuel, I'm not sure if they all do. Airlines like Skywest have their own MX so United isn't paying MX costs on those aircraft. Regionals are not only staffing agencies.

There's nothing 'regional' about most of the routes we fly out west. SFO-AUS, IAH-ONT, LAX-MSP, DEN-YEG.

It still makes sense for the majors to outsource as much flying as they can. They just weren't allowed to because of scope at some point. Now that they've relaxed scope we get to fly those routes for $22/hour.

This.

If they could, management would rather outsource ALL the flying and ALL the front line operations and just run a brand.

Money. Just look at -900/175/190 rates in the major's contracts, not even factoring ancillary benefits of a B plan/profit sharing/pensions (limited)/ etc.

Don't spend any more than necessary. Furthermore, driving competition for your business at a discount is a bump to overall profit margin.


He who pays, gets their way. Large companies pay consultant groups top dollar to find ways to maximize profits, at the lowest cost. Easiest target is labor and a B/C scale (pure hopes of advancement) garners the highest rewards. "Hopes and dreams" are emotion pieces, and everyone will make an emotional decision IF all practical pathways are shut off. "Get in, get your time, get out" sound like a theme? It's the reality, that is slowly changing, but folks smarter than us are already plotting against it.

I truly think DL is ahead of the entire industry. They have good rates, good contracts (or working agreements to the non-unionized groups in their portfolio) and have a refinery due to save them a boat load of money. Other groups used BK laws to shed pensions in favor of defined benefits (reducing market fluctuation costs-smart to the outsider). Groups such as FDX and UPS have learned to find a common fleet with flexibility to adjust to market fluctuations, while saving on overall labor headcount, to maintain profitability in both directions of the economy.

The industry is "healthy" at the moment. Unfortunately, this is a cyclical industry and timing and mgmt practices rule the roost. If you (any pilot) can get into the early stages of a hiring wave now (just based on retirements), you will do well. A few years from now it may be the tail end getting hosed if you choose the wrong mgmt group (read:not carrier) in a cyclical downward pressure situation.

It would also make mainline flying more expensive. If you fly an RJ on a mainline seniority list/number for, say, 5 years and then move to guppy or bus FO, now the major is paying you 5th year pay for your first year flying the the bus/guppy. The major looses the benefit/opportunity to have "cheap" 1st,2nd,3rd...etc. year labor broken down by airframe because they let you accrue seniority while flying an RJ. And we all know how airlines like cheap labor....:rolleyes:

It's just business 101, In a perfect world in managements' eyes, they would probably want to send all new hires to the wide bodies 747,777 because they generate the most revenue and have the largest profit margins. And, send the senior people to the smaller guppies/bus' where the pay scales are lower= keeping costs at their lowest.

Thanks for the illuminating replies. Just continuing to learn...

1. Because its cheaper, I don't have any economic data in front of me just basic math.

avg 1st regional FO pay 25/hr x 1000 flight hrs/yr = $25,000/yr
avg max regional FO pay 43/hr " " = $43,000/yr

avg new CA pay (slide right across at year 5-7 pay) at a regional 70/hr x 1,000 hrs/yr = 70,000/yr
avg 10/yr regional CA pay " " = 95,000/yr

now mainline:

avg 1st yr FO $60/hr x 1,000 = $60,000/yr
avg max FO pay $150/hr x 1,000 = $150,000/yr

avg new CA pay (already on year 10-15 pay) $175/hr =$175,000/yr
avg 20 yr+ CA pay $250+=/hr = $250,000+/yr

Plus the work rules are much better, mainline work rules guarantee you more hours of credit with the ability to drop flying and often not lose pay.

Before I get torn apart the above numbers are just averages.

2. Liability, regionals are usually the starting point in the industry for most and hire the least experienced pilots. When/if something happens it provides legal separation, like Colgan 3407 or Comair 5191. Mainline gets them after they've been vetted a little bit. Hiring them at 5,000tt and 3,500 turbine instead of 1,500tt and no turbine. Reduces training failures as well.

3. Seniority, after spending 5-10 years at a regional the pilot moves up to mainline, 75% of the time they're around the 35-37 age range. But imagine if said FO started at flying a 50 seater for a mainline carrier at the age of 23 making $50/hr and building up all that seniority until retirement at 65 years old. He/she would top out at senior CA pay at 250/hr by age ~43 and stay there for 22 years topped out on pay. The current system restarts us at say? 33 so we top out 250/hr at 53 and only see that pay for 12 years or so.

These are a few of many reasons.

Even with regional pilots making more than in previous decades, our career potential is still a fractional of our mainline colleagues. Sucks.

This^^^^^^^^^^

United toyed with this idea in the mid 90's. They wanted to try and outsource EVERYTHING and just manage the brand. I remember a quote from Rono Duta who was the Senior Vice President of Planning and Revenue Management at the time that was along the line of "We are not in the aircraft maintenance business, we are in the people moving business." Soon after MX was being farmed out at an increased rate..

The short answer is, the majors save money by contracting the work out. The long answer is complex, but probably has to do with a collection of savings that have root in market prices and cost determination. A large part of airline operating costs are for general labor. You can be sure the airlines prefer to contract the work out when the markets offer cheaper labor. By this you get a ton of cheaper workers, and by this I mean not just pilots, but everyone from the office clerk to the top exec to the shop help.

I spent quite a few years working in engineering, and my experience was that direct hire employees and contract engineers can be found at all of the companies I worked for. Direct hire engineers are paid much less than contracted engineer wages, by a factor of almost two. Yet year after year these companies actively retain both types of employees side by side, and they have no problem paying the seemingly high hourly rate paid the contractors for the same work.

But why? The answer is a bit hard to grasp at first pass; in a nutshell it is cheaper to use the contract workers than the direct people, and you need both in varying proportions to get the optimum deal. By the time the direct hire employee is provided their full benefits, job perks, performance bonus, 401k matching, pension, vacation weeks, severance pay, stock matching, on and on- the final bill has easily run beyond that of a seemingly overpaid contract engineer who gets one lump sum out the door, no more overhead. You can pay the contract engineer one fat hourly wage, a large amount on face value, and then forget everything else that has to with that employee. In turn, the contract houses compete with one another rigorously for engineering talent trying to get the best worker for less per hour. It is solely the effect of the markets in driving down labor rates on their side. When the markets are good, you use the markets and the contract houses. When the markets are poor, you direct-hire. This also explains why both types of worker are always found in one quantity or another at most large firms. The balance is a moving target.

It is not hard to extend the above idea to the situation between mainline airlines and their regional counterparts. The mainline company can save money by pushing the responsibility, which by the way includes a huge dose of legal liability, onto the contracting company or regional airline. When the markets are strong, you do this, and when the markets are poor, you buy the whole regional operation out and run it yourself. So if you want to know why the regional model has grown so much in recent years, it is because it is an effective way to drive down overall costs. We know that less pilots are willing to take the low pay now, so as labor becomes more expensive the markets may obtain less price advantage than previously seen. If that is the case, no doubt you will see more major airlines taking back their regional flying.

Great discussion, and thank you for the insights!

Saying that the majors don't pay for maint. for their FFD carriers is like saying that a renter doesn't pay property taxes.

Of course they pay for maint., fuel, "and" labor. It's just a matter of if they pay it directly as a passthrough cost in the CPA or as part of the hourly rate that they pay the contractor.

It's somewhere on this board, but the departing Eagle training committee chairman summed it up as major airlines have become addicted to cheap labor (through the use of regional whipsaw).

Ask yourself this question, would you place your own money in such a business plan as you describe above. If you answer no those business classes are helping, however if you answer yes more classes are necessary.