Contract negotiations and the scope clause issue pose some tough challenges for the US regionals , but the sector seems to have retained momentum despite last year's crisis
Labour relations loom especially large this year on two fronts, according to Deborah McElroy, president of the Regional Airline Association (RAA) trade group. First, many regionals are or will be in contract negotiations with their own union groups this year. Second, they are awaiting the outcome of various negotiations, talks and grievances involving their major carrier partners and their pilot groups over the thorny question of the scope clause.
Those contract clauses, fiercely protected by the mainline pilots, will ultimately determine how many small jets the regionals can operate. That remains a tense subject especially in light of the current cuts in flying at the majors.
Although the highly-charged scope clause issue and labour negotiations of the major carriers get most of the attention, resolving their own labour contracts is a major issue facing regionals this year. McElroy says six regional carriers are in mediation with their pilot, flight attendant or mechanic groups, and another 12-14 airlines have contracts up for negotiation this year. "Many carriers are operating under reduced revenues, so they may be looking for improvements in productivity or reduced wages," she notes.
The biggest issue facing the regionals is resolution of the scope clause. After 11 September, major carriers reacted to traffic drops by sharply reducing capacity. In order to keep passengers in their networks, they assigned many routes to their regional partners with smaller aircraft. In the fourth quarter of 2001, according to Raymond James Equity Markets Research, regional jet flights were up more than 36% while flights of narrowbodies were down 21% and widebody flights were down more than 10%.
The contraction of mainline fleets meant the majors began to find themselves in violation of scope clauses in their pilot contracts. The language of the clauses may differ - outlining such criteria as the numbers of aircraft or the block hours or the ratio between large and small aircraft - but they amount to the same thing: the number of small aircraft the regionals are permitted to operate are tied to the size of the mainline carrier's fleet and its pilot jobs.
As a result of the cutbacks following 11 September, pilot groups at United Airlines and Delta Air Lines, both represented by the Air Line Pilots Association (ALPA), filed grievances against the carriers and are in mediation. Both contracts contain force majeure language which allowed the airline to argue, at least temporarily, that events beyond their control should give them latitude to transfer some mainline flying to regional jets.
Conflict of interest
Scope clause has become the most contentious labour issue in years and has begun to pit some ALPA units against each other. At a number of airlines, ALPA represents pilots of both mainline carrier and its regional airlines, creating what many see as a conflict of interest.
A group of ALPA-represented pilots from Delta Connection carriers Comair and Atlantic Southeast Airlines filed a suit against ALPA. The group, calling itself the Regional Jet Defense Coalition, charged that ALPA has an irreconcilable conflict of interest and has violated its duty to represent them by demanding and obtaining, from Delta, restrictions on the numbers of regional jets that can be operated by the Delta Connection carriers. Those restrictions limit the career potential of the ALPA-represented regional pilots and cause them demonstrable harm, the suit argues.
American Airlines also is "in violation" of its agreement with the Allied Pilots Association. Its complicated scope clause prohibits growth in regional jet capacity whenever mainline pilots are furloughed. American has said the clause might force it to discontinue service to seven small cities, take seats out of its American Eagle turboprops to reduce regional capacity and withdraw its two-letter code from the flights of two of its non-owned regional partners in order to be in compliance.
The regional capacity ceiling element of its scope clause basically requires that the airline retire three turboprop aircraft for every regional jet it places into service, according to to Bryan Bedford, president and chief executive officer of Chautauqua Airlines, which operates flights for American, as well as US Airways and America West. "Turboprop removals will disproportionately affect service to smaller communities," he recently said at the FAA Aviation Forecast Conference. "The result will be limited service alternatives and higher fares for local markets impacted."
Short-haul markets were hit before 11 September, with turboprop flights down more than 26% in the fourth quarter, according to Raymond James' figures. As traffic and revenues collapsed and costs rose, the regionals grounded aircraft and laid off employees. The actions generally affected the smaller aircraft and markets and those operated under pro-rata agreements, which are less remunerative than the fixed-fee contracts often governing regional jet operations.
Chautauqua, for instance, grounded 13 turboprops and ended service to seven markets. It plans to retire its remaining turboprops this summer. Citing declining market economics and increased security costs, it also plans to leave four federally subsidised Essential Air Service markets.
Some regionals, however, are seeking to pick up EAS markets. Mesa Air Group, which operates 59 regional jets for America West and US Airways, serves 15 EAS points and is seeking "as many as we can get", according to director of corporate communications and community affairs Benet Wilson. "It's the only way to fly our 19-seaters profitably or even break even." Mesa has 51 Beech 1900Ds.
Mesa and other regionals were waiting to see if US Airways convinced its pilots to allow increased regional jet flying. Allowing only 70 regional jets, the major had the industry's most restrictive scope clause, something its new president David Siegel, former head of Continental Express, wanted to change. The airline estimates it has lost $500 million in revenues to competitors because of regional jet deployment in its markets. Last month, US Airways pilots finally agreed to allow 140 regional jets to be flown.
Labour-management relations have become so difficult and so politicised in the airline industry that there have been repeated calls for reforming the Railway Labor Act under which airline labour contracts are governed. Some expect legislation introduced last year by Arizona Senator John McCain to get consideration. This would mandate arbitration after both management and labour have presented best and final offers without achieving resolution. Such an effort would be "recognition that people are frustrated", the RAA's McElroy says. "The Railway Labor Act was meant to prevent disruptions to commerce, but it's not.
"This is no longer simply a labour-management issue, and it's no longer theoretical," she says. "This is affecting air service to communities throughout the USA, and unless resolved, could cause even more reduction in small community air service."
Security issues
The scope clause is only one threat to regionals' livelihood. Another is the broad issue of security, McElroy says, particularly the way in which the nation transitions to a federal airport security workforce and how explosive detection equipment is deployed. Efficiency and system costs will determine whether regionals can maintain some services. Regionals also face the need for broad war risk insurance - not considered necessary before 11 September.
"These are critical issues for small airports and small communities," she says. "Regional airlines serve hundreds of airports which no one else serves; they provide the link to the national transportation system." Indeed, figures collected by AvStat Associates for the RAA indicates that regional airlines served 726 airports in North America last year, providing the only air service to 516 of them.
Despite the challenges and some setbacks, the regional airline industry - always more nimble than the majors - has remained relatively buoyant, according to Douglas Abbey, president of AvStat Associates and executive director of Regional Air Service Initiative. Passenger numbers were down 2.1% last year to 83 million, but that was primarily because of a three-month strike at Comair, and unit traffic was actually up slightly. At the end of 2001, the regionals were flying 779 regional jets - almost 200 more than in 2000, and 1,102 turboprops - 157 fewer than in 2000.
So far in 2002, regionals have added regional jets and routes, with a number of carriers reporting double-digit increases in traffic. Utah-based SkyWest Airlines, which operates flights for United and Delta, for instance, had a 93% increase in traffic from January-to March on a 65% increase in capacity. Atlantic Coast Airlines, which also operates flights for United and Delta, had a 76% jump in traffic in the first quarter on a 53% increase in capacity.
"It's a conundrum," Abbey says. "Right now, you have a very perilous major airline industry and a very strong regional industry." Of course, he adds, "this begs the union question…"
Source: Airline Business
