Trip7
Well-Known Member
http://www.centreforaviation.com/news/2010/06/24/pilots-consultant-sees-scope-relaxation-coming-for-us-airlines/
The author seems to suggest that historically and presently, it is impossible to make a profit with 100 seaters due to Legacy cost structure, not just pilot pay. I don't know how much truth there is to this, but I believe this was the reasoning behind AA getting rid of the F100.
Whatever the case, management and labor need to get together and figure out a way to keep the 100+ seaters at mainline in a cost effective way.
One hundred-plus seat aircraft will be welcomed in the rest of the world, but the success of the class in the US will largely rely on the relaxation of scope clauses, according to RW Mann & Company's, Bob Mann. While that may not be startling news, Mann said that pilots are coming to the negotiating table wanting compensation rates to return to 2002 levels. Meanwhile, management is coming to the table with a wish-list on work rules and scope.
“If you look at the history, it has been difficult to get management to move off compensation without substantial relaxation in other areas such as work rules and scope,” he said in a recent IAG podcast. “When pilots are talking about going to 2002 compensation rates, which are between 30% to 35% above where we are now, one has to expect there will be substantial relaxation in scope. By this fall we will see, with Continental and United, some sense of where this is going to settle out. One agreement tends to set the precedent for the rest with only a few minor variations.”
However, he was less clear on how much relaxation there would be and whether it would accommodate 100-plus seat aircraft. Mann, who said pilots certainly see 100-seaters as mainline aircraft, indicated that if scope were to peak at 99 seats, the upside would be for the Embraer 190/CRJ-900 level aircraft.
However, a 100-seat aircraft has never been profitable for mainline carriers in the US. “This goes back to the BAC-11 and the F-28,” he noted. “A 100-seat aircraft is very desirable for smaller markets but it has proven, from a management perspective, to be uneconomic, chiefly due to costs. Legacy costs, at 100 seats, just don’t work. While there is a lot of interest in this segment, the costs would have to be at the regional costs, which, as a group are substantially below the legacy group, not only for pilots but for cabin crew, maintenance and even management overheads. Their trip costs are lower even beyond the physics of lower fuel flows and weights but labour as well.
“The economics of these new aircraft will be degraded more and more without regional costs,” he continued. “For now, the largest permitted partner-flown aircraft is 76 to 78-seats which leaves a large gap in the middle under the 150-plus seats. There are lots of markets that would benefit from more capacity without flying more frequency but aren’t economic at mainline narrowbody levels. We’ve seen this manifest itself with more than half the departures flown by regional operators. I anticipate with any change in scope that mainline numbers will decrease further.”
He expects that, should scope go beyond the 99-seat level, an airline such as SkyWest would follow Republic Airways Holdings in ordering 100-plus seat aircraft. RJET has already ordered the CSeries for service introduction in 2016, ostensibly destined for Frontier.
Mann – who is employed on the seniority integration between Frontier, Midwest and Republic Holdings pilots working for Chautauqua, Republic and Shuttle America – noted Frontier pilots traded away any scope restrictions while they were in bankruptcy. “Republic pilots are flying E-190s on behalf of Frontier,” said Mann. “There is a lot of asset swapping in the Republic Holdings’ universe. They have a lot of flexibility, but you have to remember that two thirds of that hybrid is at-risk flying which Republic Holdings has no experience with. Right now there is a lot of subsidising going on by the fixed-fee flying.”
Mann looks to SkyWest as the bell-wether for how regional aircraft play out. “They have diversified their flying to both United and Delta and they are moving away from smaller aircraft towards the CRJ 700/900,” he said. “They have an interest in Trip, the Brazilian operator. They have two classes on their jets and they have the significant balance sheet capacity to engage in merger and acquisition activity and aircraft financing. If the ability to fly larger aircraft became available, SkyWest would jump on the bandwagon.”
Even so, SkyWest has been adamant about a continuing role for 50-seaters but that could be because they have a huge stable and very little tail risk since contracts do not expire for a number of years.
“If you divide the world into the US and the rest of the world, the rest of the world will be very supportive of 100-plus seat aircraft, like the Bombardier CSeries, over time,” he continued. “There are a lot of developing markets and a lot of point-to-point markets for right-sizing such as what JetBlue has done. And, if it performs as advertised, the CSeries will provide a lot of relief in that area. In the US, scope will define where the 100-seat aircraft go.”
Mann cited external factors, such as the growing shortage of pilots, since the industry is now on the cusp of the end of the change in the retirement rule from 60 to 65. “There are a whole slew of mainline pilots who are reaching retirement and it is unclear where these new pilots will come from,” he said. “The recalls from furloughs are at historic lows at 20% to 25%, with the rest having gone on to other things.”
The author seems to suggest that historically and presently, it is impossible to make a profit with 100 seaters due to Legacy cost structure, not just pilot pay. I don't know how much truth there is to this, but I believe this was the reasoning behind AA getting rid of the F100.
Whatever the case, management and labor need to get together and figure out a way to keep the 100+ seaters at mainline in a cost effective way.