As published in PlaneBusiness.com,
11/22/1999
Small Jets: The Sky’s the Limit
The title
alone of
“Proposition RJ: An Alliance to Enhance Airline Competition” makes some
lofty
claims. With Congress, DOT, business
travel and consumer groups observing in the wings, those magic words
“enhance
airline competition” trigger relief in the minds of legislators,
regulators,
businesses and consumers, and with them, some major and regional
airline
executives. To believe “Prop RJ”, small jets (“RJs”, to those who are
trying to
sweep a certain set of issues under the rug) represent a competitive
and
economic panacea, aviation’s proverbial Holy Grail.
What
really happens when
small jets replace turboprop and mainline flying? What,
if anything, do pilot Scope clauses [1]/
have to do with this? Why all the fuss
over Scope clauses anyway?
Prop RJ Lands Short
Let’s face
it, Prop RJ and
its thesis are responsive to airport operators/underwriters. The report’s basic assumption is that
mainline pilot Scope clauses are “artificial barriers to competition”. In the authors’ view, relaxing the terms of
these Scope clauses would result in more airline service, enhanced
competition,
lower fares, and more mainline pilot and other employment.
This is
the sort of
“win-win” claim that plays well with consumers and is often posted by
airline
management in employee lounges, but in this context mostly plays to
airport
operators unable to secure or retain jet service [2]/. The same airport operators and civic groups
frequently told to whip out their checkbooks and subsidize (or lose)
jet
service. Payola, airline style. And, like all things “airline” and
“aircraft”, it’s big bucks.
Unfortunately,
relative to
Prop RJ’s claims, real world small jet experience lands well short of
stated
goals. This is in part due to incorrect
ingoing assumptions about Scope clauses, omission or
mischaracterization of key
factors, and a lack of situational awareness of the environment in
which small
jets, turboprops, regional airlines and their mainline partners operate.
In a
document that claims to
promote only two objectives, understanding and awareness, such
omissions and
mischaracterizations are unfortunate.
Scope – It’s A Pay Issue, Pure and Simple
Relaxing
Scope clauses – if
indeed they need relaxing at all – will have very little positive
impact on
airline competition. It is doubtful that
relaxing Scope will result in lower fares, nor may it result in much
additional
service to communities, including the group paying the study’s bills.
The only
certainty
associated with Scope relaxation will be many airline employees being
paid
less. [3]/ This is because regional airline pay scales
(whether flying turboprops or small jets) represent substantial
discounts from
mainline pay, across the board, for all classes and crafts of employees.
With no
change at all to
Scope, every Major except United and USAirways (both of whose pilots
and
management are months into discussions) could each deploy hundreds,
collectively, thousands, more small jets.
Indeed, Scope relaxation or not, the sky’s the limit for small
jets.
So, what’s
stopping them
from deploying these jets? Well, first
and foremost, they’re waiting in line for deliveries.
Scope relaxation can’t solve the present
scarcity of small jets. And in an ironic
twist, actually deploying large numbers of small jets would make a
certain
pressing problem du jour – airspace
congestion and flight delays – much worse.
So, if
structurally lower
pay is an objective, and it is for some managers who don’t seem to want
to be
bound by those same discounted pay scales themselves, then Scope clause
relaxation might achieve that. But some
of what isn’t paid in wages will certainly be incurred in delay costs,
perhaps
in other ways as well.
The Sky’s the Limit
Studying
the small jet issue
(the jets themselves and the industry’s use of them) as I have for some
years
now, I keep coming back to a single, critical issue originally
identified in
1996. One way or another, “the sky’s the
limit”.
It is
increasingly well
understood within the industry, that small jets and mainline jets are
competing
for the same finite enroute and terminal area airspace and ATC capacity. It is this airspace system and air traffic
management capacity issue that represents the greatest constraint to
unlimited
deployment of small jets. And ironically, it may be the demand side of
the
small jet issue (the industry’s desire to replace most turboprops and
some
mainline jets with small jets) that provides the greatest pressure to
solve the
ATC capacity problem.
At
present, small jet
manufacturers are a cottage industry by comparison to Boeing and Airbus. They can’t build the things fast enough to
accommodate the “catch up” demand created in the wake of the success of
early
adopters, such as Comair and Lufthansa.
Assuming the demand persists, the supply problem will resolve
itself. Bombardier and Embraer have
already ramped up production and Fairchild is new to the fray, with a
fresh if
yet unproven product. But, unless things
change in the ATC environment, increased small jet production and use
will
manifest itself as even greater airspace congestion problems, for small
and
large jets alike.
Why Scope “Relaxation” Does Not Figure
Back to
Proposition RJ for a
moment. This study’s chief
misunderstanding seemed to result from overly broad generalization of
Scope
clauses and their impact. For example,
the study failed to recognize the lack of any Scope-related constraint
on
acquisition and use of small jets in many of the identified collective
bargaining agreements.
To place
this in
perspective, United recently requested its ALPA bargaining unit accept
284
small jets in their agreement, “in parity with other airlines”, notably
American, Continental and Delta.
USAirways suggests it would like 300 to 400 small jets. Sure, why not. No
other, more pressing problems at USAirways
that a few hundred small jets couldn’t solve, right?
In the
specific case of the
AA/APA collective bargaining agreement, the study mischaracterizes the
nature
of Scope-related limits. There is at
present no limit on the number of small jet aircraft certificated at 44
seats
or less, in other words, the EMB-135/EMB-140 or D328JET/D428JET.
AMR-owned
carriers may
operate an unlimited number of such jets.
Nor is there any limit at non-AMR owned carriers, except to the
extent non-owned
carriers utilize the AA* reservations code and carry passengers
ticketed on
these flights and operate jet equipment of a size 45-70 certificated
seats.
The study
also fails to
recognize that owned and non-owned/AA*-coded small jets that operate on
routes
not previously served by AA mainline equipment carry further use
exemptions,
including the right to fly unlimited block hours and produce unlimited
ASM. So, Scope is not a deterrent to
large scale deployment of small jets in new point-to-point markets,
exactly the
pattern of flying that avoids hubs, which is what many business
travelers say
they prefer.
Finally,
the study
mischaracterizes American’s ability to ultimately operate more than 67
small
jets in the narrow, defined size range 45-70 seats.
In fact, the growth potential in this small
jet fleet size range is based on the number of net new aircraft
operated in the
mainline fleet after 2001.
AMR’s
ability to field
additional small jets in the 45-70 seat range grows proportional to the
growth
of the mainline fleet. Bigger mainline
fleet? More small jets.
Proportionality; remember that word.
It’s
really hard to
understand how small jet terms of use, as flexible as these, could be
termed an
“artificial barrier to competition”.
Your choice: a turboprop on time, or a small jet delayed…
While
Scope is not a
limitation on their use, ATC/airspace use/operating environment factors
are
clear, systematic and daunting constraints on volume deployment of
small
jets. This is a widespread, airspace
system constraint, separate from High-Density Rule “slots” which affect
only 4
airports today, and likely fewer over time.
The
ATC/airspace
use/operating environment factor was identified and reported in a 1996
study
done by R.W. Mann & Company, validated by a MITRE study done this
year for
FAA, and recently acknowledged by the Regional Airline Association as a
factor
limiting growth.
The underlying airspace congestion driver is that small jets operate efficiently and comfortably only when occupying the same increasingly congested high level enroute and terminal area airspace as mainline jet equipment. By contrast, turboprops (which replaced mainline equipment in many markets earlier in the decade, and are now themselves being replaced by small jets) have operated unimpeded, in what amounts to a parallel, underutilized set of ATC capacity.
Turboprops almost always use airspace below 24,000 feet, often utilize relatively low transition and terminal area altitudes, and where they are available, often utilize shorter and/or intersecting runways in “land and hold short” (LAHSO) procedures. By contrast, small jets operate at mainline jet altitudes enroute, require higher transition altitudes within the terminal airspace area, and require the longer runways that mainline jets utilize. In other words, small jet and mainline jet operational profiles are quite similar.
The bottom line is that when the system commingles small and mainline jets, it increases demand on an already congested part of the airspace system and coincidentally reduces demand on a relatively uncongested part of the system used by turboprops being replaced by small jets.
So, to the extent small jets replace turboprops and not mainline jets – Proposition RJ’s play to ameliorate mainline employee concerns (more on this later) – they add to airspace congestion and congestion-induced delays.
This is a lose-lose proposition, in an environment where airline and customer priorities alike are on-time performance and compressed block times, and where the delay “blame game” has already reached epic, near theatrical proportions.
Regional Flying Has A History of Replacing Mainline Flying
With the
goal of
ameliorating employee concerns, Prop RJ asserts that “replacement of
mainline
jet services with regional jet services is not a loss of mainline
flying or
jobs”. Considering the American
Airlines/AMR Eagle regional/mainline network since 1992, one would be
hard
pressed to reach that conclusion. On the
AMR network, regional (turboprop, ultimately, small jet) replacement of
mainline service occurred, essentially until limited by Scope
guarantees gained
in 1997. These included a mainline fleet
size “floor”, pilot roster floor, and proportionality in the form of a
ratio
between future mainline and small jet fleet growth.
The
historical
loss-of-mainline-flying trend is illustrated in the above and following
charts
and table. The long-term trend in share
of flying in joint-service markets since 1987 is illustrated above,
along with
the following chart and table showing AA service frequency for the peak
month
(August) in markets in which, during 1992, both American and AMR Eagle
offered
service [4]/. Shown are the number of peak month scheduled
departures for American and AMR Eagle during 1992 (prior to AMR’s
“Transition
Plan”), 1996 and 1999, and the number of frequencies on which AA jet
service
was replaced by American Eagle or other code-share regional service [5]/
during the intervals 1992-1996 and 1992-1999 [6]/.
The trend clearly shows that in the majority of markets, AMR Eagle
replaced
American Airlines jet service wholesale through 1996, an outcome that
largely
persists through the present.
Despite
more than four times
as much regional service in these markets, less than 10% of the
mainline
service lost since 1992 has been regained as mainline flying, and that
has
occurred since 1996. In the balance of
markets where mainline service was reduced, AMR Eagle has been the
recipient of
most or all of the growth in flying.
For the
most part, mainline
flying reductions in these markets occurred prior to 1996, to a lesser
degree
through 1999, subsequent to the ratification in 1997 of mainline fleet
and
pilot roster floor protections. Through summer 1999, in the 36 markets,
mainline flying continued to decline.
It is true
that with the
exception of aircraft retirements, mainline aircraft were re-deployed
from
these routes and continued to operate on the network.
It is also true that due to aircraft
retirements, mainline fleet growth was moderate during a time of rapid
regional
airline and competitive major carrier fleet growth.
The forward-looking issue was addressed by
AMR in 1997 with a guaranteed fleet growth proportionality concept,
resulting
in a formula for sharing future growth opportunities between mainline
and
regional-operated small jet fleets.
Trend in AA
and AE Frequencies,
Gain/Loss by AA/AE, Peak Months, 1992-1996-1999
Change,
Change,
August
1992
August 1992
August 1996 1992 to 1996
August 1999
1992
to 1999
Jointly
Served Markets
AA
AE
AA
AE
AA
AE
AA
AE
AA
AE
AA Replaced (21
markets) 4434
2636
0 10556
(4434) + 7920
372 9918 (4062) +7282
AE Emphasized (15
mkts) 5022
920
3472
6052 (1550) +
5132
3022 6195 (2000) +5275
Sum, 36 Joint Markets 9456 3556
3472 16618
(5984) +13052
3394 16113
(6062)
+12557
AA+AE (AMR Network)
13012
20090
+7068
19507
+6495
Growth in regional airline activity clearly
cost
mainline employee jobs
Since 1993, when outsourcing of mainline operations to AMR Eagle, and to Reno Air and Midway Airlines commenced, AA fleet size, number of AA pilots and copilots, and overall AA employment dropped by 6%, 5% and 10%, respectively through year-end 1998. AMR Eagle capacity increased by 17% over the same period (65% since 1992), and at the present rate will increase by a further 30% in 1999.
During the
outsourcing of
mainline flying to regionals beginning in 1993, AA furloughed 610
pilots, the
last of whom were recalled during 1998.
1993 represented a structural furlough, American’s first since
the early
1980’s severe recession.
Despite
recovery and growth
in American’s system traffic and revenue since 1996, and a sizable
increase in
AMR Eagle regional capacity and traffic, mainline fleet and
pilot/copilot
employment continued to decline through 1998, as shown on the following
table. [7]/
Since year-end 1998, the AA trends have reversed. AA pilot hiring has ramped up to maximum levels to cover pilot retirements and a training bubble associated with fleet expansion and new equipment type (B737NG and B777) arrivals, as more units of new equipment are being delivered than older equipment retired. This is a trend that should continue through year 2000. Eagle pilot hiring is also operating at “redline”, to accommodate small jet training and upgrades.
AA Fleet and Employment Trends versus AMR Eagle Capacity Trend
Pct.
Change,
1992
1993 1996 1997 1998 1998 v. 1992
AA Fleet [8]/
646
680
649
643
642
( 0.6) %
AA Pilots and Copilots [9]/ 8512
8924 8369 8326 8124 ( 4.6)
AA Pilots Furloughed
0
610
610
610
0
N.C.
AA Employment 91885 91773
78902 80842 82470
(10.2)
AA
Capacity [10]/
153.0 160.9 152.9
153.9 155.3
+
1.5 %
AE Capacity 10/
2698 3821 4431 4218 4471 +65.7 %
The table illustrates that from 1992 through 1998, despite a marked industry recovery and 65.7% growth in AMR Eagle regional capacity, mainline AA fleet and pilot employment continued to decline, and mainline capacity grew by a modest 1.5%. Through summer 1999, service was still being outsourced from AA to AE, even as AA’s mainline fleet has begun to grow once again and produce net increases in capacity. [11]/
Absent Scope, regional
aviation would
have continued to capture outsourced mainline growth
At AMR,
there is a clear
record of regional airline flying having replaced mainline service and
jobs, up
to the point where the AA pilot Scope clause established a formula for
proportional growth of AA mainline and AE small jet fleets in the size
range
45-70 seats. The AA pilot Scope clause
now influences the division of future growth in American and AMR Eagle
flying
to be performed under the AA code, projecting out to 1999 and beyond [12]/. Whether historical or projected, it is clear
that regional flying has replaced mainline flying and is still
projected to be
the primary, near-term recipient of growth at AMR.
AA
mainline flying is a
smaller fraction of overall AMR flying.
Factor in the growth in code-share alliance capacity operated as
AA* by
other large jet carriers, and the percentage of AA “metal” actually
operating
“AA”-coded flying declines further.
Scope’s influence has not been to limit regional flying – in
fact, it
offers incentives to grow regional-operated small jet and mainline
flying. Scope limits the downside at AA,
in the case
of any future industry contraction, providing a mainline fleet size
“floor”,
mainline to small jet ratio and mainline pilot roster floor. Going forward, in a growth mode, the AA pilot
Scope clause uses proportionality, in the form of a mainline to small
jet fleet
size growth ratio.
The
regional-mainline
synergy argument, while sold as “intuitive”, has yet to be upheld in
actual
expereince. Scope clauses have clearly
limited damage of the sort experienced at AA during 1993-1996. While it is possible that future mainline and
regional fleet plan events may validate the ideas of synergy and
proportionality, as it stands, inherent proportionality has not yet
been demonstrated
as a natural consequence. In fact, AMR
has rejected proportionality when requested by AA pilots, in connection
with
code-sharing alliances. When offered by
the company, the company has subsequently reneged. [13]/
For the
next five years,
from 1999 through 2004, based on current fleet plans and equipment work
rates,
which could be influenced by acceleration of options and/or
retirements, AMR
Eagle capacity growth is expected to grow by 61.5%.
While American’s capacity base is clearly
larger, it will rise in percentage terms by 8.7%, a fraction of the
regional
system’s growth rate.
This
improves somewhat on
the out-of-balance 1992-1998 growth trend (Eagle growth 65.7%, American
growth
1.6%) and demonstrates some closure in the proportionality gap. On the other hand, Scope has effectively
prevented the historical rate of cannibalization of mainline flying.
Management
has the option to
demonstrate mainline to regional growth proportionality, as it firms
fleet
options in the coming years. Meanwhile,
Scope in the form of AA fleet and AA pilot roster floors, and AA to AE
45-70
seat small jet fleet growth ratios serve as insurance against the
historical
rate of flying loss.
Market potential for small
jets is
substantial, but overstated
There is
clearly a large
turboprop replacement market for small jets, worldwide.
Due to aggressive assumptions, however, Prop
RJ overstates the number of
The study
methodology
overestimates potential markets and passengers by failing to eliminate
the
“donut hole”, or shortest haul portion of the methodology’s presumed
900-mile
radius small jet catchment area. Thus,
the methodology includes numerous, large markets, where jet block times
offer
no advantage over turboprops, and where small jet economics and
opportunity
costs make them least likely management choices, whatever the market’s
preference.
We may
well continue to see
a bus on the Rockford-Chicago leg of a
trip to Heathrow, even after Eagle goes “all jet”.
Indeed, we may see more buses and trains on
short feed segments, as have become common in
The Prop
RJ methodology
inflates the small jet aircraft unit requirement based on markets, then
expands
the error by suggesting that multiple carriers are likely to introduce
competing ultra-short-haul hub services, when such service would be
financially
unrewarding for all participants.
The Prop
RJ methodology
includes markets which have already proven to be single-carrier and/or
unprofitable. Examples are Dallas/Fort
Worth to Northwest Arkansas Regional (XNA), and Chicago/O’Hare small
jet slot
exemption markets, such as
Prop RJ’s
smaller markets of
less than 100 local and connecting flow passengers per day each way and
even
larger short-haul markets [15]/
are unable to support the minimum frequencies desired by business
travelers
paying desirable fare levels, who desire same-day round-trip service
options.
Double/triple-counting occurs in Prop RJ, due to unrealistic
competitive
service assumptions. The study manages
to double or triple-count small markets, by suggesting they are viable
targets
for multiple carriers, when monopolists with superior networks have
been unable
to justify service
Small Jet Operating Economics
In an
attempt to mitigate
mainline employee concerns, Prop RJ suggests that small jet economics
are “more
like mainline jets than turboprops”.
This is inaccurate, whether based on acquisition and operating
costs, financial
risks to the airline or potential investment returns.
DOT data
show that small jet
hourly operating and trip costs, consisting of crew, fuel, maintenance,
insurance and ownership are proving to be less than existing, slower
turboprops
and substantially less than the smallest, 100-seat mainline jets.
Small
jets’ superior
economic performance is a feature of improved engine and systems
technology and
smaller gauge, lightweight, “stretched” equipment design. [16]/ Across-the-board, dramatically lower regional
airline pay scales offer management cockpit, cabin and ground labor
cost
subsidies with which to reinforce inherent aircraft efficiencies.
The
following table shows
for Year 1998 DOT Aircraft Operating Cost data for large turboprops
(ATR and
BAe ATP), small jets (CRJ-200, EMB-145), larger regional-operated jets
(Fokker
28, BAe RJ85 and 146) and comparable Form 41 costs for the mainline
Fokker 100
and smaller DC-9 series jets. Mainline
costs were adjusted to 300-mile stage lengths to reflect current,
regional-operated
small jet average stage lengths.
On an Hourly
and Seat/Block Hourly Cost Basis
Small
Jet Economics are Superior
Less
Costly than Smallest Mainline Jets
[regional results as reported,
mainline costs adjusted to 300-mile stage length]
Operator and
Average
Aircraft
Operating Cost
Aircraft
Seats
per Block Hour
per Seat-BlkHr
Commuter/Regional
Bombardier RJ-200 50
$ 958
$19.16
Embraer EMJ-145 50
$
921
$18.42
50-seat
small jets
$ 950
$19.00
ATR42
48
$
974
$20.29
ATR72
64
$1007
$15.73
BAe ATP
66
$1957
$29.65
Large turboprops
$ 989
$20.27
Fokker 28
69
$1680
$24.38
BAe RJ85
69
$1728
$25.04
BAe 146
96
$2208
$23.00
Large, regional carrier jets
$1882
$24.35
Mainline
Fokker 100
97
$2970
$30.62
DC9-10
78
$2333
$29.91
DC9-30
100
$2915
$29.15
Smallest
mainline jets
$2765
$30.17
Source: carrier filings with DOT on
Forms 41 and
298C, Year 1998
The table
illustrates that
current 50-seat small jet hourly and seat-hour aircraft operating costs
are
marginally less than predominant 48-66 seat turboprop costs. Factoring in the advantage of higher block
speeds, which increases with longer stage length, and small jets offer
even
lower trip costs.
As small
jet equipment
matures out of its maintenance holiday costs, 50-seat small jet hourly
operating costs should be comparable to existing, 48-64 seat turboprop
hourly
costs, unadjusted for block speed, and will still offer lower trip
costs. Mature 37-44 and 70-seat small jet
hourly
costs are likely to scale with the 50-seaters, providing similar unit
costs.
In stark
contrast to Prop RJ
claims, small jet hourly, seat-hour and trip costs are substantially
lower than
100-seat mainline equipment, before and after adjusting for shorter
regional
airline stage lengths. 50-seat jet
trip
costs are proving to be less than large turboprop costs, even on
present
regional stage lengths, and will be even less on longer stage lengths,
including stage lengths where use of turboprops is impractical and
unacceptable
to passengers.
Small Jet Risks and Rewards: Economic Opportunism
Prop RJ’s
greatest oversight
may be failing to recognize or acknowledge management’s ability to
leverage the
economic opportunity [17]/
that goes with regional-operated small jets.
Small jets offer lower trip costs, passenger preference
comparable to
mainline equipment and an ability to build frequency, while
simultaneously
rationing capacity.
Due to
their lower trip
costs and comparable passenger preference, small jets present the
operator with
greatly reduced financial risks, compared to larger mainline equipment. In an increasingly risk-averse and capital
investment-averse corporate environment, management has strong
incentives to
operate small jets at a higher frequencies, where ATC and airport
capacity
permits, in favor of economically riskier mainline jets.
This
combination (lower
costs, mainline-comparable preference, capacity rationing) offers the
operator
superior competitive positioning and greatly reduced financial risks,
compared
with operating larger mainline equipment at lower frequencies, and with
lower
costs and higher passenger preference than turboprops.
Small jets handily beat turboprop economics
(explaining, in part, the headlong rush to “all-jet” status) and larger
jets.
If and
when a deteriorating
economic environment occurs, the small jet will be able to maintain
frequencies
desired by business travelers and do so profitably for the network,
when larger
jet operations are more problematic.
With the small jet’s combination of lower acquisition cost,
reduced
operating cost and lower financial risk, corporate investment hurdle
rates (and
management incentive pay-out thresholds) are more easily achieved. Scope clauses with mainline fleet and pilot
roster floors limit the extent of any downward replacement spiral, but
at AA do
not limit the growth of small jets with less than 45 seats.
Once
smaller equipment is
introduced, the frequency advantage conferred by smaller gauge units,
selective
coupon acceptance (highest fare “coupon skimming”) and the more
aggressive
revenue management possible with smaller gauge are difficult to reverse.
These
factors work in jet
and turboprop markets. United recently
announced plans to replace UFS’ aging, expensive to operate, 66-seat
British
Aerospace ATPs, with 50-seat and 32-seat jet equipment.
And this business strategy works just as well
in as longer-haul, larger markets. Take
the
case of the 600-mile, 2,500 passengers daily each way (PDEW),
Baltimore-Chicago
market where mainline jets previously operated, where turboprops are
neither
flown nor competitive and where small jets now operate.
Four AMR
Eagle Embraer
EMJ-145 flights offer twice the frequency as former twice daily AA
MD-80
service, but nearly 30% fewer seats overall, and an even more
substantial
reduction in by-product discount seats. The small jet schedules attract
and are
revenue-managed to defend against Southwest pricing in the local [18]/
and flow markets, thereby yielding higher
revenue per seat-mile on lower
seat-mile costs than the 100-seat mainline jets could achieve. The jury is out on what the results may be
when American re-enters the market with four daily MD80 services and a
180%
increase in capacity, in April 2000. [19]/
Due to the
small jet’s lower
capital costs, reduced operating risk and smaller gauge (smaller
“chunks” of
capacity), corporate investment hurdle rates are more easily achieved
by
regional-operated small jets than by larger mainline equipment. As was earlier shown with turboprop-for-jet
displacements, once larger equipment is displaced, it is difficult to
overcome
the frequency advantage conferred by smaller gauge units and highest
value
coupon skimming [20]/.
Fare Mix Maintenance
Contrary
to Prop RJ’s claim,
introducing small jets has not introduced fare competition. All experience to date suggests
otherwise. The use of small jets in
favor of larger gauge aircraft (“down-gauging”) allows increased
frequency,
stimulates (or recovers, after turboprop avoidance/loss) highest coupon
value
business and international demand, eliminates marginal discount seats,
improves
average coupon and itinerary values, improves profit potential and
reduces
risk. This is hardly the fare competition the study imagines. [21]/
Down-gauging
has been a
widespread competitive network strategy for years.
Route profitability modelers and revenue
management analysts know that once smaller gauge aircraft are
introduced, they
are difficult to dislodge, resulting in a one-way transition to
regional service,
even when that service is turboprops.
Passenger-acceptable small jets merely reinforce the strategy.
This
real-world outcome is
anything but the beneficial fare competition Prop RJ imagines. When used in favor of large turboprops or
mainline service, the small jet often reduces available seats, even
when
frequency is increased. This attracts
and may actually stimulate higher-fare business demand, while
displacing
price-sensitive leisure consumers. This
is a scenario that results in a windfall for the airline, not price
competition, with no benefit to price-sensitive consumers.
Frequency
building and
highest-value coupon skimming offer advantages in all sort of markets,
from
short-haul markets sized in the hundreds of daily passengers, to the
longest-haul,
largest markets. The same principle
has
essentially eliminated the DC10 and B767 on hub-to-hub routes, the
Boeing B747
on the
Conclusions
Existing
pilot Scope clauses
permit greatly expanded use of small jets.
It is constrained airframe production and airspace and airport
scarcities that are the most significant current and future limitations
on
small jet use.
Mainline
flying and jobs
transferred earlier in the decade to regional airline turboprop
operations, are
now being converted to regional-operated small jets.
While there is substantial turboprop
replacement market potential for small jets, the size of the growth
market is
overstated by unrealistic competitive service assumptions that are
unlikely to
materialize.
Small jets
entail less
financial risk, operate at turboprop costs, and facilitate revenue
management
(higher revenue per available seat mile) by reducing capacity, even
while
adding frequency. Economical 37-44 seat
jets
will continue this trend.
All the
evidence to date,
supplemented by management incentives and financial motivation,
reinforced by
candid statements and intent [22]/,
suggests that, far from reassuring mainline employees, the small jet
trend is a
viable replacement for larger jet flying in suitable markets.
Relaxation
of Scope language
is unnecessary, there being sufficient provisions for increased use of
small
jets. Scope relaxation would simply
serve as an entrée to convert more mainline jobs to lower paying
regional
airline jobs. Based on empirical
observation of revenue management behavior in markets served with small
jets,
relaxation of Scope would be anti-competitive, providing additional
opportunities for operators to reduce capacity and more aggressively
revenue
manage towards a richer fare mix on reduced labor cost and investment
bases.
Evidence
suggests that, in
the absence of guarantees of proportional growth in mainline and small
jet
fleets, such as the Scope language in the 1997 AA pilot contract,
regional
airline code-share operations using small jets are likely to supplant
more
mainline flying and jobs in the future.
Going
forward, with Scope
clauses that guarantee proportionality in mainline and
regional-operated small
jet fleet growth, the sky’s the limit.
The resulting balanced growth can and will work for mainline and
regionals, their employees, shareholders and consumers.
What
remains is for the
industry (airlines, DOT/FAA, airports, municipalities and not the
least,
legislators) to pull together, to advance National Airspace System
plans and
capacity. A collective effort will
ensure the continued competitiveness of the
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