The U.S. airline industry last month felt the opening tremors of what could become the biggest shakeup in the business since the introduction of the regional jet. On August 15, US Airways announced a plan to fly 50- to 69-seat RJs within its mainline system, using mainline flight crews as part of a far-reaching reorganization effort. The regional jet plan alone, part of the first phase of a three-phase strategy to lift the nation’s sixth-largest carrier from its financial doldrums, would generate a profit improvement of $132 million a year, according to US Airways president and CEO Rakesh Gangwal. The US Airways boss said he could execute the plan to replace short-haul mainline aircraft with 60 regional jets immediately, regardless of the airline’s ability to negotiate new pilot pay scales before the airplanes go into service.
A US Airways spokesman told AIN that the airline began talks with all three established regional jet manufacturers “a few weeks” before the August 15 analyst meeting, during which Gangwal and company chairman Stephen Wolf announced the restructuring plan. US Airways has taken formal sales proposals from the contenders, and hopes to conclude negotiations “as quickly as we can,” said the spokesman. During the analyst meeting, Gangwal estimated that the company would begin replacing mainline airplanes–Boeing 737-300s and Fokker 100s now based in Charlotte, N.C., Philadelphia and Pittsburgh–on a one-for-one basis with the 60 regional jets by next year’s second quarter.
Questions abound, however, about US Airways’ motives, given the popular perception that major airline cost structures prevent them from flying airplanes that hold fewer than 100 seats. That argument provided the basis for the landmark settlement in 1997 between American Airlines and its pilot group that allowed American Eagle to fly a limited number of 50- and 70-seat RJs. Since then, scope-clause settlements throughout the industry have essentially followed suit, albeit with variations. Together, they’ve built a structure in which regional jets to this day fly almost exclusively for lower-cost affiliates, while major carriers continue to operate airplanes no smaller than Fokker 100s.
Whether the estimated $132 million benefit resulting from RJ introduction assumes a lower pay scale remains an important subject of debate. If, in fact, the estimated cost savings did not account for a reduction in pay, further skepticism about other major airlines’ alleged inability to economically fly regional jets will undoubtedly arise.
“I don’t know what [US Airways] bases its estimates on, because the unit cost of flying regional jets is actually very high,” said US Airways ALPA Master Executive Council representative Roy Freundlich. “To garner $132 million out of pilot wages seems like a lot. A 737 captain makes about $180 an hour, the first officer makes $130, so if you put them on a regional jet, you’d have to go from that to about $110 and $80. It just doesn’t make any sense.”
During the analysts’ meeting, Gangwal said mainline operation of a 69-seat jet will cost 23 to 26 percent less than it does to fly the airline’s Boeing 737-300s and Fokker 100s. Although he acknowledged that the cost will exceed that of the Express carriers by roughly $3 per trip mile, Gangwal surmised that the recent Comair settlement would boost labor costs 20 percent throughout the regional airline industry, a phenomenon that will largely mitigate that $3 difference.
“We do not believe an Express carrier will always be able to operate a regional jet at a lower cost than a mainline carrier,” Gangwal concluded. Nevertheless, he advanced the possibility of transferring the mainline RJs to the Express carriers once the airplanes gain a foothold in their respective markets.
In its plan, US Airways addresses “longer term” discussions with its labor groups, but not until it reaches the third phase of the reorganization. The proposed regional jet introduction would occur in the first phase, followed by further negotiations on a new scope clause for RJ operations by regional affiliates in the second. US Airways pilots now work under a collective-bargaining agreement amendable at the end of next year. However, according to Gangwal, the contract allows the airline to add a new aircraft type to its fleet in the absence of a new pay scale, and grants a subsequent negotiation period and arbitration procedure should the sides fail to reach a settlement. “Phase one is in the bag,” said Gangwal.
ALPA disagrees, however. “There were some things that Gangwal said during the analyst briefing that weren’t quite right,” said Freundlich. “He thinks he can impose something on us, but he can’t. They can buy the aircraft and negotiate a pay rate with us, but if he fails to come to an agreement with us, we have the full protections of the Railway Labor Act, and we could strike.”
Meanwhile, the sides must grapple with the issue of the scope of US Airways Express jet operations, which Gangwal said would supplant mainline flying at New York La Guardia, Boston and Washington Reagan National in the second phase of the reorganization. As a result, mainline jet departures would drop from 97 to 29 in those markets, while Express regional jet departures would increase from 67 to 116.
As US Airways retires all of its MD-80s by the end of next year, other mainline types will move to new East-West long-haul markets, said Gangwal. Subsequently, US Airways plans to enter further code-share contracts with regional carriers for feed to San Antonio and Austin, Texas, and Portland, Ore.
Nearly at the Limit
However, US Airways’ regional affiliates already fly 60 of the 70-aircraft limit allowed under the mainline pilots’ scope clause. In a response to a letter from US Airways management, the Air Line Pilots Association agreed on August 13 to resume negotiations over a revised scope clause in the airline’s pilot contract. An interim agreement reached in April last year raised the number of jets allowed to fly as US Airways Express to 70 from 35, but limited the additional jets’ passenger capacity to 50 and mtow to 60,000 lb.
US Airways has not specified how many regional jets it wants for its Express affiliates, although estimates before the start of merger negotiations between the Arlington, Va.-based carrier and United Airlines ranged from 200 to 400. According to ALPA, negotiations over the RJs stalled due to US Airways’ devotion to its failed merger agreement with United. Only after the merger failed its antitrust tests did US Airways demand that the union address the issue “immediately,” said an ALPA spokesman.
“The negotiating process requires an equal commitment from management to negotiate in good faith and a willingness to address US Airways pilots’ job security needs,” said US Airways ALPA MEC chairman Chris Beebe. “We are willing to work with management to resolve the small jet issue if they are sincere in the objective of enhancing our company’s competitive position.”
Of course, at the time ALPA agreed to talk about the scope clause–two days before the analyst meeting–union leaders had no inkling of the airline’s plans for mainline RJs. Once the news surfaced, the union quickly issued a curt retort. “There will be no resolution of small jets being operated under US Airways’ code at affiliate carriers until pay and working conditions are established for any small jets that the company plans to deploy on the mainline,” said Beebe. “ALPA will require phase one and phase two to be dependent on each other to properly resolve our pilots’ job security and contractual needs.
“We gave this management team concessions in 1998 that made us competitive with other major airlines,” he added. “Management squandered our contributions and neglected our airline during their 17-month pursuit of the failed merger agreement with United. The pilots are done backfilling for a management team that is incapable of delivering on its promises to employees...If they are planning to replace mainline aircraft with small jets–in addition to replacing mainline flying–then management is on the path to declaring war on the US Airways pilot group,” said Beebe.
ALPA also flatly rejected any cooperation on the third phase of Gangwal’s plan, which called for a reduction of labor costs to the level of those at Continental and Southwest Airlines. “Phase three of management’s plan will not succeed,” said Beebe. “Comparing us to the likes of Continental and Southwest, in light of recent management positions to the contrary, is a disingenuous and hostile attempt to begin negotiating the pilot contract in the press now, which does not become amendable until 2003.”