Mesa Boss Ornstein: ‘Mother of All Years’

 - January 31, 2007, 10:06 AM

Smaller aircraft–specifically regional jets–are often blamed for delays in the National Airspace System, said Mesa Air Group chairman and CEO Jonathan Ornstein, in a recent speech at the Washington Aero Club, but he argues that “playing the blame game” takes focus off the need to expand airport capacity and continue to modernize the ATC system.

“This simplistic argument ignores the price and service competitive benefits that regional jets have brought to large and small cities,” he said. “It also disregards the fact that regional jets have become a critical element in the survival plans of many legacy airlines.”

According to Ornstein, one in four passengers travels on an RJ, and regional aircraft comprise one-third of the airline fleet and one-third of all airline flights. And 99 percent of regional airline passengers are carried on flights operating under a code-sharing agreement.

Reassessing the Value of Scope Clauses
He asserted that regional airline success will depend on keeping the cost of flying consistent with the short- and long-term agreements executed with the network airlines. Speaking at a luncheon at which the Air Line Pilots Association had a large table near the front of the room, he also blasted scope clauses at legacy airlines, which he said created inefficiencies and barriers that have negatively affected the industry as a whole.

“Scope is an ‘old school’ concept and does not serve the long-term economic interests of legacy airlines, regional airlines, the individuals they are designed to protect and, most important, passengers who are denied travel options as a result of these constraints,” Ornstein said. “It has no place in a deregulated environment.”
Last August, at the direction of Congress, the Government Accountability Office issued a report called Legacy Airlines Must Further Reduce Costs To Restore Profitability.

“Unlike many people in my position who do not want to talk publicly about the often sensitive issue of labor-management relations, I think it is high time for an open conversation to address the often thorny problems that our industry faces,” he said. “We should no longer be forced to rely on the feast-and-famine cycle that has defined the airline industry for so long.”

He called on both sides to speak frankly. Between 40 and 50 percent of total costs are labor-related, he said, which represents more than 85 percent of controllable costs. To avoid the discussion for fear of alienating one’s employees or incurring the wrath of their elected representatives is only “sticking one’s head in the sand” and damaging the future of both the company and its employees, he contended.

“To do this we have to change the entire manner in which management and labor have interacted since deregulation,” he said. “Contracts need to be workable and have features that allow both the company and employee to succeed in both good times and bad. To do that requires innovative thinking and a new approach based on today’s reality.”

Ornstein said that Mesa’s revenues increased from $400 million in 1998 to $500 million in 2002, and he projected revenues of $1.2 billion for this year. Mesa has been profitable in 26 of the past 27 quarters since restructuring in 1998.

“In spite of our recent success, we cannot forget that things change rapidly in this industry and we have to remain diligent,” he said. “In light of the current developments, it is shaping up to be a very interesting year that I believe will be more challenging than the last.” At one point he predicted that this year “is going to be the mother of all years.”

Less than two years ago, he recalled, Mesa entered into a new contract with its pilots. “Depending on your view, Mesa now has the best contract or the worst contract in the industry,” he conceded.

Security Measures
Ornstein also expressed opposition to the recent proposal to increase by more than 50 percent the security taxes paid by passengers. “We believe this is a national security issue and should be funded as such,” he said. Further, he argued that the Transportation Security Administration needs to increase the efficiency and reduce the processing time of screening.

“Regional airlines strongly support programs such as registered traveler that reduce the hassle factor,” said Ornstein. “It is time that we pay less attention to being politically correct and more attention to adopting people-friendly, common-sense approaches to security concerns.”