A little background information for you all:
Everyone knows what a "regional" airline is. Little airplanes, lots of noise, cheap tickets and short routes. Pilots who are paid poverty-level wages, who bide their time there only until they can build up enough hours to be hired by a major airline — a "real" airline.
That may be the conventional wisdom, but in 2001 it’s also the aviation-industry equivalent of an urban myth. In almost every way you care to measure — from the level of sophistication of jet aircraft to route type to ticket price to crew experience — there exists no operational distinction between today’s jet airlines but one: the number of seats in their aircraft.
But whether you’re talking about a 410-seat B747-400, or a 78-seat DC9-10, or a 50-seat CL-65, a jet airline is a jet airline and a jet pilot is a jet pilot. And despite the urban myth, Comair is a real airline, and Comair pilots are real pilots who deserve a real contract.
This report will help you understand the economic state of the airline industry and our relation to it.
Consider for a moment where we’ve been and where we’re going. Until 1978, the U.S. airline market was regulated. The government rationed and often subsidized air service. Regulation also meant that airline markets were protected. Certain carriers monopolized certain cities, which limited choices for the traveling public and drove up ticket prices. With profitability built into the system, the value of pilot contracts steadily increased.
But in 1978, deregulation put an end to the way things had been done. The airline industry changed drastically over the next decade; suddenly, airlines were subjected to free-market competition. New carriers began to pop up everywhere. Disoriented airline CEOs fixated on preserving and garnering market share, often to the exclusion of other more meaningful performance indicators such as break-even load factor and, most importantly, profits! Airlines rapidly expanded their route structures, all in the name of increasing market share. Tales of industry consolidation and leveraged buy-outs filled the newspapers. The peak of this expansion occurred in 1989, which coincided with a record year for pilot hiring.
By the early 1990s, this unrestricted expansion had resulted in unprofitable operations further stressed by heavy debt burdens. Financially sick carriers desperately tried to outlast their competitors by slashing ticket prices to attract customers. Remember Continental Lite and their "Peanut Fares"? The resulting over-capacity, coupled with under-pricing and an economic recession, didn’t help matters. Between 1991 and 1994, the airline industry lost more money than it had earned in its entire history.
Guess who suffered from this short-sighted approach — the employees, of course. Carriers like Delta, US Air, Northwest, TWA and many others furloughed hundreds of pilots. Concessionary contracts became the norm.
Notably, while the "name brand" carriers and many others hemorrhaged dollars, Comair earned profits. Comair’s net profit margin steadily increased from 6 percent in 1989 to 17 percent by 1999.
Today, the airline industry has become more economically rationalized and stabilized. The robust economy of the past several years and hundreds of millions of dollars in employee investment have slashed the debts of most carriers. Managements have finally learned their lesson: matching capacity to demand, with appropriate scheduling, frequency, and pricing, is the foundation of a successful airline operation. These epiphanies have resulted in record profits.
But there’s a fly in the ointment: a pilot shortage. The bulk of the population is getting older, and the senior baby-boom pilots are retiring. Fewer and fewer pilots are coming from the military. Airlines, in concert with collegiate programs, have only just recently recognized this void and are now investing their own money to "pick up the slack."
In addition, the CL-65 type rating is in demand because small jets are today’s hot commodity. With small jets, airlines can raid competitors’ hubs, stimulate a market with frequency, and capture market share from smaller cities for the name brand. In all of these applications, capacity is closely matched to demand.
What does this mean to Comair pilots? In short, we couldn’t have picked better economic circumstances for negotiations. Sure, everyone is stressed about their portfolios right now, and the economy has modestly softened in recent months, but the airline market by historical measurements remains relatively strong. Meanwhile, the pilot shortage shows no sign of going away. Many of us have type ratings and experience flying an aircraft that is driving expansion, preserving market share, and is most resilient to lulls in travel demand. The sheer economics support our cause. With respect to any name-brand airline, small jet operations are not a financial luxury or option. They are a force-multiplying component of the overall system and are a competitive necessity, especially to Delta, which is girding for another round of industry consolidation.
Evolution and Revolution
In the bygone era of piston-engined, small-aircraft, short-segment airline operations, the distinction between "regional" operations and those of larger airlines made sense. That distinction remained even when airlines began operating more modern, unpressurized turboprop aircraft. These were generally faster and more profitable, but suitable for use on short segments at relatively low altitudes, almost guaranteeing a rough ride for passengers. With the transition to fast, pressurized turboprop aircraft with flight attendants, the distinctions began to blur in terms of passenger service and comfort. Even the FARs changed to ensure that there was but "One Level of Safety." Aircraft such as the Dash-8, SF340, EMB120, and ATR Series were airliners that provided name-brand levels of service and even greater profitability. Until this point, the history of this segment of U.S. commercial aviation was an evolution. Then came the small jet, and what followed was a revolution.
What is a "regional" airline?
As we said on page one, today the term "regional" airline is an urban myth — a marketing term used to define a product that doesn’t exist in modern airline systems. And that fact is confirmed by examining the factors that are generally considered to separate "regional" airlines from the "real" airlines. Those factors include:
• aircraft types,
• route lengths,
• operating requirements, and
• crew experience.
As the myth has it, real airlines fly big aircraft while regional airlines fly small aircraft. But Delta, for example, operates jets of 11 different sizes, ranging from 107 to 302 seats — a tremendous range of aircraft that defies categorization by size. At one-third the size, a B-737-200 is unquestionably a "small jet" compared to a B-767-300, not to mention a B-777 or MD-11.
The CL-65 is a 50-seat jet, as sophisticated as any jet in the world, that perfectly complements Delta’s need to match capacity to demand. There is no operational distinction between the CL-65 and any other aircraft in the Delta fleet. Differences lie only in marketing strategies such as "Delta Shuttle," "Delta Express," or "Delta Connection."
Do "regional" airlines serve only short routes, while "real" airlines serve only long routes? No. On short routes, airline marketing strategies frequently require a range of aircraft sizes to properly match capacity to demand between city pairs throughout the day. For example, consider the following daily Comair, Delta, and combined Comair/Delta service over the same short routes:
• Cincinnati – Louisville, 83 miles
· 6 CMR CL-65
· 4 DAL B-727/MD-88
• Cincinnati – Indianapolis, 98 miles
· 7 CMR CL-65
· 2 DAL MD-88
• Cincinnati – Columbus, 116 miles
· 4 CMR CL-65
· 4 DAL B-757
• Atlanta – Savannah, 215 miles
· 0 CMR/ASA
· 8 DAL B-757
• Cincinnati – Milwaukee, 318 miles
· 4 CMR CL-65
· 3 DAL MD-88
The same aircraft utilization strategy holds true for medium-length routes as well:
• Cincinnati – Minneapolis, 596 miles
· 6 CMR CL-65
· 3 DAL MD-88
• Cincinnati – Albany, 623 miles
· 1 CMR CL-65
· 2 DAL B-727
• Cincinnati – Montreal (Dorval), 713 miles
· 4 CMR CL-65
• Cincinnati – Orlando, 756 miles
· 1 CMR CL-65
· 4 DAL MD-88/B-757/B-767
And on long routes, generally considered to be the domain of the "real" airlines, the so-called "regional" aircraft — more accurately referred to as small jets — often operate on trip lengths comparable to or longer than those of many larger aircraft:
• Dallas/Fort Worth – Mexico City,
· 3 CMR CL-65
· 1 Aero Mexico MD-88
• Cincinnati – Miami, 948 miles
· 1 CMR CL-65
· 3 DAL B-727/757
• Dallas/Fort Worth – Puebla (Mexico),
· 1 CMR CL-65
• Dallas/Fort Worth – Greensboro, 999 miles
· 1 CMR CL-65
• Cincinnati – Nassau, 1052 miles
· 1 CMR CL-65
The bottom line is that large, medium, and small aircraft in the U.S. airline fleet overlap operations to match capacity to demand, thereby creating the greatest profitability. They share routes: bigger jets fly shorter routes and smaller jets fly longer routes — all dependent on the operational needs of any given hour of the day. There are no operational limitations that separate the small jet from any other aircraft in this dynamic matrix.
"Regional" service means lower ticket prices, according to the myth. You buy a ticket on Delta, you pay big bucks; but buy it on the "regional" affiliate — Comair — and you save. Not true — and for a very obvious reason: small jet operators don’t provide discount service.
In fact, Comair’s customers are primarily full-fare-paying business travelers who demand convenient, high-quality service on equipment that gets them to their destination quickly and comfortably. In other words, on Comair they want, and receive, the treatment they expect to find on Delta, United, or any other "real" carrier. They find the real thing at Comair, and they pay the same prices they would pay at Delta.
The airplanes are old, dirty, and probably unsafe. The pilots are inexperienced and probably unqualified. So the "regional" myth would have you believe. If passengers ascend the stairs believing that, such thoughts perish when they enter a Comair jet.
Small jets — in Comair’s case the CL-65 — are as safe, sophisticated and technologically advanced as any jet aircraft in the world. Passengers love them, and with good reason. Small jets operate under FAA Part 121 rules, with the same tight safety and inspection standards required of all airliners.
Similarly, the pilots who fly them are highly qualified — as sophisticated as their aircraft. Under Part 121, all airline pilots — including small jet pilots — must meet the same stringent standards, including:
• initial and recurrent training,
• check rides and line checks, and
• first-class FAA physical exams every six months for captains, every 12 months for first officers.
They’ve "paid their dues" and earned their flight hours before they were hired by Comair — as flight instructions, or as pilots flying for the military, corporations, or freight or charter operations. Given the FAA-required training for any specific model of aircraft, they have the experience to fly any commercial jet in the U.S.
Myth: Small Jets = Small Profits
Don’t think that the Comair pilots’ strike is going unnoticed. If the media is any indication, we’ve kicked up a lot of dirt. Regional Airline Association President Deborah McElroy recently said, "The (Comair pilots’
pay is in no way related to competence."1 You bet it’s not. "You have to look at how much revenue they get on those flights."2 We couldn’t agree more. In the same article, Comair President Randy Rademacher said, "This is bigger than Comair."3 No kidding. Even the public agrees that paying airline pilots peanuts is simply wrong.
The reality is that small jets have taken on a new role for Delta. They’ve evolved from a shareholder luxury into a competitive necessity. If you look at the percentages in the last 10 years, Comair operations beat Delta by more than two to one when it comes to net profits, net profits per employee, and net profits per passenger. Comair’s small jet operation has only increased those margins. (Figure 1)
How many times have you heard Comair management say, "Forget about profits, we have higher costs than Delta." Oh, really? At Delta, the pilot crew cost per passenger this year is approximately $15.42. Compare that to the $7.80 pilot crew cost per passenger at Comair. Both of these values include salary and benefits. (Figure 2)
Management will attempt to incite the public into clamoring, "Ticket prices are going to go sky high!" But in reality, this isn’t the case. So how would our desired contract affect each passenger, even if management refused to absorb any of the cost (despite last year’s 24 percent profit margin)? The Comair pilot crew cost per passenger would be about $12. (A crew includes both pilots on a flight.) Comair and Delta management have forced a Comair pilot strike after three years of negotiations and have caused weeks of passenger inconvenience for a cost increase that amounts to $4 per passenger.
In the other extreme, if Comair completely absorbed the additional cost, its profit margin would still be 50 percent greater than that at "mainline," which achieved less than a 12 percent profit margin two years ago and a 10.5 percent profit margin last year. Does this mean that we expect to earn the same pay as a B-747 pilot? Of course not. Pilot pay varies, commensurate with responsibility (aircraft size) and productivity (economic contribution to the airline’s system). However, we justly expect to be treated and paid in the same manner as any other airline pilot, with wages appropriate for the size and productivity of our aircraft, work rules and scheduling that respect our time and reduce fatigue, and security for our families with reasonable health insurance costs and a real retirement plan. These things are standard for airline pilots, and there is no reason that they aren’t standard for Comair pilots. When Comair pilots are treated in the same manner as other airline pilots, Comair’s profit margins will still be the envy of the industry.
Delta is using CL-65s as it should: to mine the fortress hubs of other mainline operations. Comair operates seven daily flights into US Airways’ Charlotte hub. It operates another nine flights into Northwest’s Detroit hub, and six flights daily into United’s Washington Dulles hub. The list includes other strongholds like Indianapolis, Cleveland, Minneapolis, St. Louis, Toronto and Memphis, not to mention smaller markets that offer a finite number of high-value business passengers.
Let’s get REAL about our operation and how it is integrated with the rest of the Delta brand offerings. We serve many of the same cities, charge the same or higher prices, and generate higher-percentage profit margins. However, the differences between crew contracts for "Delta" and "Delta Connection" (Comair & ASA) pilots are like night and day. If Delta’s compensation formula can be equally applied to 11 different aircraft sizes, why can’t the same formula work for one more size the CL-65? It can! Why aren’t CL-65 salaries, work rules, and benefits on scale with those of other aircraft? There is no economic or financial reason that they can’t be.
As many pilots throughout our professional history have done, we will answer the singular question, "What is a pilot worth?" The answer is, "No less than any other airline pilot." Our strike is about establishing a parity, about setting a bare minimum standard. Whether we fly a B-747 or a CL-65, the fact is we are all airline pilots who generate revenues sufficient to benefit the shareholder as well as compensate us in an equitable manner.
What is Comair’s (or, more appropriately, Delta’s) liability in this strike? Very high. Former Delta passengers are "booking away" to competing brands. Delta’s market share is being raided. There are only two kinds of CL-65 pilots, those employed and those on-strike. There are no replacements. Furthermore because of an industrywide pilot shortage, Comair pilots have excellent airline employment alternatives, whereas management’s only alternatives are many times more costly than treating us properly. Both sides have options. We have career-enhancing options, management has self-destructive options.
So let’s review. The airline industry took 20 years to make a transition into the free-market system, with plenty of turbulence for pilots along the way, but we’ve finally made it. Fundamentally, the industry is financially healthy, and forecasted to have solid growth through 2008. Small jets are airliners, like any other airliner. Management places them into operation to match capacity to demand, and charges passengers as much as the passengers are willing to pay — the same way management uses any other airliner. Because small jets are used to carry a high percentage of high-yield passengers, they generate mouth-watering profits. These are the reasons that small jets are referred to as "flying ATMs." Small jet pilots do the same job as any other airline pilot, without exception. For this reason, we expect contractual parity on scale with airline pilots flying larger equipment, just as they themselves have parity on scale with one another.
What is parity on scale? All pilots have a company-funded retirement program that allows them to retire in dignity. All pilots have their time used productively, or are otherwise compensated for their time. All pilots have adequate rest. Finally, all pilots are paid appropriately for the size and productivity of the airplane they fly (not on the number of seats that may be installed).
Can Comair (Delta) "afford" a parity-on-scale contract? Absolutely. At one extreme, if Comair absorbed the entire cost increase required to establish parity on scale, it would retain 50% greater profitability than the "mainline" operation. At the other extreme, if Comair (Delta) passed the entire cost through to our passengers, the premium would be $4 per passenger for the two-pilot crew. Either option is easily absorbed by either party, and more easily absorbed if shared. Given that our crew cost per passenger would rise to around $12, and that the "mainline" crew cost per passenger is presently $15.42 (and getting ready to rise), Comair pilots will still be a bargain.
So when we ponder or are asked the questions that seek to quantify, "What is a pilot worth?" — we can answer that question. That is exactly what we are doing one marching step and one day at a time. In so doing we are also exposing the "Regional" airline myth to the light of day.
1 USA Today, 04-03-01, Page B2
2 USA Today, 04-03-01, Page B2
3 USA Today, 04-03-01, Page B2
RJ (on strike)