03.23.2014 « Republic Pilots: Forget the Leaks and Prepare to Change Vessels »
Since writing the last blog titled “A Race to the Bottom,” I have received a lot of mail, much of it critical. Many readers wrote about the ratification votes on tentative agreements for pilots taking place at American Eagle/Envoy and Republic. After a heavy travel schedule, I finally got around to perusing my e-mailbox.
I have long challenged the approach of the Airline Pilots Association (ALPA) and other collective bargaining agents on the mainline-regional relationship, so the last post should not have come as a surprise. Simply put, the relationship needs fixing but the fix is not going to come from one pilot group voting down a contract in the false hope that a “pilot shortage” will resolve differences between regional carriers and the unions representing pilots. The only fix will come with a far more strategic effort on the part of many industry stakeholders – management, labor unions, universities, Congress and the regulators.
Consider the Republic situation. I’m hearing rumors of a concerted “Vote No” campaign intended to put the screws on management and extract more money. Based on my analysis of the industry, Republic pilots should take a step back and think long and hard about that approach. Republic is well-positioned to be a major player in the US domestic airline industry of tomorrow – an industry that will look much different than it does today. So what is important in the interim is to negotiate the very best agreement – one that addresses the makeup of a carrier’s seniority list today and ensures pilots a seat at the table looking forward.
What I like about Republic’s tentative agreement are things that address the future like an early re-opener. It calls for a four-year contract, allowing for adjustments when the contract is amendable at just about the time we’ll start to see significant changes in the industry. The TA also paves the way for what appears to be a more open relationship with the company to address scheduling and operations. These issues are critical to running the very best regional airline possible. American and Envoy took a different approach – an approach some call concessionary whereas Republic is offering improvements.
SENIORITY DIFFERENCES
There are, of course, profound seniority differences between Envoy and Republic. Envoy is a “Legacy Regional” because of its relatively high seniority, while Republic’s seniority makeup is quite different. Among the many difficulties network legacy carriers faced in negotiating labor agreements in bankruptcy, seniority issues more than any other exacerbated the problem of cutting costs to compete with lower cost carriers. As I have said over and over, you cannot restructure seniority. Envoy took one approach in negotiating a way around seniority by significantly improving the flow through agreement with American.
Republic has gone another route by negotiating the very best pilot agreement it believes it can afford over the next four years taking into account the progression through the pay scales. Affordability matters. Republic is currently performing flying under contracts negotiated with mainline partners before this new pilot agreement was negotiated. Because those terms are set, increased pilot costs only degrade the airline’s margins.
It’s all about balance. Capacity purchase agreements are a reality for now, no matter how outdated the model, so the most realistic remedy is to accept that as fact and improve the situation one step at a time.
THE NATIONAL MEDIATION BOARD
I can hear the battle cries now: the NMB will release us and allow us to strike. Republic pilots will say that, after seven years of negotiations the agreement is simply unacceptable. But the union(s) should understand that the threat of a strike is not what it was 15 years ago. The NMB would be hard pressed to make a case to the White House that a sector-leading agreement in many important economic areas is not a good outcome and therefore allow the pilots to engage in a work action.
And, yes, commerce would be disrupted. Regional airlines provide the only air access for hundreds of smaller communities, making it even more unlikely that the NMB would grant a release. [Being remanded back to mediation only prolongs a process already gone too long] Consolidation in the mainline sector only compounds this factor as there is no longer sufficient capacity to accommodate the disenfranchised demand that would result from a work stoppage.
Yes it may be true that smaller cities could in the future lose air service in part because of a shortage of pilots willing to work for the regional carriers, but that argument would not outweigh the risks of a strike today. Are regional pilot salaries too low? Based on the education and skills required for the job, I think the clear answer is yes. But at a time the administration is focused on truly low wage workers and income inequality, it is highly unlikely that the White House would allow this issue to distract from its efforts to raise the minimum wage and allow a work action that could bring more financial pain to areas already punished by a weak economy.
So Republic pilots should perhaps think twice about the conditions for this particular battle and instead focus on the bigger picture and positioning for the future.
A SECTOR IN FLUX WITH THE POTENTIAL TO BE SIGNIFICANT
I’ve been putting a lot of thought into this subject, in part to prepare for a presentation I gave last week on what the North American airline industry will look like in 2025. Projections this far out are never easy, particularly in a business in which long-term planning is too often viewed as planning for the next month. I gave it a go, however, and came down on the side of today’s freight railroad industry. This is an industry that has a created a blueprint for sustainability that began with the passage of the Staggers Act and the departure of large railroads from their non-core businesses like passenger rail.
I see the Big Three airlines soon shedding small market service as it becomes less and less a part of their core business. If Southwest can influence more than 95 percent of demand by serving just a fraction of the markets served by the network carriers, so too can American, Delta and United who will concentrate their service on the nation’s top 100 or so markets along with transoceanic flying.
As costs creep up at the largest airlines, serving more markets won’t make economic sense, whether they do it themselves or in conjunction with a partner airline. Capacity purchase agreements won’t go away, but it is likely that carriers in today’s regional sector will become hybrid carriers that offer service to many markets the mainline carriers vacate.
THE NAYSAYERS
I fully expect that naysayers will take a page out of an antiquated playbook to say that the economics will suddenly improve because the network carriers will “fix” agreements in place with their regional partners. As Lee Corso says every Saturday on ESPN’s College Gameday as the group picks winners and losers: “Not so fast.” You won’t hear it from the network carriers because it wouldn’t be politically astute for them to say it out loud, but my guess is that they would be very happy to begin exiting many of the small markets they now serve.
You don’t have to look too far to appreciate this fact as nearly every hub that has, or had, regional fleets as the backbone of its flying are now disbanded. Delta is trending away from 50-seat aircraft as quickly as it can in exchange for larger 76-seat and B717 aircraft for service to its smaller markets. Whereas in the past the network carriers would participate in subsidized Essential Air Service flying, that trend is dying. American will surely park the “scope-buster fleet” at Envoy. That leaves United which, in the midst of a $2 billion cost-cutting exercise, will certainly be looking hard at the billions of dollars it spends on regional lift and questioning how much is too much.
There is nothing in the data or the trend lines to suggest that legacy carriers will be willing to change the terms of existing capacity purchase agreements just because the economics of regional carrier labor agreement need fixing. These trends do, however, suggest that the regional sector as we know it will be smaller and that will mitigate some of the pilot shortage concerns in the short-term. The medium and long-term are another story but that is not going to get fixed in this round or address the pending problem of putting a qualified supply of pilots into the commercial airline pipeline.
SURVIVORS AND LOSERS
I see two big winners in the regional sector in 2025: Republic and SkyWest, in part because of their commitment to running the very best regional airlines. Yes, Envoy and the former US Airways’ wholly-owned carriers may evolve as stand-alone airlines, but their success is uncertain.
Republic and a SkyWest, by contrast, can successfully transition as hybrid carriers, much like Class II railroads did. Think airlines with multiple code share agreements on the same flight. At-risk flying will be more the norm. There will be capacity purchase agreements with the network carriers, albeit fewer, but only for those who demonstrate a track record of reliable service. Republic and SkyWest have that record where a carrier like Mesa does not. Ultimately, it will be Republic – assuming it can move forward with a new pilot agreement - and SkyWest who command the markets too small to be big enough for network carrier’s mainline aircraft.
CONCLUDING THOUGHTS
Warren Buffet said: “In a chronically leaking boat, energy devoted to changing vessels is more productive than energy devoted to patching leaks.” Republic pilots who vote “no” on the current tentative agreement to protest realities of the market are doing nothing more than trying to patch leaks, and not successfully. The sector is changing and will change and the best energy now should be spent looking ahead to the next contract with greater clarity about what the business will be four years from now.
An early re-opener allows time to do just that: change vessels and improve the economics for those who want to stay and have a career at Republic [and Envoy]. Voting “no” does a disservice to the pilot profession because the problem is simply bigger than one carrier’s collective bargaining process. Voting “no” may feel good for a moment, but the long-term impact leaves Republic pilots with no seat at the table or real influence in fixing the industry’s medium and long-term economics. Does voting “no” send a signal? Perhaps, but in my view its equivalent to throwing the life preservers out of a leaking boat in a futile protest of reality.
Reader Comments (18)
A positive return on investment is gone for pilots entering the regionals. The risk does not outweigh the reward. Period. That is the reality. Also, your life preserver analogy is flawed. If you knew anything about this industry, you would know that there are no life preservers aboard the sinking regional dingy. The cockswains and whip-masters at the command will always be fine. Their plan all along has been to starve and work us rowers until death, push us over the side, and float gleefully atop our bloated corpses to the next boat of suckers. All in the name of a cheap ticket. No more. I'll take my chances with the sharks. You think I'm out of line? Go spend $100,000+, get trained, pass, build flight time while living on beans, get hired and survive on regional wages---all the while paying crippling flight school loans, getting abused by scheduling, and listening to critical "experts" who haven't spent a damned second on the front-line of the regional. Every day, it gets more expensive to live, pilots willing to be financially abused are becoming more and more scarce...and, somehow, concessions are in order? How are the regionals and airlines immune from capitalism when it comes to paying for an insufficient supply of highly skilled and integral "sprocket" for their revenue-generating machine? Capitalism was in their favor for the last decade, but it's a double-edged sword, and the regionals/legacies have to deal with it. You struck a raw nerve with this blog. If that was your intention, well done.
Mr. Swelbar:
Typically I find your blog posts, articles, presentations or quotes to be practical, insightful, and well researched.
This particular post I find to be the antithesis of that.
I specifically challenge you to back up your opinion that the current TA provides "a seat at the table looking forward" that is otherwise not provided by our current CBA. From this line pilot's perspective, RAH is falling apart (witness the Q400's "seamless transition") slowly, but surely and it has everything to do with the relationship between the company and the various work groups. For RAH (the company) to have a "seat at the table" in the future, then RAH needs to exist as a viable, thriving entity--and neither our current CBA, nor the TA provides that in my mind. The TA before us is full of grey areas open for interpretation, and if there's one thing any employee of RAH knows it is that grey areas mean the company will do whatever they like and the employees will never be made whole for that.
The next statement I wish to take to task is this: "The TA also paves the way for what appears to be a more open relationship with the company to address scheduling and operations." I don't see it that way. I see the TA falling FAR short of the open scheduling systems that we need. Yes, the TA provides increased visibility for the scheduling committee of the union. But not for the line pilot. I'm not interested in having only a small group of union reps, who largely don't fly the line with the rest of us, having visibility to attempt to hold the company accountable for following the rules--when the software is currently quite capable of providing that visibility and transparency to every single line pilot. If RAH was truly willing to "change the relationship" then would it have been too hard to get such transparent rules and practices guaranteed by contract in the TA? I don't believe so, and the notable lack of those solid protections and transparency tells me that the company isn't even close to a more open relationship. Relationships go both ways, personally and professionally.
When you say "I can hear the battle cries now: the NMB will release us and allow us to strike. Republic pilots will say that, after seven years of negotiations the agreement is simply unacceptable." I believe that you are mistaken. I have no doubt whatsoever that the NMB will not release us from mediation anytime soon. That doesn't mean I believe that the NMB shouldn't do so, but I have no doubt that they won't. They've got some pretty secure government pensions, and I fully understand that they aren't willing to potentially jeopardize that on behalf of anyone else. But I also don't believe that the NMB has a way to avoid disruption to commerce. Commerce is being disrupted each and every day by RAH (and other carriers in a similar predicament) due to the inescapable economics of their model. There are not enough willing sellers of labor for the willing buyers that are regional airlines. Believing that a strike is the only way for commerce to be disrupted is naive at best.
"So Republic pilots should perhaps think twice about the conditions for this particular battle and instead focus on the bigger picture and positioning for the future."
I have thought about this long and hard. If we aren't willing to use every ounce of leverage today, what on earth makes anyone think we would use it "in the future?" Is there ANYTHING in this TA that would preclude management from dragging negotiations out until such time as they have potentially gotten a handle on the pilot training problems? I certainly don't see it.
I voted NO, and neither your post, nor any of the rather outlandish opinion pieces being pushed by our overlords from the union are going to change my mind. I know how much I'm worth, and if RAH can't pay it--then RAH doesn't deserve to be in business. Me accepting less than I am worth doesn't change that simple fact, and unsustainable businesses are just that--unsustainable.
I'd rather burn the company to the ground then accept this TA.
I'm not going to repost what the others said, it sounds like you have read the highlights on paper. But unless you have worked for this company and compared it to how our peers are treated at places like skywest, envoy, and eagle you have no idea how this TA will be twisted apart with grey areas. And who cares about an early opener if there is no forcing them to give us a new deal. We can just start the 7 year clock a little earlier....
I think what is being missed here, is that regional pilots don't negotiate in a vacuum. The momentum against concessionary contracts is building. Eighy-three percent of pilots at ASA-ExpressJet rejected concessions (out of some 4300 pilots total). American Eagle has rejected a second round of concessions and is now being offered a third offer to consider concessions.
Major airlines can refuse to renegotiate in the light of new regulations and allow their regional contractors to implode, but they are risking that a company like American Eagle who offers a flow through agreement (and theoretically) makes working there more attractive, will seize market share in the smaller markets that the other regionals abandoned through lack of pilots.
Major airlines made 7.4 billion in 2013. What is logical is to pay the regional airlines enough, so that salaries and conditions can be improved. This will still be cheaper than abandoning those regional airline markets to the LCC's.
I would rather my airline go out of business than accept a concessionary contract. In fact, I hope it does go out of business.
So regional pilots should continue to be paid 2/3rds to 3/4s LESS than the mainline pilots who are flying an aircraft just a fraction bigger? How about NO?! The unsustainability comes from management's degradation of the piloting profession, and that of any regional employee's job...an employee who is compensated at a fraction of their mainline counterpart of the exact same job/skill set. Further, it is not as if a person just puts in a few years at a regional, and is then accepted with open arms at the parent mainline company. Far from it.
Fellow RAH pilots, if you want to burn this place down; do us a favor and leave. Some of us have to have a place to work. Clearly Pal has no idea what a concession is. I cannot believe these people are considered professionals.
Your article is clearly a plant by the company. The exact details of the current situation you describe could not possibly have been gathered without inside information.
It is very clear that regional management across country is quickly trying to lock in continued sub-standard pay and work rules before they are forced to admit failure. If these terrible agreements somehow pass, we will soon see increased hiring bonuses and probably student loan forgiveness for new-hires only. They will make attractive, non-contractual, non-binding incentives to get new-hires in the door. This is a completely self-serving tactic by management. At the same time, those who have been the backbone of the company for years will get nothing.
American is projected to make $3.5 billion this year, but yet finds the need to ask Envoy pilots for concessions. Unbelievable! They could give all +/- 3,000 Envoy pilots a $10,000 a year raise, and when rounded up, still make $3.5 billion!
You are a shame to the Regional's Pilot Group!... You dont deserve to be a pilot , I hope that you lose your medical soon!..... too much bs for nothing, I RATHER prefer that my company close than, Signing a concessionary contract. If all the pilots stand together We are gonna be winners, but if we continue to have these lil crying girls on our cockpits Our future progression is on the line....
Give us a decent quality of life or close the doors. FUPM!!
OK, so let me get this straight….you end your narrative by telling the Republic pilots that they should vote for this pretty poor TA in front of them and then spend energy looking forward to a contract that will be negotiated 4 years from now? Seriously?
Let’s see…the Republic pilots have been waiting 7 YEARS for THIS contract. Don’t you think they’re smart enough to realize that four years from now, when this contract would be open for negotiations, that the company will likely use the same stalling tactics they used during these contract negotiations? Do you really think 4 years from now they can expect anything except more foot dragging? Please.
“Simply put, the relationship needs fixing but the fix is not going to come from one pilot group voting down a contract in the false hope that a “pilot shortage” will resolve differences between regional carriers and the unions representing pilots.”
As a pilot I could care less about “resolving the differences” between my union and management. Just as pilots in past years, particularly in the decade starting around 2000, were told that they have to accept the “economic realities” that existed at the time and agree to broad cuts in pay, benefits, and work rules, airline management NOW needs to accept the economic realities that exist today. The days of $20,000/year regional airline pilots are OVER until the next recession, terrorist attack, or string of US airline bankruptcies- if even then. Airline management needs to come to grips with the fact that they are going to have to pay their regional pilots a living wage AND treat them well. No more dragging out contract negotiations for years on end. No more removing ONE seat from a 100 seat jet to get out of paying their pilots the higher contractual pay rate for that larger, 100 seat metal. No more opening and closing pilot domiciles at the drop of a hat, treating their pilots like migrant farm workers.
The regional airline industry will be “fixed” when airline pilots, like the pilots at Republic, ExpressJet, and Envoy/American Eagle say, “Enough is enough.” Regional airline management UNAPOLEGETICALLY treated and paid their pilots poorly because market conditions “demanded” it. Now the tide has turned. The Republic pilots should do exactly what the pilots at ExpressJet and Envoy/American Eagle did and turn this 7-years-too-late contract down. Time is on the Republic pilots’ side. Let Bedford sit on it for a while, as he bleeds more pilots and pays the legacies penalties for not being able to fly their agreed upon contractual flights. He’ll get the message.
It’s absolutely hypocritical for people like William to tell regional airline pilots to vote for a crappy contract today so that they can “fight another day.” Management spent decades FULLY taking advantage of the Railway Labor Act and the previous years’ pilot oversupply so that they could pay regional pilots wages that would make a fast food manager blush. Regional Airline Management UNAPOLEGETICALLY took advantage of every amount of leverage that they have ever had. Now the shoe’s on the other foot. Republic pilots: take advantage of the leverage that YOU HAVE RIGHT NOW and get the market wage that you deserve.
The regional airlines have been run like plantations with only a dim hope of someday making it to a reasonable life at a major. No regional pilot is going to wait one more day. Pay us, or shut down the plantations and take it back to mainline. Today IS tomorrow for every regional pilot.
"I see the Big Three airlines soon shedding small market service as it becomes less and less a part of their core business."
Thank you. I've been saying this to my comrades for years and get blank stares in return. "But, but, but, people will always need to fly!" Yes, and those people in Rochester/Huntsville/Peoria will get in their cars and drive to a major airport, just like they did 30 years ago. (Which I remember doing as a kid from my mid-market town.) in order to predict the future one need only look at the past. Regional pilots saying "enough is enough" will only be the catalyst for this change. The only way to fix the regional market is to largely eliminate it. And if it costs me my job, good!
I also agree with the Big 2 of the regionals, but I also foresee some opportunity for entrepreneurial types to wriggle in with point-to-point flying with PC12s or something, like was done 30 years ago in Metros to fill those small market voids (but at a hefty price, for the business travelers.)
Your sentiments here largely reflect my own take on the situation. As far as outlook goes, I think there is perhaps one additional variable to consider - regional high speed rail. Some of the cost markets in the SE, for instance, seem to be those within 200 miles of ATL or CLT - places like ATL to Augusta, or Charlotte to Asheville. If regional rail does truly emerge within the next 10-15 years, one would have to think that this would make current regional routes unnecessary and unprofitable - particularly if airlines can find a way to incorporate rail transfers into their business strategy.
I'd like to know what percentage of comair pilots have now secured better opportunities? I would wager a very high percent. I can't understate the short term pain involved with losing a job but in this environment with the inadequacies of the Railway Labor Act waiting around for better bargaining positions is a joke. Seven years and counting...ridiculous. The emphasis should be on the main line carriers profit now. They CAN afford to pay us folks but corporate greed is rampant. I will not sit by and subsidize mainline raises and profits any longer. We can and do disrupt commerce already;) maybe on a small scale but none the less. Proud of Eagle, ExpressJet and hopefully RAH.
Let me help put this new environment in perspective for some who are not as familiar with what it takes to become an airline pilot in 2014. I started training to become an airline pilot in 2010. I already had a degree because I am switching careers. If I didn’t, 4 more years of training would have to be added on.
Total cost to become an airline pilot:
College degree $50k
Licenses and Certificates $75K
New ATP Course1 $15K
Hour building to get to the 1500 hours for the ATP – Astronomical2
Opportunity cost of bright people foregoing another career to train for this one - Astronomical
Total Cost – Well upward of $140K
And that is if you DON’T go to the pricey aviation colleges.
Most current airline pilots got to where they are before these training costs exploded. They paid dearly for their aviation training, but the cost has exploded in recent years. NO ONE with any sense of financial responsibility will train to be an airline pilot at the current new hire pay rate of $22K. It doesn’t make sense. and I would hope that would-be aviators at the helm of multi-million dollar machines responsible for 100’s of lives would have more sense and decision making ability than that.
To even begin to make this career worth training for, all beginning pilot positions need to start at a minimum of $50k. The days of spending a few years at poverty wages to move on to a respectable career are OVER. Ask the thousands of men and women who spent the last decade earning peanuts waiting for the major airlines to call. The model is broken. New pilots will not come unless the compensation is there for them, from their first jet job, forward. Loan officers are waiting for repayment.
1 *New ATP Course (required beginning summer 2014)
2 Time building is astronomical because all the old ways of building hours are gone. You can no longer fly checks at night because there are no checks to fly. Traffic watch is done by satellite. There are no more students, CFI jobs are below starving wages. In my 3 closest airports there are a grand total of 7 part-time students and 10 instructors fighting over them. Flight training is too expensive for the average Joe to take flight lessons. The average cost to rent a plane in the NE United States is over $150 per flight hour. Airplane fuel is expensive. After must cost analysis, I decided the quickest and cheapest way (taking time savings and moving to a paying flight job into account) to get to the 1500 hours was to buy my own plane and fly the heck out of it. It’s definitely not cheap, but it is the fastest way to do it. And the quicker you make it to an airline, major airline that is, the more chance you have a recouping your costs.
So how about them apples?
85% vote AGAINST the TA. That's roughly 2,000 pilots who didnt but into this blog post.