As part 2 of the series explains regional airlines are dependent on their cost structure to win new flying. As a recap
- The business model is set for those airlines committed to make a go of the “fee for departure” model.
- The regional business does not inherently lend itself to creativity.
- Mainline and independent carriers have many more avenues to adjust their business model as they control everything from route structure, fleet development, infrastructure investment, to marketing and more. This element makes adapting to change difficult for the regional airlines since they are so dependent on mainline carriers.
Pilot movement is crucial to the regional airline model as what happens or what does not happen with pilot movement at the regional has a significant impact on cost. You may have noticed that most pay scales at the mainline level cap at 12 years. You may have also noticed that the percent difference between 1st year and 12 year pay at the majors to be very small. Such is not the case at the regional airlines, the percent difference between a 1st year CA and a 20 year CA is quite large.
What does this mean? It means management teams have a very difficult time predicting future pilot costs because of pilot attrition. The financial difference between losing a 5 year pilot or a 20 year pilot is a lot larger than what is experienced at major airlines.
The problem, is that the regional airline pilots do essentially the same job and are required to have the same qualifications by the FAA. They fly in most cases high performance jet aircraft at altitudes comparable to the mainline carriers, at speeds comparable to mainline carriers and on routes that mainline carries fly.
The idea of a “B” Scale at the regional airlines is inherently the problem. The B scale at the regional airlines is what drove pay scales to 18-20 years there and indirectly created a predictability problem when it came to cost. The pay started so low that the scales had to be taken out to 18-20 years to justify the investment made by pilots who for one reason or another stayed there. This creates a sizeable difference between 1st year and 20 year scales.
If the mainline partners are interested in cost predictability they may be better off bringing the large regional flying in house under mainline contracts that already have 12 year longevity caps. The pay starts higher in these scales but that also means the mainline carriers would not have the same problems that the regional airlines have when it comes to attracting the necessary pilots to fly those aircraft.
Airplanes that would have been flown under the mainline umbrella 15-20 years ago are now flown under the regional umbrella because of the lower costs offered by this 18-20 year model. The model could really last so long until a large numbers of regional pilots arrived at the 12+ year scales.
The regional carriers have always depended upon a supply of pilots willing to work for very little to build their cost structure. In the past these pilots were attempting to build time and experience by flying passengers or cargo on smaller and slower aircraft. This was done before moving on to the major/national airlines. These regional airline pilots accepted lower pay and worse work rules with the hope and expectation they would see significant improvements over time.
Now that regional airlines are flying equally complex aircraft with mainline and larger passenger loads the FAA requirements for flying these airplanes at regional level have changed to meet what was expected of pilots at the mainline level.
In essence qualifications or barriers to entry have changed but compensation has not. Over the last 15 years when compared to inflation regional airline pay for the type of aircraft has actually decreased.
How does this affect the future of the regional industry? The regional airlines definitely have a business problem that won’t just go away which means the majors indirectly have a problem. One of the primary areas where the regional airlines were able to offer a cost savings is under pressure. The pressure is a natural market pressure. Barriers to entry have increased, compensation has stagnated or gone down while pilot career expectations have remained the same or increased. Naturally, some carriers are having a difficult time finding pilots. This will likely continue and get worse until the regional airlines enact a sustainable change in their business model.
The future of the regional industry depends on how the major airlines decide to handle this structural problem. They may decide to:
- bring more narrow-body flying in house.
- Perhaps they may begin to offer ab-initio style training programs where pilots are able to flow through wholly owned regional airlines.
- They may fund loans for students who would make a worthy investment for an airline
The key is, there are many solutions to the business model’s problem, so applying a solution just becomes a matter of need and priority.