For many decades in the U.S. airline industry, the Scope clause has defined the flying that pilots of a particular airline are entitled to. There have been primarily two key areas to the Scope clause: regional flying and codesharing. Historically, these areas have also caused contention between airline companies and their pilot unions, but we have an opportunity to create a new Scope paradigm that benefits our pilots and the company.
Ten years ago, the industry had a one-size-fits-all approach to the regional jet market – virtually all aircraft were 50 seats or less, as dictated by pilot labor agreements. However, beginning with a Delta agreement in 2001, and then followed by other carriers’ restructured CBAs in or outside of bankruptcy, our competitors gained the ability to use 70-90 seat jets that were operated by regional airlines. So regional flying began to aggressively replace mainline flying, in addition to the traditional feeder role.
The reason for this is simple: at the regional airline, these 70-90 seat jets have roughly half the unit costs of MD80s, DC9s, and “classic” 737s. The use of regional flying made it easier for network airlines to compete with low-cost carriers, and it enabled them to retire many older airplanes. Of course, one of the reasons for these low regional costs is that these aircraft are flown by pilots with lower rates and more aggressive work rules.
As a result of these regional economics, the large regional jet has changed the aviation industry in the United States. Other airlines have grown regional jet capacity by 140 percent since 2000, while domestic mainline capacity has shrunk by 35 percent. More than 20 percent of all travel involves regional carriers. And among our network competitors, almost 25 percent of their total system capacity comes from regional jets.
This presents a challenge and an opportunity for us. We need to be able to compete with network carriers who rely heavily on regional operators, as well as low-cost carriers. And to do that, we need to be able to economically operate smaller airplanes. But unlike our competitors, we propose solving this in a very different way. Rather than sourcing large regional jets, we propose that any incremental jet aircraft larger than 50 seats will be flown by AA pilots. To compete effectively, aircraft under 125 seats would also have special rates and work rules.
This is a radically different approach than any of our legacy competitors are taking. It enables us to take advantage of our recent aircraft order, which allows us to source small narrowbodies (like the A319 and B737-700) at advantageous prices. It also helps us compete with the low-cost carriers and regional airlines whose low costs have driven us out of many markets over the last several years. Most importantly, it helps us create more jobs and more opportunity for pilots at our airline, while not displacing any of our current pilots under this new paradigm.
The other major exception to Scope is codesharing, which allows an airline to market another airline’s network. This is useful in helping an airline access markets that it doesn’t have any presence in, and in markets where an airline can’t operate – because it doesn’t have the right assets, or the regulatory rights (e.g., slots) to even launch service.
Early in the decade, large network carriers formed codeshare relationships to make their domestic networks more robust and increase feed to their international routes. Delta had codeshare relationships with Northwest, Continental and Alaska. United and US Airways had, and maintain, a robust domestic codeshare, in addition to the United/Continental codesharing resulting from the merger. As consolidation of the network carriers has taken place, domestic codesharing relationships have transformed into single carrier networks. As a result, our competitors’ networks have significantly strengthened.
As our competitors have consolidated, we are now the third largest network carrier. We would like to expand our network in the northeast. However, we face slot constraints, so we cannot add flying in peak demand times without cutting flying in the same time window. As a result, we cannot grow our northeast operations without domestic codesharing. In contrast, Delta and United both operate full-service hubs in New York, serving and connecting more markets than we do. Additionally, Delta’s and US Airways’ shuttle products are used as sales tools to shift our high value business passengers to their networks.
On the West Coast, our existing partnership with Alaska Airlines allows us to serve passengers in the northwest region of the U.S. Today, Alaska puts more passengers onto our network than we put onto theirs. This enables us to serve many markets more successfully than we could without this codeshare. An expansion of the Alaska Codeshare Agreement would allow us to maintain a significant network presence in the northwest and along the West Coast, while fully utilizing our aircraft in the most productive manner possible across our domestic network.
The bottom line is that our competitors will continue to have far more liberal Scope agreements than what we’ve proposed. We are creating a new Scope paradigm that enables us to strengthen our network, increase opportunities and security for pilots, and out-compete other airlines.
For more information about how American's Scope proposal compares with other large carriers, click here.