The regional airlines became an economic safety net of sorts after September 11, when the majors quickly realized they could not survive flying large airplanes nearly empty. The options–cut flights and market presence entirely or replace mainline jets with smaller aircraft–presented airlines with a clear course of action. Code-sharing regional airliners quickly delivered cost-effective solutions.

But the transition could carry a hidden price tag. “These clearly are extraordinary conditions,” said Doug Abbey of AvStat Associates. This isn’t simply a matter of heaving off unwanted flights to lower-cost operations.” Abbey’s concern centered on clauses written into pilot contracts that limit the scope of regional affiliates’ operations to a given portion of mainline available seat miles (ASMs) or block hours.

“Since the eleventh, all the prior pressures on the scope issues have been ratcheted up and may just burst,” added analyst Bob Mann of RW Mann & Co. One regional airline president who did not want his name publicized said, “Scope clauses are the major issue we’re dealing with right now. They have limited the majors’ ability to expand with RJs. Solving this is critical to the industry’s future.”

Regional costs are fluctuating wildly. Insurance costs, up 600 to 1,000 percent before the federal government intervened with FAA-administered “gap” insurance coverage, more than offset a modest decline in fuel prices, according to Deborah McElroy, president of the Regional Airline Association.

Whether the feds take control of security screening raises another important question. “Our costs are higher than those of the majors,” said McElroy. “And our losses were not adequately compensated through the stabilization bill.” Other issues include strengthening cockpit doors, full funding of the Essential Air Service (EAS) program and the passage of an economic stimulus plan that includes the regional carriers.

“The health of the regional carriers depends upon how the carrier they code share with is doing, as well as how they are paid,” added McElroy. “Fee-for-departure airlines such as Atlantic Coast or Skywest are doing better.” Meanwhile, smaller carriers that depend primarily on pro-rate revenues have suffered the most.

Business planning is a moving target where strategic changes occur quickly. “These days, long-term planning seems to take us up to five o’clock,” lamented Tom Cooper, president and CEO of Gulfstream Airlines. Perhaps as a precursor to other major changes, Delta recently sold its 6.2-million-share interest in its Utah-based affiliate SkyWest.

“Going forward, I think the regional story is still a strong one,” said Mike Linenberg of Merrill Lynch. “The regionals have a good response system that’s now even better than it was before the attacks,” added a Skyway Airlines spokesperson. Smaller airlines have the ability to think out of the box and make decisions much more quickly than the majors.”

While some of the 30 airlines AIN contacted for this story declined to release their plans for service or personnel changes, others provided a range of insights into changes at the regional level since September 11.

Air Canada Regional: Cut capacity 24 percent and reduced workforce by 1,000. Individual pilot and flight attendant numbers unavailable. Accelerated previous retirement plans for six BAE 146s and eight Fokker F-28s. A spokesman said, “Our long-term plan right now is just to survive. We are struggling to keep flying because of the drastic changes since September 11.”

Air Wisconsin: Furloughed 10 percent of employees and reduced departures 14 percent last month. It still plans to acquire up to 150 regional jets, the first six by the end of this year. Opening new maintenance facility in Milwaukee at the end of the year. Unsure of United scope issue effects.

September RPMs down more than 20 percent compared with last September. Year-to-date traffic up nearly 10 percent by September 30.

American Eagle: 104 pilots furloughed. More likely to follow soon, although no solid numbers yet. Company working out details of the downward flow of pilots from both American and TWA.

Despite a 20-percent service cut, Eagle is still accepting one Embraer ERJ-140 regional jet per month. Speeding up retirement of Saab 340s. Total traffic down almost 30 percent this September compared with the same period last year. Load factors down almost 11 points in the same period.

Atlantic Coast Airlines: An ACA spokesman said, “Traffic is returning to our system faster than we had expected. Pilots will be hired on an as-needed basis.” None was furloughed. Senior ACA managers took salary and bonus cuts of 30 and 40 percent of total compensation.

ACA took over five United Arilines routes and one Air Wisconsin station and route. It plans to add employees at a new station in Birmingham, Ala. ACA reallocated Boston capacity to expand service at Delta’s Cincinnati hub. RPMs up 5.3 percent September 2001 over September 2000, despite an 11.5-percent load-factor drop in same period. Still plans to accept another 70 RJs by the end of 2003.

Cape Air: No personnel laid off, despite 35-percent decrease in traffic since September. “We’re not sure how long before it will come to layoffs, said a Cape Air spokesperson. “Our insurance has almost doubled. For the first time in our history, Cape Air cut hourly scheduled flights. Our managers have already eliminated their bonuses and we’ve instituted a hiring freeze. We are starting to see passengers return, but slowly.”

Chalk’s Ocean Airways: Some pilots, mechanics and reservation agents furloughed. Grounded one of three turbine Mallard seaplanes and delayed a Mallard delivery. Leaving two more in service, as well as a single Twin Otter. The company instituted a 20-percent service cut.

General manager Bill Jones expressed concern about weak opposite-direction traffic from the Bahamas. “I’m also worried about whether my seaplane pilots will still be around when I do call them back,” said Jones.

Chautauqua Airlines: 125 pilots, 50 flight attendants furloughed. Cut 36 flights, accounting for 25 percent of the company’s US Airways Express pre-September schedule. Dropped service from Indianapolis to Grand Rapids, Mich. and Evansville, Ind. Some aircraft deliveries deferred but company expects to add 10 regional jets to its current 34 by the end of this year and nine more during the first half of 2002.

Chicago Express: Chicago Express is running its regular schedule in full, while parent company ATA cut its schedule 20 percent. There were no pilot layoffs, but a few mechanics and administrative people were furloughed. A new-hire pilot class began on November 1. “We’re in a survival mode right now,” chief pilot Dave Bear said.

Colgan Air: Furloughed 30 pilots and 14 flight attendants. No salary cuts. Dropped some service and delayed starting new service. “We are just trying to get through the winter,” said president Mike Colgan. “Our insurance costs are doubling and now we have security concerns still to be determined. Now it will need to be a sure thing before we open a new route.”

Continental Express: 500 mainline Continental pilots expected to flow down to Express resulting in the furlough of 287 Express pilots in October, 64 more in both November and December and 70 more in January. Parked seven Embraer EMB-120s and seven ATR 42s. Talks ongoing about delaying delivery of some Embraer regional jets.

Corporate Airlines: Closure of code-share partner Midway Airlines cut operations by 50 percent, shutting service to eight cities and grounding seven Jetstream 32s. Eighty-five to 90 pilots furloughed. Opened two former TWA Express cities as American Connection. Total passengers flown this year may be down 25 to 30 percent from last year.

The airline instituted salary cuts for some managers, but would not offer details. War-risk insurance rose 100 percent, while hull and liability costs increased as well. The airline has expressed concern about passing costs on to the passengers. “It’s hard to know what will make money,” said Chris Turnbull, v-p of operations. “We need to be conservative. The flip side is that we also need to be aggressive to find homes for our idled Jetstreams.”

Delta Connection (Comair, ASA): No layoffs. Pilots will be hired as needed. Comair and ASA both operating a full schedule since September 17. New Comair service between Cincinnati and Florida. A spokesman said, “The RJs are around to help protect market presence. Right now, we are simply an industry reacting to the marketplace.” Aircraft delivery rates not expected to change.

ERA Aviation: No furloughs, and none planned. “Many of our destinations are not even connected by road, so they’re pretty dependent upon air travel,” said senior v-p Paul Landis. “On the routes that have some road access, however, our service has been hit pretty hard.” ERA cut capacity, not frequency, replacing Convair 580s with Dash 8s and Dash 8s with Twin Otters.

Fuel costs have dropped, but general liability and war-risk insurance costs have risen dramatically. Pilots and flight attendants performing additional security duties on reserve days to avoid layoffs. Important issues include whether the FAA will allow ERA to remain exempt from full security screenings.

Executive Airlines: Some furloughs but totals unavailable. “We had the benefit of the flow through to send our pilots to American Airlines and now we have a commitment to accept pilots coming back from the mainline,” said president Jacque Vachon. Non-flying personnel took 10-percent voluntary pay cuts. No routes closed. New service begun to Aruba, Bonaire, Santo Domingo and the Dominican Republic.

Express Airlines I: Initially reduced workforce by 32 percent, furloughing 218 pilots and 35 flight attendants on October 1. Thirteen flight attendants and 52 pilots since recalled. Company flying 80 percent of regular schedule, though no markets have been eliminated. Reevaluating Canadair Regional Jet deliveries with parent Northwest Airlines. Cut an entire late-night bank of flights at both Minneapolis and Memphis, although no markets were dropped entirely. “At the current time, we need to survive,” said Phil Reed, v-p of marketing.

Great Lakes Aviation: Company furloughed 25 Beech 1900 pilots. On November 1 the fleet will be reduced to 33 Beech 1900s and three Brasilias from 40 and eight, respectively.

One quarter of the company’s operations cut by United’s schedule reductions at Denver. Seventy percent of Great Lakes operations are Essential Air Service (EAS) routes, so federal EAS subsidies are critical. In nonsubsidized markets, the carrier reduced capacity and is happy with the load factors.

As the largest EAS provider in the country, “There is a certain amount of stability…as long as the government lives up to its role,” said Doug Voss, president. “A number of small communities previously served by larger carriers might offer us some additional future EAS subsidies.”

Great Plains Airlines: New-hire pilot class in mid-October. New service soon to three cities. Company’s business plan focused on role as a hub-bypass airline “We’re operating within 10 percent of where we expected to be,” said president Jim Swartz. Insurance is up 60 percent in the past month. Swartz added, “The capital market has ended. Financing is almost nonexistent.”

Gulfstream Airlines: Furloughed 22 pilots and 18 mechanics. Executives took 25-percent pay cut. In the midst of a fleet transition from 32 B and C model Beech 1900s to 25 D models on September 11, the company has since grounded remaining B and C models. Also reduced flying from 24 monthly lines to 15, which might improve to 18 lines by November.

“Insurance pretty much tripled,” CEO Tom Cooper said. “Our cost per mile jumped about 10 percent. We’re not even considering new markets and may pull out of some. Our indices point toward a recovery, but we won’t be back to pre-September 11 traffic for a long time because of all the cuts at the majors where our feed comes from. Right now, we’re trying to figure out how to take in more than we spend.”
Horizon Airlines: No furloughs. Utilization has changed with more layover time built into the middle of the day. Retiring 22 Fokker F-28-4000s and 24 de Havilland Dash 8-100s. Trying to speed deliveries of Dash 8Q-400s and CRJ-700s. Flying down 25 percent since September 11.

Island Air: No furloughs. Daily use of four de Havilland Dash 8-100s increased from 38 daily flights to 54. Added service in spite of a scope clause that restricts Island Air from directly picking up flights dropped by parent Aloha Airlines. Not currently recruiting pilots, however.

Kenmore Air Harbor: Operates a fleet of float-equipped aircraft, including turbine Otters and Beavers and Cessna 180s. “We would have been seasonally downsizing now anyway, but the downturn has called for deeper cuts,” said Tim Brooks, vice president of flight operations. The flight schedule hasn’t changed much, just the number of aircraft we’re supporting each route with. To avoid a major pilot furlough, instituted a 10-percent cut in pilot hours and pay. “We are hopeful things might be back to normal by April,” Brooks said.

Mesa Air Group (Mesa Airlines, Air Midwest, CC Air): Furloughed 340 pilots among all three carriers. Jonathan Ornstein, chairman, and Michael Lotz, president, took 50-percent pay cuts. Other management personnel took 20-percent cuts, while non-union workers took 10-percent cuts. ALPA, IAM and AFA employees all declined pay cuts.

Mesa will repay employees who took pay cuts with 150 options on Mesa stock over the next three quarters. Plans to continue taking one new Embraer ERJ-145 per month until total reaches 36 from the current 21. It added seven new cities and 10 new US Airways Express markets out of Charlotte and Pittsburgh hubs. America West Express added four cities from Phoenix.

A spokesperson said, “We’re just following the lead of our partners and waiting to see what is going to happen.”

Mesaba Aviation: Laid off 72 pilots and 330 additional employees. No management pay cuts. Although Northwest Airlines cut 20 percent of its schedule, Mesaba has not cut any routes, just frequencies. Company load factors were on the rise during mid-October.

Potomac Air: Created as the basis of DC Air for the United/US Airways merger, the company ceased operation October 6.

Shuttle America: Recently signed as US Airways Express carrier. “We’ve been in the midst of moving to a new fleet model, the Dash 8-100,” said Dave Hackett, CEO. “We have not changed our schedules and may well be in a hiring mode over the next six months.”

Management did not take salary cuts. “The toughest part of business today is trying to project how fast the market will come back. The regional airlines will continue to fly routes that are unprofitable for the majors, which means there is still a solid market for turboprops,” added Hackett.

Skyway Airlines: Sixty-five pilots furloughed out of 260 total. Picked up some flying through the 15-percent capacity reduction of Midwest Express. Mainline capacity expected to drop to 23 to 25 percent of normal in November. Replaced DC-9s with Fairchild Dornier 328 JETs on routes from Milwaukee to Cleveland, Raleigh-Durham, N.C., Madison, Wis., and Appleton, Wis. No scope clause. Delivery of new Embraer ERJ-140s has now slipped to the fourth quarter of next year.

SkyWest: Retired five Embraer Brasilias before September 11. Canadair Regional Jet flying not expected to change. Held a new-hire pilot class in middle of last month.
SkyWest redeployed resources as United Express with Brasilias on former Air Wisconsin routes from Denver. Six RJs were committed to LAX service with demise of United Shuttle.

New Delta Connection service to Colorado and Florida. No changes to the delivery schedule of 106 new regional jets on order. A spokesman added, “Every day is different in this environment. There are now almost hourly changes.”

US Airways Express: No RJ flying by wholly owned carriers, only affiliates. A US Airways spokesman confirmed 770 total layoffs spread among PSA, Allegheny and Piedmont. Expects 210 fewer departures per day, equating to a 19-percent cutback. Service cuts at Baltimore (BWI) eliminated 14 daily Express flights.

No comment from US Airways about plan to crew 60 RJs with mainline pilots. Mainline ALPA unit reports company pressure to settle the issue while company also asked for 115 more RJs with a “no economic strings attached” agreement from the union.

September RPMs at Piedmont, PSA and Allegheny were down 35 percent and load factors off 17 percent compared with the same period last year. Third-quarter results showed an RPM decline of 10 percent and a 3.5-percent drop in system-wide load factor.

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