A Geography Lesson for Pilots, Et Al.
If you want insights into American Airlines’ dispute with its pilots, shifting patterns in air travel and how relatively unsung companies can succeed in today’s changing business world, take a look at a regional airline named Comair Holdings Inc. and a Canadian jet maker named Bombardier Inc.
Comair is a Cincinnati-based company that has expanded its routes, doubled its revenue and sextupled its profit in five years thanks to new planes made by Montreal-based Bombardier, which itself has mushroomed in less than a decade to become, at $5 billion in sales, the world’s third-largest manufacturer of airliners.
The key to it all is Bombardier’s Canadair RJ regional jet, which can carry 50 passengers up to 1,500 miles and sells for roughly $20 million--half the price of Boeing’s 137-seat 737. First flown in 1992, the RJ has become a hit on smaller city routes in the United States and Europe and is attracting new customers in Asia and Latin America.
Comair, an independent company that is 20% owned by Delta Air Lines, has 50 RJs flying routes from Cincinnati to such cities as Cleveland and Columbus; Cedar Rapids and Des Moines, Iowa; Wichita, Kans.; Omaha; and Tulsa, Okla.
The airline already served some of those cities with turboprop feeder flights to Delta’s hub at the Cincinnati airport. But the jets allow Comair to add longer direct flights to cities generating too few passengers to qualify for frequent service by Delta’s Boeing 737s and larger planes.
Thus the RJ has increased Comair’s range and passenger loads as well as its feeder traffic to Delta. And some of those additional passengers have switched from flying American Airlines through its hub at Chicago’s O’Hare airport because of the convenience of jets and less crowded conditions at the Cincinnati airport.
That’s why American Airlines wants to order RJs for its American Eagle subsidiary. Eagle, the largest commuter airline, at $1 billion in revenue, now feeds traffic to American’s hubs via its fleet of 260 turboprop aircraft.
But Eagle’s jet order has been postponed by the dispute. American’s pilots, who belong to the Allied Pilots Assn. union, demand the right to fly any jets American acquires for American Eagle--whose pilots belong to another union, the Air Line Pilots Assn. and earn less than half the average salary of pilots at American.
That technological and union-jurisdiction issue is the heart of the dispute that sparked a strike Feb. 15 that was halted after 24 minutes by President Clinton’s intervention. The dispute is now in a 60-day period of negotiations with the help of federal mediators.
The likely outcome is that American’s pilots will lose the argument. It’s hard to see them displacing pilots already working for Eagle just because of a technological upgrade of the aircraft. The eventual settlement may include a pay and benefits compromise.
More broadly, the pilots’ concerns are based on their belief about the true potential of regional jets and their suspicions of management intentions. The pilots fear that American Chairman Robert Crandall plans to use Eagle jet flights on American routes because of lower labor costs.
But experts point out that RJs are also lower in revenue and profit because of fewer passengers and charges for ground facilities comparable to those for larger planes.
“The RJ’s per-seat mile cost can be double that of Southwest Airlines’ 737s,” says analyst Jeffrey Long of J.P. Morgan Securities, citing a standard airline measure. RJs are not suited to high-density routes, such as Los Angeles-San Francisco and New York-Washington, because they’re too small, Long points out.
On the other hand, it’s easy to see how RJs can do more than expand service to smaller communities. Because the planes can land on shorter runways, they could revive smaller airports around big cities and relieve congestion at major airports. That would add new routes but bypass the major airlines’ existing hubs. More varieties of air travel would emerge.
“Regional jets will broaden the market for air travel and ultimately benefit American and other major airlines and their pilots too,” predicts Barbara Beyer, head of AvMark, an Arlington, Va., consultant firm to the airline industry.
“I see the planes as perfect for Australia, a land of sparse population and great distances,” Beyer adds.
Fittingly, the planes were developed in Canada, another place of great distances and small population centers. Bombardier, a maker of snowmobiles named for founder Andre Bombardier, got into commercial aircraft in 1986 when current Chairman Laurent Beaudoin bought Canadair from the Ottawa government.
He later added other aircraft makers, Short Bros. of Belfast, Northern Ireland; Learjet of Wichita, Kan.; and De Haviland of Canada, which he bought from Boeing after the Seattle company lost almost $1 billion trying to make small planes.
Experts scoffed initially at Beaudoin’s idea for the 50-passenger jet, but it found markets. Lufthansa, for example, uses RJs for service among Germany’s many medium-sized cities. Bombardier has sold 200 of the 50-passenger planes and has 113 optional orders.
Meanwhile, it has just launched a 70-seat version with orders from Great China Airlines in Taiwan; a regional airline in France; and other, as yet unannounced, customers.
“The regional jet may not be a revolution in air travel, but it can be a significant evolution,” says consultant Beyer.
The jet’s lesson for all business is that mass markets will splinter into niches to reach customers with better service. Delta was first among the major airlines to benefit because its feeder Comair is an independent company with its own business to develop and stockholders to please.
American, playing catch-up, might think about making Eagle more independent through a partial spinoff of stock.
As for American’s pilots, they might reflect that their brother union, the AFL-CIO-affiliated Air Line Pilots Assn., went ahead and organized Comair and Eagle and other regional lines and didn’t balk at their different wage scales.
The real trick in today’s economy, in whatever line of work or business, is anticipating change and coping with it.
