MARCH 17, 1997
President Clinton gave an emergency mediation board two more days to propose a settlement between American Airlines and its pilots. The board was created by the President when he stopped last month's pilots' strike. At issue is a major change affecting the entire airline industry. Tom Bearden reports.
JIM LEHRER: Now a look behind the labor problems at American Airlines. President Clinton today gave an emergency mediation board two more days to propose a settlement between American and its pilots. The board was created by the President when he stopped last month's pilots' strike. And it is now overseeing talks between the two sides. At issue is a major change affecting the entire airline industry. Tom Bearden reports.
TOM BEARDEN: This is the kind of airplane that has American Airlines' management and pilots nose-to-nose. Not a big new jumbo jet with all the latest whiz bangs, but a simple little twin engine plane called a regional jet. This one is the CanadaAir CRJ. Made in Montreal it has 50 seats and can fly 1500 miles at 530 miles an hour. It and others like it are the biggest thing in aviation today. They're supposed to revolutionize air travel for millions of people who live in smaller cities. Michael Boyd is an aviation industry consultant.
MICHAEL BOYD, Aviation Analyst: It's enormous. The regional jet is basically the one major area where airlines in the U.S. will grow in the future. That's the biggest growth area domestically in the U.S. airline industry is the regional jet.
TOM BEARDEN: That growth is supposed to happen because regional jets have the speed and the range to serve markets that airlines have never been able to reach and still make a profit. ComAir flies more regional jets than anybody else. Like most so-called feeder airlines ComAir operates in partnership with a major airline. It flies under the Delta connection brand name. Its niche is to fly people from small cities to the Delta hub in Cincinnati, where they connect to other planes for their final destination. Recently, ComAir began flying one of its new CRJ's between Cincinnati and Evansville, Indiana. It's replacing turbo prop aircraft, which many passengers avoid because of the perception that propeller planes are inferior to pure jets. David Mueller is the CEO of ComAir.
DAVID MUELLER, CEO, ComAir: We feel that there have been people who heretofore flying over competitive hubs are now coming with us because of the jet. And we feel that people who have shied away from the so-called regional airlines because of turbo props are now at ease in flying with us.
TOM BEARDEN: Passengers we talked to in Evansville were enthusiastic about flying on a jet instead of a turbo prop. Steve Cavayero is a Florida businessman.
STEVE CAVAYERO: There's a lot more room on the airplane to start with, and it seems to be less bumpier of a flight.
TOM BEARDEN: Did you book this trip specifically because you could be on a jet?
STEVE CAVAYERO: Yes. In fact, I changed my arrangements completely just to get on jet service for my return today.
TOM BEARDEN: Business women Diane Bassemier and Shirley Orth agree.
DIANE BASSEMIER: I've heard comments from other travelers that they do book specifically to be on a jet, so I think that's an important factor for some people.
SHIRLEY ORTH: I do too because I think when you go--a lot of times what people have done out of Evansville, in particular, is to drive all the way to St. Louis, or drive to Louisville to get jet service.
TOM BEARDEN: Mueller says the CRJ's have been an unalloyed success.
DAVID MUELLER: It opened up new opportunities for us. Heretofore, we couldn't operate an airplane more than three or four hundred miles. We can now go 1200 miles non-stop with a full load of passengers. We can do multiple missions whereby we don't have to buy fuel. We can conserve fuel. It allowed us to fill voids in a schedule in our hubs in association with our friends at Delta, just a lot of things that we couldn't do before.
TOM BEARDEN: What makes jet service for Evansville possible is the regional jet's ability to turn a profit, even when more than half its seats are empty. Larger planes, flown under a major airline's cost structure, require a much higher load factor to break even. James Parker is a regional airline analyst for an Atlanta investment firm.
JAMES PARKER, Regional Airlines Analyst: The economics of this aircraft for feeder airlines are extremely compelling in that you need only about 22 passengers to break even. And if you've got twenty-nine or thirty people on this 50-seat aircraft, you make a profit margin that's 15 to 20 percent.
TOM BEARDEN: Parker says that's mainly because labor costs are much lower for regional carriers.
JAMES PARKER: The captain that would fly this 50-seat regional jet, his or her annual compensation would be something like sixty-five to seventy thousand dollars. Generally, for a major airline the lowest paid captain makes about $140,000 per year. So the economics are very appropriate for feeder airlines but not very appropriate for major airlines who operate this 50-seat regional jet.
TOM BEARDEN: Those lower salaries are the key issue in the argument between American Airline's management and its pilots. American wants the pilots that fly for its commuter subsidiary, American Eagle, to fly the regional jets. But the much more highly paid mainline American pilots want their members in the cockpit. Ironically, both pilots groups are unionized but are represented by different unions. Boyd said the fact that two unions are fighting over who's going to fly the new jets and at what price has undermined their traditional solidarity.
MICHAEL BOYD: I think brotherhood and the union business went right down the crane fixture when the rest of the unions didn't come out and raise absolute hell when Clinton stopped that strike of the APA.
TOM BEARDEN: So far, Delta's pilots haven't raised an objection to ComAir's regional jets because their current contract restricts the size of the aircraft ComAir's pilots can fly.
DAVID MUELLER: Delta does have a scope clause in their contract with their pilots which limits us to operating 70 seats. And we intend to operate within that. The next generation for us is sixty-nine or seventy seats.
TOM BEARDEN: Arguments over who gets to fly the regional jets hasn't derailed any other airline, but that may change as labor contracts come up for renewal. Mesaba Airlines is one of Northwest Airlines' feeder partners, operating as Northwest AirLink. Right now they're flying turbo props. But Northwest has placed a $300 million order for 12 Avro RJ-85 regional jets and will lease them to Mesaba. They're larger than the CRJ's. The 69 seat jets will allow Mesaba to be the first feeder airline to offer first class service. But these new aircraft will replace some of Northwest's DC-9 jets on several routes. Some analysts think if that happens often enough, the unions will balk. The Airline Pilots Association declined our request for an interview, but Mesaba President Bryan Bedford doesn't see such a confrontation developing between his airline and Northwest.
BRYAN BEDFORD, CEO, Mesaba Airlines: I don't think the regional jets that we're operating represent a threat to Northwest jobs or Northwest growth. Quite the contrary. As we grow our feed to Northwest Airlines, it empowers them to grow their mainline fleet. And they're doing that. They're adding DC-10's and 757's and DC-9's. So I think that Northwest has got some robust growth planned for their--for their mainline unit.
TOM BEARDEN: Ironically, the planes that have been hailed as being a great benefit to some small cities may actually cause problems for the very small airports that are now served by turbo props.
MICHAEL BOYD: We just finished a study on regional air service. And there's going to be about a hundred cities--a hundred airports that will lose scheduled service in the next decade. And this regional jet, when it goes into a city, if there's a city that's only an hour away that has only turbo prop service, it's going to cause more leakage, as we call it, reverse leakage into that city that has the jet. So, yeah, it's going to have the effect of causing regional air service to continue to consolidate. The days of having scheduled air service at every small airport are long over.
TOM BEARDEN: But Jon Austin, spokesman for Northwest Airlines, disagrees.
JON AUSTIN, Northwest Airlines: I think there will always be a market for smaller aircraft to serve those smaller markets. Again, the economics of those markets are probably never going to support a regional jet, but they may very well support a turbo prop, and they may very well support multiple turbo prop departures each day.
TOM BEARDEN: So while the smallest of cities may never get jet service, many observers agree the new planes will provide substantially better service to many other markets. Airlines are lining up to place their orders for the CRJ and for two competitors, all of them made outside the U.S.. Sales are expected to top $110 billion over the next two decades.