NextGen

NextGen is the 20+ billion dollar project focused on upgrading the ATC system from a ground based system to one controlled with satellites and digital technology.  It is a rebuild of the current system from the foundation up.  In this project we have to live in the house while it is being rebuilt.  This makes it complicated and expensive.  NextGen, when complete, will have four major impacts.  They are safety, flexibility, sustainability and economic.

Outside of being the first and foremost responsibility in our industry, NextGen brings tangible safety improvements to the NAS.  A major NextGen part, Automatic Dependant Surveillance-Boardcast (ADS-B) will give controllers and pilots real time positioning information of each aircraft.  Pilots will not have to solely rely on finding dots through the windscreen to identify traffic.

Flexibility was not a big consideration when the FAA was hard wiring computers into their facilities.  Technology will continue to advance and NextGen will be adaptable to these changes.  This will prevent us from  painting ourselves into another corner with outdated technology.  

Sustainability will be enhanced with the NextGen project.  NextGen will allow for a more direct routing of aircraft and decrease the amount of space between aircraft.  This results in less fuel being consumed to accommodate the current system.  Less fuel burn is good for the environment and for the aircraft operator.

Economic benefits will be realized in less fuel burn with NextGen.  This benefit will be slow to realize while the NextGen investment is being paid off.  An additional economic benefit to the operators will be the increase in capacity in the system.  For example, NextGen has the ability to untangle the ATC mess around NYC.  Solving this problem will give the airlines the ability to add service to and through this and other populated areas.  This will result in more revenue for the operators.

The sooner the NextGen investment is paid off, the faster the economic benefits can be realized.  My initial thought is that this project should be fully funded through the Federal government.  Outside of that option, I think that user fees are an insufficient funding source for NextGen and not legitimate unless they are rescinded once the initial NextGen investment is paid off.  In reality, paying for NextGen will require a number of sources, including some type of user fee/tax.  One source the FAA is deploying is loan guarantees.  The 2012 FAA funding re-authorization allows the FAA to back loans taken out for NextGen equipage.  More information can be found at equipage incentives.

I think the NAS capacity improvements will have the biggest effect on my career.  As operators fill the capacity vacuum we will have more airplanes to manage which leads to more jobs.  A side benefit will be the additional data that NextGen will provide.  The data will allow for better business decisions. We will move from a place of estimated arrival and departure times to actual times.  The improvements in weather forecasting and its effects on the operation will lead to better schedules are more efficient planning.  

The benefits of NextGen will be slow as the project is expected to take at least 10 years.  I think we should have a tempered optimism for NextGen.  The benefits will be great but this is a complex project with much of the technology being invented as this project progresses.  

What's a birthday? Pilot Mandatory Retirement Age

In 1959, the pilot mandatory retirement age was set at 60 years old.  The reason for the rule was to ensure safety.    The age limit was changed in 2007 to 65 for the same reasons.  The consensus was that once you hit your 65^th birthday you were automatically unsafe to fly.  Is there a correlation between birthdays and safety? 

A pilot’s retirement age should not be set in stone.  With over a century of human factors research along with safety management systems and cognitive testing, a pilot’s retirement date should be based on ability and not age.  The reason this is important is that we have a shortage of pilots that cannot be filled solely with new recruits.  Additionally, airlines lose valuable talent when a pilot retires.  Why not integrate these pilots into training or mentoring.   Another issue is that new major carrier pilots are much older than ever.  This is in part to the swollen regional carrier ranks and a lack of the majors hiring over the last decade.  These pilots will need to serve longer in order to secure a decent retirement. Benefits of hiring older workers.

My prediction is that the market will force the major carriers hand in this issue.  A lack of pilots will increase the value of the retiring pilot.  I could see the medicals adding more cognitive testing after age 60.  The performance rate of the test could dictate the hours the pilot could fly.  I also see fuller schedules for full-time pilots with the addition of part-time (60+) pilots.   

I think that pilots have value that is not being recognized because of the mandatory retirement age.  I am a management student so this does not have a direct bearing on my career path.  However, older employee enhance any company or workplace.  As a manager, I would like to find a way to integrate these pilots into continuing with the workforce.  

Ground Game

In the unlikely scenario of being in our aviation program and never having flown commercially, you might question what happens inside the airport or inside the airplane.  How to airplanes know where to park?  How do passengers get to the airplane?  What happens on the other side of the cockpit door?  This scenario is exaggerated but it sheds light on the fact that working in this industry is more than taking off and landing into the wind.  I am not discounting the program; just introducing this blog post about ground operations, its history, and my prediction for its future.

Ever since the Montgolfier brothers got their paper balloon off the ground in 1783, someone was on the ground facilitating manned flight.  As history progressed whether it was spinning props, loading mail, or putting out fires, ground operations employees are needed to make flight operations successful.  Today’s ground operations employees are essential to safely and efficiently receiving and dispatching(pushing out) each aircraft.  These employees work above wing to facilitate passenger handling and below wing to service the aircraft make possible the safe loading of bags and freight.  Ground operations employees make up the largest group of employees for most airlines.  At United, close to 30% of their 87,000 employees work directly in ground operations.

Generally, ground operations employees are hired from outside the industry and trained in-house.  The level of training is focused on their direct job duties and compliance with the regulations.  One area of training that is important for pilots is the Ground Security Coordinator (GSC).  49 U.S.C § 1544 requires that most schedule and charter operators have a GSC.  The GSC acts as a liaison with between the airline and outside agencies and works directly with the flight crew on any security matters.

The future of ground operations is about providing the service at the lowest costs.  Air carriers are continuing to push the envelope of outsourcing the below wing, ramp services.  The next downturn in the industry could see a large air carrier with its entire ramp service contracted out.  Contract employees are paid at a much lower rate with little or no benefits.  Passenger service jobs are also being contracted out but the greatest threat is automation.  Check-in kiosks have greatly reduced queues at ticket counter.  Airline apps allow passengers to rebook flights directly from their phone.  Delta is even testing automated boarding gates that will eliminate any need to interact with any ground operations employee.

Ground operations is still a large source of jobs especially for managers.  These jobs are in demand and are a great way to “get your foot in the door”.  In addition to knowing more about job opportunities, ground operations are essential to any flight.  It is important that the flight and management student know more about ground operations and how it will affect their work environment. 

GA: Doing Business In China

The U.S. general aviation aircraft industry is knocking on China's door.  In March of this year, Cessna signed a  joint venture agreement with Aviation Industry of China (AVIC).  The agreement paves the way for Cessna aircraft to be manufactured and assembled in China.  Cessna announced in May that the Cessna Caravan will be the first aircraft marketed through this agreement.  The Caravans will be manufactured in Kansas and then assembled at AVIC's facilities in Shijiazhuang.  Shijiazhuang is approximately 200 miles southwest of Beijing.

The GA industry wants into China.  According to the U.S. Consulate General Shanghai, consumer aviation has been growing at a rate of 21% since 1996 on construction and public service needs.  This does not include personal and corporate travel.  This growth is posed to explode given that China's transportation infrastructure is mainly rail, followed by commercial air service.  

The GA industry cannot easily sell their aircraft in China.  The Chinese government levies high import duties on these aircraft.  The duties can be avoided if the aircraft are manufactured or assembled in China.  The barrier here is that the industry cannot organize alone in China.  The Chinese government requires that foreign corporations partner with a corporation owned by Chinese stockholders or government agency.  The Chinese government caps the foreign investment to maintain Chinese control of the venture.  The demand for the Chinese market is so great that many foreign corporations are willing to take the risk to gain the reward.

As with any industry growth, people are needed to drive that growth.  The U.S. Consulate report states that pilot training in China is more expensive than in the U.S.  This is based on the limited infrastructure for flying and training.  According to Bloomberg, the Chinese airliners are already recruiting here.  This type of recruiting will increase as new G.A. flying increases within China.  There will also be a tremendous need for factory and product support both in the U.S. and China to support this growth. 

Regional Industry - Flying in the clouds

Comair's story is not just a sleepy corporate history but the story of the entire regional industry.  The 1970's was a fertile time for our present regional carriers.  SkyWest was founded in 1972, Chautauqua in 1973, Mesaba in 1974, and Comair in 1977.  Each of these carriers started in a small airport providing service to a large city, all except Comair.  Comair was founded in Cincinnati, OH - CVG.  At CVG, Comair provided the Cincinnati business community service to smaller cities.  They used this location to build a strong feeder network into CVG.  When Delta opened a northern hub in the early eighty's Comair was a natural selection to become a Delta Connection Carrier.   

Comair like its counterparts flew a variety of aircraft.  They started with two Piper Navajo aircraft followed by aircraft such as the Fairchild Metroliner, Embraer Bandeirante, Embraer Brasilia, and SAAB-340.  That all changed in 1993 when Comair took the"big bet" and became the first US operator of the CRJ.  In this bet, Comair leveraged their company and financed the first order.  Basically overnight, Comair with the CRJ changed the industry.  The aircraft was a huge hit with the traveler.  A seat in a sleek corporate jet for the same price as the "puddle jumper" along with the quiet cabin and increased speed was an answer to the business travelers prayers.  The "safety" of jet engines compared to props was a hit was the leisure traveler.  The bet paid off for Comair, in-part because of their agreement with Delta.  Up until this point, the mainline carrier only provided marketing and reservation services to the regional through code share agreements while the regional carried the financial risk for the flight.  Once the marketing fee was paid and the flight expenses (fuel $15/barrel) covered, the rest was pure profit.  Comair used their significant profits to secure additional CRJ delivery slots and pay their shareholders.  

The mid to late 1990's were boom times for the economy and the regionals.  Carriers could not snap up the new CRJ's and later ERJ's fast enough.  The mainline carriers, seeing the profits, weighed in and started ordering and financing even larger orders.  Northwest, being more practical than innovative, was left purchasing thirty-six old-school AVRO RJ-85's while they waited eagerly for their CRJ delivery slots.

The mainline carrier control of the CRJ/ERJ fleets and the creation of "capacity-plus" agreements were the end to the regional airline money making machine.  A capacity plus agreement is where the mainline carrier pays the regional a set rate for each departure.  The set rate covers the flight expense, normally excluding fuel, and includes a slim profit margin.  With the model, the leaner the regional operates the more money it makes.  Most carriers complied with this arrangement because the mainline carrier either owned or financed their fleet.  Comair was the exception.  Comair's early start meant that it owned its fleet and was quite happy with the Delta marketing arrangement.  Delta had no way to cover Comair's capacity so in 1999, at the height of the RJ bubble, Delta paid $2 billion for the 80% of Comair it didn't already own.

Comair's story is far from over.  Comair's pilots thought they struck gold when they became a wholly owned subsidiary of Delta.  Comair's $2 billion dollar price tag and a history of Comair profits increased expectations for the pilots.  Additionally, talks of guaranteed flow through, aircraft painted in a Delta livery, similar uniforms and other perks led the pilots to believe they were Delta.  Soon after the purchase, the Comair pilots started contract negotiations with demands for the Delta pay and benefits.  The negotiations dragged on between the pilots and Comair management.  Finally in the summer of 2001, the Comair pilots went on strike.  The strike went on for three months.  Comair almost exclusively carried all of the Delta regional traffic in Cincinnati, New York and Orlando while ASA fed Atlanta and SkyWest fed Salt Lake City.  For three months, Delta's regional feed in the Comair hubs was silent.  ASA would not fly struck work and non-union SkyWest was not organized or large enough to mobilize.  Also, covering Comair from other hubs would spread the damage.

Comair and it's pilots finally settled in the Fall of 2001.  The purchase, strike, and capacity-plus agreements ended Comair's heyday.  All of the mainline carriers began to homogenize their regional feed in terms of route map and product.  The mainline carriers, suffering turbulence of their own, slowed and even stopped hiring.  This, in addition to hard fought for above average wages, kept Comair pilots from progressing to the mainline carriers.  This, in turn, made Comair more senior and more and more expensive.  Delta and Comair filed for bankruptcy in 2007 and Delta placed Comair up for sale.  Comair reorganized as a smaller company and Delta continued to market it to other regionals.  Cutting their losses, Delta continued to shrink Comair.  As Comair got smaller, it became more expensive as the remaining senior pilots dominated the seniority list.  Finally, this Summer Delta finally announced it was closing Comair.

Capacity-plus agreements have placed the regionals on a very short leash.  Until the mainline carriers start to wholesale hire, the regional carrier's seniority list will stay stubbornly senior and expensive.  These expensive seniority lists only allow the regional carriers barely break even.  Examples of this include Mesa which after reorganization is a shell of its former self.  Colgan and Mesaba shut down with Pinnacle in bankruptcy.  Pinnacle almost had their contract negotiations completed when Delta vetoed and ordered management back to the table for more concessions.  American Eagle is in bankruptcy.  Republic is making some money by flying every type of aircraft for anyone that asks.  SkyWest is doing the best right now due to its size.  They are able to spread their costs out over a lot of flying under SkyWest and ExpressJet/ASA capacity-plus agreements and SkyWest at risk/EAS flying.

Mainline hiring will give the regionals relief to their heavy seniority lists.  The CRJ-100/200 that revolutionized the industry is now its crux with fuel remaining stubbornly over $100/barrel.  Where Comair was making big money at $15/barrel, the industry is crippled at $100/barrel. Delta is in the process of shedding 220 CRJ-200's in favor of larger RJ's and mainline aircraft.  This should motivate Delta to hire.  If the other mainline carrier follow, this hiring will create new opportunities at mainline and regional carriers.  

However, to fix the regional industry, it needs a new aircraft.  A result of the aircraft "upguaging" will be the reduction of flight schedules to maintain fares.  Also, smaller markets continue to be cut as they are uneconomical with larger aircraft.  Most CRJ-200 markets are less than 750 miles and many are less than 500 miles from a hub.  Turboprops are more efficient than jets on these segments.  While a turboprop is more efficient, I feel it needs to be a new design and not a rehashed Dash-8 or ATR.  A new prop would give the regionals a new tool to serve shorter, thinner routes for mainline carriers and an affordable vehicle for at-risk, money making flying, into other markets.  Prop bias should be less of an issue since the question will be 'no service' or 'prop service'.

I looked at a number of regional carrier's job boards.  All were hiring front line flight ops, tech ops, and ground ops positions with few management position.  Air Wisconsin had three city manager positions, training instructors and a VP position available.  

I feel that the airline industry is building momentum for another growth stage.  The remaining bankruptcies and mergers will mature in 2013-14 and this will set the stage.  As the economy continues to improve and airlines need to hire, more opportunities will be available to those qualified to take them.



 

Farewell Comair

Waiting to board one of Comair's final flights.

I remember when Comair was revered. They took the big gamble on the first CRJ's. Their success created a new model that transformed the industry. The regionals were making serious money and they could not get CRJ's fast enough. The high point came when Delta spent $2 billion to buy out Comair.  

Big money was being flashed around at Comair and the pilots wanted their share.  They shut down Comair in the summer of 2001 in an attempt to get THE industry leading contract.  They ended up with the contract but significant damage was done to the company and union. The majors started mixing the feed at their hubs and playing the regionals against one another which started the race to the bottom.  Comair's expensive pilot contract was a millstone around their neck and the pilots refused to budge.  Comair's bankruptcy was not successful enough to bring down their costs.  Delta tried to sell Comair without success. In the end, Delta broke down Comair and finally shut it down.

I don't want to place blame solely on the pilots.  It was the contact and the pilot's seniority that made Comair so expensive.  The regional model only works if the major carriers keep hiring the senior regional pilots.  This keeps the average pilot pay low enough to be competitive.  The major's failed to keep up their end of the deal and punished the regional whose seniority made them too expensive.

Comair will always be remembered for their success and contribution to the industry.  They are also a lesson on the pitfalls of excess that accompanies the boom and bust cycle of this business.

In the end, Comair was more than just contracts and seniority lists.  It was made of some of the best people in this business.  I hope they find smooth landings.  

Flying: Is it the only way to go?

Last Friday, I took the opportunity to pay my respects to Comair by flying on their final round trip to GRR on their last day of service.  During my :26 minute flight, one of nine scheduled that day between DTW and GRR, I began working on this blog.  Is it realistic to run nine aircraft a day between these two cities?  I then looked at Chicago and Detroit.  There are 35 daily flights between the two cities.  A two-week advance round trip ticket runs a total of $181.  After taxes, just over $100 goes to the airline.  It is safe to say that at $50 each way, this route is not a major moneymaker for the competitors; American, Delta, Southwest, and United.  The route only makes sense when you consider that each competitor has a major hub at either end where they can sell DTW-ORD at a loss if they make enough money on the connecting flight.  It does not hurt that Detroit and Chicago are both major cities.  Also, the 4 hour drive takes closer to 6 with traffic and the scheduled train service is anything but convenient. 

Is nine flights a day between DTW and GRR too many?  How about 35 a day between DTW and ORD/MDW?  Prior to 1978, the U.S. government answered those questions.  The Civil Aeronautics Board (CAB) determined the number of flights allowed, at what times and price.  They decided what aircraft flew the route and at what level of service.  Airline competition consisted of buying the best aircraft and having the best lobbyists in Washington D.C.  The deregulation act of 1978 ended this by opening the gates and forcing the carriers in to the arena to fight it out.  Free of CAB control and subsidies, they slashed fares to fill the aircraft.  The fare sales caused entire aircraft to sell out at the sale price causing a losing situation.  The solution was yield management.  Yield management is basically the setting of ticket prices.  Essentially, the air carriers set a price based on historical data.  Supply and demand then determine the price you pay.  If the seats are not selling, the fare goes down.  As the airplane fills up, the price goes up.  This is why last minute tickets are so expensive.  The airlines have this down to an exact science.

Deregulation and yield management are the reasons there are nine flights a day to GRR and 35 a day to ORD/MDW.  The carriers have pumped so many seats onto the route because they are feeding their hubs and yield management ensures that every passenger doesn’t pay $50 each way.  Deregulation and yield management are also the reasons that carriers cannot just charge more, or just fly less.  For example, Delta decides that nine flights to GRR are too many and cuts back to five.  Assuming no change in aircraft size, the fewer number of seats through yield management would increase the ticket prices.    The higher prices at Delta would push passengers to other carriers and they would travel through their hubs.  Wholesale reduction in flights and higher prices could not happen without the industry working together.  Higher ticket prices would lead to higher profits, however, any hypothetical industry solidarity would break down as the temptation for more profits leads the airlines to add capacity.  A government solution has already demonstrated its failure to manage the market. 

Airplanes are not always the most efficient way to move passengers.  Energy wise trains and buses are more efficient over shorter distances.  However, the solution is not re-regulating the industry.  The answer is having a comprehensive transportation policy that includes planes, trains and automobiles.  This week’s Aviation Week has a commentary about the European carriers losing on regional routes to the high-speed rail.  The carriers are only able to maintain a limited schedule to feed their international flights.  Domestic and some domestic transferring to international flights go by rail to the major cities.  Instead of regulating, the government needs to invest in regional high speed rail and ground services.  Investments in these areas will allow the market to become more efficient.

A more practical, shorter term solution is to upguage from 50-seat RJ’s to larger RJ’s and narrow body aircraft.  Why run nine CRJ-200’s between a market when you could run three 737’s?  Delta is going to give this a shot.  However, the plan comes with risks.  What if the other carriers do not follow?  What if oil drops and the 50-seat RJ’s make financial sense.  Delta will be left without the correct fleet mix to compete effectively on schedules and capacity.  I feel that as long as oil remains stubbornly high, the industry and greater transportation industry will  have to find better ways to move passengers more efficiently.