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.