Thursday, September 28, 2006

Growth...Kinda!

One of the unique things about my airline is that unlike most regionals, its core business is not contract flying. Although we are affiliated with a major airline which is owned by the same parent company, most of our flying is generally done under our own brand, we do our own marketing, have our own reservations, and only around half of our passengers connect to other airlines.

The exception, for the last three years, has been our Denver operation. In 2003 we began contract flying on behalf of a certain Denver-based low cost carrier with nine of our CRJ aircraft. It was a fairly small portion of our total fleet but was significant in that it represented our first venture into the world of contract flying. By all accounts, it went very well. We established a new hub and crew/maintenance base in less than 90 days, and right off the bat our reliability numbers were excellent. Maybe a little too excellent: the airline we contracted with had to pay us every reliability bonus. Our success was made more apparent by the horrible performance of the previous contract carrier, Mesa.

Three years later, it's over. We're shutting down Denver and bringing the planes and crews home. What went wrong? Well, the airline in question decided they weren't willing to pay a premium for reliability after all. They opted out of our contract and put out an RFP for our flying. They did invite us to bid on the new RFP, but we weren't interested because we'd have to foot the bill for up to twenty new airplanes. So our management made the decision to redeploy the nine airplanes in Denver to our native network.

In one sense, I think this is a good thing. Our native network has been more profitable than the Denver operation was, even though those were guaranteed profits. We are in dire need of more airplanes for the native network, both to add capacity to certain existing routes and also to open new routes in lucrative markets (ie, California). So bringing back nine airframes from Denver will allow for native network growth that might've otherwise never happened, and get us into some potentially very profitable markets before someone else does.

The downside, of course, is that there is no growth so far as the pilots are concerned. The same number of airframes are remaining on property, requiring the same number of pilots. It's now unlikely that the company will exercise many of their additional MegaWhacker options. Upgrades will probably remain in the 6-7 year range. That said, I'm personally glad we're out of the contract business because that business has become a downward spiral of cutthroat competition, cancelled contracts, pay concessions, and life disruptions for many pilots. The only regionals that've thrived are the ones that pay their pilots poorly, and that's a price our pilots aren't willing to pay for growth.

1 comments:

dph said...

It's interesting to read what sub-contracting looks like in the airline business.

It's been my observation that the most successful contracting shops are those that are able to keep costs (labour) low and cut corners. without appearing to sacrifice successful operation. While a boon for the company doing the contracting out, working for the contractOR is less than good, and in a while, the problems build up to become catastrophic. Rince, Wash Repeat.

Seems that this is the case in aviation as well. I wonder when the next spate of low cost contractor aviation accidents will occur in the industry as those that most successfully cut costs realize the risks inherent in that approach.

D