Things in the Sky

Last week, my friend Courtney’s guest post got a lot of good feedback. So when he offered to write another one, I of course accepted. Enjoy!

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For some reason unbeknownst to me, Dan didn’t kick me off his blog after my first post. So here I am, back again with another thrilling installment of that wacky industry we call airlines. This week I have an itch to talk about scope clauses. The more I read about our basic understanding of scope clauses, the more I grow confused as to how we even make money in this industry…oh wait…we don’t.

Regardless, I think it’s time to nail down what we don’t know (but should) about scope clauses. Since top 10 lists are a lazy man’s way to create interest on the net, and since I’m still too lazy to come up with 10, here are the top 5 things you should know about scope clauses.

1. Scope Clauses are Necessary

As long as we have unions in the airline industry, we’ll have scope clauses. Through all of the complicated topics we’ve heard about scope over the past 10 years, at a base level it is the heart of a union’s objective: to protect the jobs of its members. A scope clause simply defines what work will be the responsibility of the members of the union. Traditionally, they’re quite simple; “all flying under XYZ airlines will be handled by the pilots of ABC union.”
Lately, however, scope clauses have become known not for what falls inside the scope, but what is allowed outside. This is where it starts to get confusing. During what we old-timers call the “Good ‘Ol Days” it was easy to distinguish a major airline from a regional. To oversimplify, a regional airline flew small turboprops and a major flew large jets. But what happens when an economical small jet enters the picture? Mainline pilots don’t want to fly it because of the low pay rate required (among other not-so-rational reasons), so they allow an adjustment of their scope clause to allow the flying to be handled outside of the union council (an important distinction since it’s most likely that regional pilots from a different council but same union will be flying those aircraft).

Perhaps it’s easier if we consider how unions would exist without scope clauses. Short answer – they wouldn’t survive. Scope clauses are absolutely critical to unions. In order for you to protect your members’ jobs, you have to distinctly define what those members’ jobs are. Otherwise an airline could hire outside of the union, inevitably and effectively removing the union from the property. Not going to happen.

2. Scope Clauses Greatly Affect the Fleet Mix

Remember the DC-9, 737-200, 737-500, and F100? There was a time when legacy fleets were dominated by the 100-seat aircraft. Since then, Delta is parking the last of the DC-9-30/40’s, American has retired the F100, the 737-200 has left every U.S. fleet, and the 737-500 remains only at Southwest and Continental with both suggesting retirement. The replacement aircraft have been anything but successful at the U.S. majors with only US Airways flying the E190 (almost half of which have been sold to Republic) and the next smallest aircraft being United’s 120-seat A319’s. Essentially, the 100-seat fleet has been wiped out.

It doesn’t take much for us to guess why this 100-seat aircraft has gone the way of the dodo bird at the US majors: Scope Clauses. Quite simply, the unit costs of a 76-seat aircraft operated by the regionals are too close to that of a 100-seat aircraft operated by mainline. This has artificially created a seat gap between regional and mainline aircraft in which regionals can’t operate due to scope clauses, and mainline can’t operate because of the superior economics of the aircraft regionals that can operate. The graph to the left shows just how pronounced the seat gap is.

3. Scope Relaxation is Largely Unpredictable

I know a lot of people think that since scope has crept up from 50 to 70 to 76 seats over the past 10 years that it’s going to continue. I’m not quite so convinced, and here’s why. Each relaxation to a scope clause is negotiated between an airline and its pilot union representatives. Among the scope clause relaxation issue are a whole slew of other issues which are arguably more important to a higher majority of the pilots, namely pay. All of these issues come together during the negotiating process, which is still subject to political pressure both within and outside the union, among other distractions. I often liken pilot negotiations to my wife going in to the grocery store to get milk, and coming back 45 minutes later with a $100 grocery bill, and no milk. Somewhere along the way, something else becomes more important, and the original objectives get set aside.
Also consider the special circumstances each of the airlines were in when they last relaxed scope. The first round as we’ll call it which allowed 50-seat jets, took place before anybody knew what the 50-seat jet would do. This involved almost every U.S. major airline including Continental, American, Delta, United, US Airways, and Northwest. The second major round of scope relaxation took place between 2002 and 2005, but was almost entirely exclusive to airlines in bankruptcy. Delta, United, Northwest, and US Airways all relaxed their scope to some extent, while American and Continental held there’s largely intact around the 50-seater (with the exception of a smallish fleet of 70-seaters at American). It’s important to point out that bankruptcy was a driving factor in determining which carriers significantly relaxed scope during the last round, and which did not. Since mergers and a (fingers crossed) improving economy are keeping the threat of major airline bankruptcy at bay, we really don’t have any good history to draw from when trying to predict what will happen next. All that being said, we sure do love to try, which leads me to…

4. Scope Clauses Hold Value

This is where I ignore the last section about not being able to predict scope clause relaxation and try to do precisely that. To oversimplify once more, the opportunity for a scope clause to be relaxed has a dollar figure attached to it. Airlines know roughly how much money they could save by relaxing the scope clause, and mainline pilot groups know how much they’d require in other concessions to allow it. This results in a phenomenon I call “there’s a price for everything.”

The next time any major airline meets with its pilots to negotiate a contract, the subject of scope relaxation will come up. During the past 10 years, we’ve seen the value of scope relaxation to the airlines equal the value of concessions made to the pilots. Hence, scope is relaxed. However, as regional pilot costs creep closer to mainline (or vice-versa), the value to the majors is diminishing. This, among other reasons, is lowering the value of incremental scope clause relaxations to the airlines. While the unions have become accustomed to airlines willingness to pay handsomely in terms of higher pay (or more recently less of a pay cut), airlines seem to have started to question the value of relaxing scope further. This forms the basis for my theory that we will not see any significant changes in scope during the next round of negotiations. Granted, this should cause the unions to “revalue” their scope clause which I think could inevitably lead to further relaxation after the current round. Of course there are wild cards thrown into the mix, such as American’s new union leadership who is promising more cooperation with management, and the United / Continental merger, which has already hit some labor snags.

5. Current Scope Clauses are Inherently Flawed

Before we jump into this, it’s common to hear that pure economics mean scope clauses shouldn’t exist. What we must remember is that we’re not dealing with pure economics. If a union were to allow economics to take total control, regional pilots (read lower paid pilots) would be flying everything up to 747’s, and mainline pilots would cease to exist. Hence, the argument that scope clauses should be subject to economics and nothing else also suggests that unions shouldn’t exist in airlines. As much as some may want that to be the case, we have to admit that unions are inevitable, as are scope clauses.

Much has been said about the pilot unions’ inability to square up to airline managements in terms of business strategy. The evolution of scope clauses makes this argument quite easy. We must point out, however that there are real economic forces at work influencing which aircraft are allowed with scope clauses. Assuming then the economic forces made scope clause relief inevitable (which is still up for debate), let us examine how the major union handled it.

ALPA is a national union made up of dozens of airlines’ pilots. The Delta and United pilots are represented under ALPA, the two groups we’ll examine. Also within the ALPA union are the pilots from the regional airlines who fly, with permission of the scope clause, for those carriers. Comair, ASA, and Freedom (Mesa) were ALPA carriers who flew regional aircraft for Delta during scope relaxation negotiations. Mesa, ACA, and Air Wisconsin all flew for United. What you’ll notice is the airlines I did not list who flew for those carriers: Skywest, Republic, and GoJet.

As ALPA mainline pilots renegotiated the scope clauses, they not only allowed regionals to fly incrementally larger jets, but they opened the door for non-ALPA regional pilots to grow at the expense of their ALPA counterparts. While the reasoning may not be clear, the effect is dramatic. Of the former ALPA regional airlines mentioned above, ACA is gone, Mesa is in bankruptcy, Comair is in critical condition, ASA is stagnant but owned by a non-union carrier, and Air Wisconsin had to buy their way out of United for survival, and now sits with an aging fleet at US Airways. The non-ALPA carriers? Skywest owns ASA and has already shown an appetite for Expressjet (another ALPA carrier), GoJet has recently signed an LOI for up to 100 MRJ’s and just bought Compass (an ALPA carrier), and Republic has bought everything else.

Therein lies the flaw. The degradation of the 100-seat mainline fleet has resulted in a substantial loss of union jobs. Even worse, the short-sided negotiations by ALPA have allowed almost complete erosion of their own union at the regional level. While they have airline-specific scope clauses, they lack a union-level scope clause. Which brings us back to the necessity of scope clauses; If you don’t define what work your union members do, how can you protect it?

If you decided to scan the headlines and pictures as I tend to and read just the last paragraph of a post, here’s what to take away.

• Scope clauses will be here forever and ever, amen.
• The current look of the industry has largely been influenced by scope clauses.
• The factors driving the evolution of scope clauses are not always understood by the parties involved and therefore are irrational and flawed.

Courtney is the co-creator of the Airplane Geeks Podcast, founder of AirlineEmpires.net, currently works for a commercial aircraft OEM, and is a self-proclaimed stud muffin. You can contact him through the Things in the Sky contact link.