Things in the Sky

The differences between the Continental and United scope clauses in their pilot contracts has been an issue that has been making me think for awhile. Continental’s is much more restrictive than United’s, and does not allow regional jets larger than 50 seats. As a result, the only large regional aircraft operating for Continental are the Colgan Q400s. United, however, has great flexibility in this area, and many CRJ-700s and E-170s are flying for the airline under the United Express banner.

Not surprisingly, this has been an issue with the merger of the two carriers.

The issue already arose late last year after United began scheduling larger regional jets (operating with Continental’s code) out of Continental hubs such as Houston and Newark. Continental’s pilot group, represented by ALPA, filed a grievance over the plan, and an arbitrator ruled that the flights did indeed violate Continental’s contract. These flights are still operating, but only with the United code.

Photo Credit: Jay Bowie.

Without a doubt, this ruling was a victory for Continental pilots, but we still have to pilot groups that are yet to be under a joint contract. How is scope handled when there are two pilot groups at one merged airline with very different contracts?

The decision to schedule larger regional jets out of Continental hubs in the first place suggests that United management is currently running with the United pilot contract, which provides the most flexibility for the company, but will likely cause the most angst among (Continental) pilots.

While the Continental pilots were able to secure an arbitration victory late last year, who knows what will happen in the future? It appears that the arbitrator only ruled that United can’t put the Continental code on the flights in question. But what’s the difference what’s the Continental code disappears? In such a situation, it would appear that management will have much less incentive to negotiate over scope than the pilots, where scope has serious job security implications.

How this will be negotiated is quite interesting. There’s a full range of possibilities out there, anywhere from a relaxed scope clause in exchange for better pilot compensation to larger CRJs and E-Jets becoming part of the mainline operation.

Either way, this issue is far from resolved, and can either be negotiated in the short term, or become a long-term source of labor strife. In addition, it can also have significant impacts on the orderbooks of United and its regional partners.

United Airlines’ February traffic news release contained some interesting commentary on capacity adjustments the company is making in response to higher fuel prices. The airline had previously forecasted that its total capacity for 2011 would be 1-2% higher compared to 2010, and is now saying the comparison will be “roughly flat.”

According to a January guidance, domestic capacity was to decrease from 0.5-1.5%, but will now be down from 1.5% to 2.5%. International capacity will still grow, but at a slower rate – 2.5% to 3.5% instead of 4.5% to 5.5%.

The news release also had a line that is sure to fuel some interesting speculation – the airline said it was “analyzing the removal of certain less fuel-efficient aircraft from its fleet.”

When we last saw oil prices north of $100, then-separate United and Continental primarily focused on their fleets of 737 Classics. In 2008, United announced that it would be retiring its entire fleet of more than 90 737-300s and 737-500s. Continental began phasing out the 737-300 completely, and also reduced its number of 737-500s. At the end of 2007, Continental had 40 737-300s and 68 737-500s, while today only 34 737-500s remain.

Could the 737 again be a target for fleet rationalization? The average age of a United 737-500 as of December 31, 2010 was 14.9 years. Three  fleets (747-400, 757-200, 767-300ER) are older. Not that age is the driving factor, I just found it interesting. One part of the United fleet that continues to intrigue be is Continental’s small fleet of 767-200ERs. United also operates fairly large aircraft – such as non-ER versions of the 777-200 and the 767-300 – on some domestic routes, if gauge is something to be considered.

The other issue, of course, is replacement. United said in its 10-K that its first 787s are slated to arrive next year, which could serve as a 767 replacement. Continental also has new 737s on order. Meanwhile, United’s A350 order is still on the books. In the case of the 757 – could United grow its fleet of 737-900ERs to replace the aircraft on certain domestic routes?

One wonders how this would all be shaking out if the 787-8 had been delivered to Continental as originally scheduled.

On a side note…if United is looking at 737 replacements, especially the -500, I wonder what they think about the CSeries? Then again, through the merger (and depending how pilot negotiations go), the Continental piece of the new United gets more flexibility with larger regional jets.

Lots of speculation to be had here.

In a few days, United will finally be able to fly to Lagos. Let’s look back – about a year ago United announced it would fly from Washington-Dulles to Accra, and the flight would continue to Lagos. Service was originally slated to start on May 3, but it was pushed back to June 20, and the flight was not going to continue on due to some regulatory hangups. On Sunday, the flight will begin its Accra-Lagos tag.

Merger partner Continental was also supposed to start up service to Lagos about a year from now with its shiny-new 787-8 aircraft, but Boeing’s delivery schedule has slipped since the announcement this summer. But the airline has said that a 777 will be used on the route instead. (No word if that 777 will be a 2-class Continental bird or a 3-class United 777).

Meanwhile, Continental’s other 787 route – Houston – Auckland – has been pushed back to 2012. According to this article, Continental says a 777 is capable of flying the route, but apparently the numbers don’t look as good as they do with a 787. The airline also cited that it could be difficult to find room for such a route in the schedule with all of Continental’s other 777 routes. My guess is Continental forecasted that demand for this route would be a bit on the thin side – which is the exact kind of route route the 787 is meant for – and a 777 would just be too big.

As I’ve written here in the past, I think one of the biggest labor issues with the United/Continental merger is scope. It’s a big issue for pilots everywhere, but especially so the pilot groups at the two airlines. I would argue it is a bigger issue than it was for Delta/Northwest – where both of those airlines were using larger regional jets. But two very different scope clauses exist at United and Continental. The former has a lot of freedom with large regional jets, while the latter does not. (This is why the only 70-seaters you’ll find at Continental are Q400s.)

It appears that this issue – which undoubtedly would be a huge issue in creating a joint pilots’ contract – has become even bigger, with United planning to operate larger regional jets out of Continental hubs.

We knew this was coming to some extent when United announced earlier this year it would begin flying between Aspen and Houston with SkyWest CRJ-700s. But in the past couple of weeks we have heard even more  about it. During the new holding company’s third quarter earnings call, CEO Jeff Smisek said this:

…United Express will begin service with 70-seat regional jets for flights out of our Cleveland, Newark, and Houston hubs that are currently served by 50-seat regional jets. The introduction of the 70-seat aircraft to these markets not only allows us to better capture demand, it offers customers a great product and the choice of a first class cabin.

Meanwhile, some of the new routes United recently announced are currently slated to use SkyWest CRJ-700s. A filing with the Department of Transportation also indicates that United wishes to use CRJ-700s on some Mexican routes.

First – let me say that I think larger regional jets out of Continental hubs can make sense, especially on some of the long routes flown by ExpressJet ERJs, like Houston-Toronto, which clocks in at 1,280 miles. Compare this to Delta, which has committed to putting first class on all routes longer than 750 miles. On longer routes a first class cabin (and Economy Plus – whatever the future of that is) makes great sense for additional revenue, and elites will certainly welcome the upgrade opportunities.

The CRJ-700 certainly fills in a seat gap for Continental between the ERJ-145, and Continental’s smallest mainline aircraft, the 737-500. Continental also has the Colgan Q400 at its disposal, but that is a small fleet and there are currently none based in Houston. Plus, I would argue that the Q, while speedy, is not the best choice for some of the longer stage lengths.

And  perhaps the CRJ-700 just offers better economics than the ERJ in some markets. For example, Continental tried Houston-Bakersfield with ExpressJet but cut the route, but will now give it a shot with the CRJ-700. (Of course, there are other factors – airport costs at Bakersfield are probably lower because existing United facilities can be used, and plus you have any network synergies provided from the merger.)

The other sense I get is that right now the CRJ-700 will be used for new routes – like Houston-Aspen, or will replace ExpressJet flying. Now, that’s certainly better than an outright replacement of mainline flying, but I doubt that changes perception much.

The move does not appear to be sitting well with the pilot group at Continental, who appear to believe such flying would be a violation of scope. For example, a union update was recently posted on a forum. I’d highly recommend reading the whole thing, but this line sums it up pretty nicely: “To attempt to circumvent the Scope section as almost the very first action of the merged UAL can only be viewed by our pilots as a direct affront on our interests and an insult to each of us.”

While CRJ-700 service out of Conitnental hubs certainly provides plenty of benefits – I don’t think this sends the best message to labor. Personally, I think waiting might have been a better move, but I’d have to assume that United’s new management team already analyzed this situation, and decided that the benefits outweighed any potential blowback.