IT SHOULD BE AN aha! MOMENT

This regional space is crazy.

In my post a couple of months ago titled DESTINATION: POINT STUPID, I said "Something just does not feel right here". For serious watchers of this industry, it should not for you either.

Remember, ALPA Pres. DePete sent a letter to RAA Pres. Faye Malarkey Black that in effect told her to stand down trying to make common-sense changes to the 1500-hour rule. Instead, she and her members should strive to negotiate the types of agreements that ALPA had just won with two wholly owned regionals at AA.

Regional carrier economics were upside down even before AA started paying ransom to retain pilots. That was demonstrated by aha!'s bankruptcy filing this week. Like the EAS program, it is hard to be profitable as a stand-alone 50-seat operator in this cost-push environment if you do not connect to a network where revenue contribution can mitigate some of the shortfall.

Because this industry is a pattern bargaining one, what happened at AA a couple of months ago, happened at United's CommutAir yesterday. And it will happen again. While the rates are less than the ransom rates at American, they make absolutely no business sense. They make strategy sense because they will serve as a barrier for the ULCCs, and others, to retain and attract skilled airmen and women necessary to fund their planned growth.

For the first time since deregulation, the incumbent network carriers may actually hold a competitive advantage and ALPA knows it. Big pay rates make small jet flying uneconomical. Scope carve outs will be less. Pay rates at the mainline carriers will be shielded from increasing competition. For the moment, this is about pilots and not about cost.

Also remember, it was AA that leaked out that it would pay its pilots more than what was in the United tentative agreement (TA) its pilots were voting on. That TA has been pulled and will be renegotiated. This week, AA was able to make an agreement with Air Wisconsin to fly under the AA code with a focus on its Chicago hub. An easy transition for Air Wisconsin because it has been United's partner feeding its Chicago hub. More than a skirmish.

See where this is going. This has nothing to do with Chicago despite air service consultants telling clients it is. This is about pilots. This is about UA staying out in front of AA for the last 2 years. This is an AA strategy to strike back at their former executive.

aha! demonstrated clearly that the economics of small jet lying do not work without being connected to a larger network. IF AA was really trying to keep small jet flying as part of its network, it would not have negotiated the rates it did.

Collective bargaining's pattern seems to be exposing itself. Big carriers and ALPA win. ULCCs and new entrants face barriers to maintain and grow their systems that are quite different than in the past.

Hey Washington -- Watch this space. It's different and it is nuanced.

#swelbar