Scope is going to raise its ugly head.

There have been two airlines hamstrung by scope clauses in particular over the past 10 years.  First, American Airlines which has been restrained significantly by its pilots with respect to what kind of flying its subisidiary American Eagle can do.  Second, Continental Airlines pilots held a death grip on the company by keeping a 50 seat maximum scope clause in place as well.

Now, with American Airlines bankruptcy filing and the combination of United Airlines and Continental Airlines, scope clauses are going to be massively changed.   The United-Continental merger was, in many respects, an opportunity to redefine that scope and there is no doubt in my mind that the parts of United being retained are in part to bolster the case for supporting the loose scope clause that United enjoys over the tight scope clause that Continental suffered under.

Seniority integration between UA and CO is a hot button and CO pilots don’t want to give up the scope clause.  UA pilots kind of like the way that scope clause looks and so are working with CO pilots to stir up trouble.  Ultimately, a single contract will likely continue to enjoy a loose scope clause if it isn’t even looser as a result of the merger.  In other words, expect a whole lot of flying for United to be done by regional airlines that isn’t very “regional” in nature.  That’s good news for regional airlines . . . perhaps. 

At American Airlines, you can bet that they’ll work very hard to eliminate scope clauses limiting flying and they’ll work even harder to lower pay rates for smaller aircraft due to enter the fleet such as the A319.  Pilots won’t have much choice but to accept those changes or they’ll face an airline unable to survive or so massively cut down in size, layoffs will be plenty.  They’ll want to preserve jobs at the expense of controlling scope, is my guess.

With these changes in scope clauses, the competitive landscape for regional airlines will change.  American Eagle will likely go from being not much threat to being quite a bit of threat.  Pinnacle may well file for bankruptcy and, if it does, it will lower its costs and shed unproductive fleet quite a bit.  I think there will be plenty of flying available for them to bid for but I think it will be at costs significantly lower than what they’ve been enjoying. 

That begs the question of whether or not regional airline flying can survive much.  I don’t think regional airlines will go away but I do think we might see more consolidation before things are over.  One thing that has prevented a fair bit of consolidation is the patchwork roadmap of scope clauses that have choked airlines so much over the past 10 years.  With those gone, reasons for maintaining so many regional airlines kind of evaporate.  Some will die, some will be bought and some will grow. 

Whether or not it regional airlines can fly profitably is yet to be seen.  Legacy and SuperLegacy airlines still need the regional airlines and they’ll need them more going forward if they’re to find the network feed necessary for their hubs.  But given the restructuring they’ve all gone through, will they need to farm it out or might it be more attractive to keep it “in the family” going forward.  If I were a CEO for a regional airline, I would be predicting a very stressful 3 years ahead of me.

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