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A new discussion point in the “what are we going to do with dwindling airline service” is the suggestion that smaller airlines – the ones flying regional jets or propellor planes primarily to major carriers’ hubs — should consolidate into a few big regional airlines, akin to the business model that brought us the Big 4 airlines (AA, DL, UA, WN). The proponents of this argument are people we respect as big thinkers in the airline business, which is why we respectfully disagree on some points.

The argument goes that regional airline consolidation would bring about economies of scale that would help in planning to address the pilot shortage, standardize fleets, create efficiencies in ancillary operations (catering and maintenance, for example). Some also argue that this consolidation should be accompanied by an end to the Essential Air Service (EAS) program as it exists today. On the latter, we agree, but not for the same reasons. 

A push for regional carrier consolidation strikes us as adding more of the same ingredients to an already unsatisfying recipe. While some smaller regional airlines may be forced into mergers just to survive today’s short-term crisis in pilot staffing, we’re not convinced that a “Big Regional” model benefits the industry, customers, smaller cities, the economy or, frankly, our country – for the long term. New thinking is required to ensure that these carriers can survive and thrive as independent operators, providing much-needed service to smaller cities and towns, using market-driven tools and fleets that fit those routes.

Pilot Shortage

The pilot shortage is an example of how scale is not driving efficiency.

The shortage is acute today because major airlines offered voluntary furloughs and early retirements to thousands of pilots during the pandemic — a low-risk decision to ease the bleeding for bottom lines and shareholders. Why low-risk? Because as the pandemic eased, majors began digging into essentially bottomless pockets (bolstered in part by federal COVID relief funds) to replace their pilots – at the expense of every airline smaller than the Big 4.

The result? Today, pilots on the majors’ payrolls are queued up for months to be onboarded for lack of instructors, simulator time and classroom space – a self-inflicted choke point. Would-be major airline pilots are sitting idle, even as the regional airlines they came from cancel flights due to dwindling pilot staffing, with negative impacts on the cities and consumers they served.

Efficient use of scale? Or waste?

Fleet and Other Synergies

Every airline economist knows that standardized fleets are the most efficient for the individual operator — Southwest is the gold standard for this with its all-737 fleet. But a one-size-fits-all fleet doesn’t mean a one-size-fits-every-market scenario, nor should it. In a world with fewer aircraft types, fewer markets will be viable, even those that could be served by smaller aircraft.  It’s not that the 50-seat regional jet economics don’t work – they just don’t work in the major airlines’ hub-and-spoke model.

Other aircraft might. There are today new or updated aircraft available to optimally serve smaller markets (the 70-seat Embraer 175-E2 is example) – but they are on the shelf primarily because pilot shortages have forced the majors to streamline them out of their networks as they reduce service from smaller cities to a dwindling number of hub choices.

Synergies and Management Breach

Some argue that bigger is almost always better – that airline maintenance, facilities management, catering, services, training, etc. and even management bench strength benefit from economies of scale and a bigger playing field for career growth. Some of this is correct. But it is also true that as any organization grows, it tends to become more rigid, complex, unwieldy and siloed, especially in customer functions. Unless employees rise to the most senior levels of an airline, they’re not often exposed to the larger picture – how a decision in Revenue Management, for example, affects Marketing, and vice versa. In fact, a common complaint I hear from colleagues who have signed on at larger airlines is that “I just come in and push my buttons/pull my levers to get my job done. Going outside the box breaks the machine.”

In smaller airlines, employees have more exposure to more of the business. This is what builds experience and understanding of how the business functions. It also drives team engagement and creative problem solving, especially on the front lines of customer service.

EAS

The Essential Air Service program is outdated, but scrapping it is not the answer. We envision an approach that focuses less on individual city-pairs and more on supporting the carriers that serve smaller cities. That is, directing EAS or other economic development money to smaller aircraft operators, who can apply realistic commercial/network planning concepts to support thinner markets and non-hub communities. These operators may, for example, determine a market is viable with nine-to-30 seat aircraft rather than a standard 50-seat regional jet. At the same time, these smaller aircraft can serve as flight-hours-builders for new entrant pilots, giving new pilots the opportunity to gain hours more quickly.

Consolidation

As stated above, regional consolidation will likely be required for some carriers in the short-term, but consolidation is not the answer to a crisis driven today primarily by the shock waves of an acute pilot shortage which, in many respects, is self-inflicted. There are ways to achieve benefits of scale without consolidation into a “Big Regional” airline system – for example, through franchise-like structures that have been successful in hospitality (hotels and restaurants), financial services, fashion, etc. 

We have a dog in this hunt. As former “Big Airline” executives, we’ve seen the impact that Big Airline economics have on smaller carriers and markets. Our company is building a market-driven approach, using our platforms to match markets to potential carriers and fleet types and providing the revenue management, marketing, branding, etc., expertise that smaller carriers often don’t have the resources to develop on their own. 

This gives smaller carriers big-scale tools, tech and analysis, while allowing them to maintain the benefits of “smaller” – manageability, breadth of understanding, focus and consumer benefit. It also opens potential new markets for regional operators, puts their assets to productive use and sets up regional carriers to loosen their dependence on Big Airline economics – a much more satisfying result than simply repeating the Big Airline consolidation playbook.

Brad Beakley
President and CEO
Current Aviation, Inc.

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