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Regional airlines not doing so hot

‘I’ve never seen morale lower’
The regional airline industry may soon face the kind of consolidation that thinned the ranks of the largest airlines between 2008 and the end of 2013.

DALLAS – For passengers traveling between smaller cities and large hub airports, the ticket may say Delta, American or United, but they’re likely flying on a regional airline whose planes are painted in the major carrier’s colors.

This arrangement helps the big airlines pack their planes more cheaply and contributes to recent record profits.

It isn’t as wonderful for the regional airlines, however. Their profits are shrinking, costs are rising and they’re having trouble finding enough pilots to work for the salaries they pay.

Consumers should be concerned. Fares could rise as regional airlines are forced to raise pilots’ pay. Aviation experts predict that some regional airlines may fail, which could lead to reduced service at smaller airports.

Helane Becker, an analyst for Cowen and Co., says the regionals face a basic problem: Their fares are set by their contracts with big-airline patrons. That leaves them little control over revenue and limited ability to pass along higher costs.

“When fuel prices go up, the major airlines can raise ticket prices,” but the regionals must wait several years until they can re-negotiate their contracts with the major airlines, Becker says.

Last week, an airline industry group said that 86 communities have lost at least 10 percent of their flights since last year. Regional airlines say the trend will get worse this winter and next year because of a pilot shortage.

About half of all passenger flights in the U.S. are operated by regional airlines. The planes don’t say Republic, SkyWest or Mesa on the side – they are painted in the colors and logos of brands such as Delta Connection, American Eagle or United Express.

A decade ago, many of the regionals were earning steady profits. That began to change when several of the big airlines went through bankruptcy and rewrote their contracts with regional airlines to cap the small guys’ profit margins.

Regionals that boasted 20 percent profit margins in the late 1990s suddenly had their margins capped at around 12 percent, a level some don’t even reach, says Robert Mann, an airline-industry consultant.

Many regional pilots look to move up to the bigger airlines – and better pay – after a few years. But with recession, the Sept. 11 attacks, retrenchment at the big airlines and an increase in the pilot retirement age to 65, it turned into “a lost decade” of career stagnation, says William Sprague, a pilot for American’s Envoy Air subsidiary.

“The future of our carrier looks bleak. I’ve never seen morale lower,” says Sprague, who is also a union leader. He says many pilots are bolting for low-cost carriers like Spirit, Allegiant and Frontier, or even to fly corporate planes.



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