Network Carriers Still Call The Shots

Regional airlines and regional aircraft were not singled out for discriminatory treatment in the recent settlement that is designed to ease the congestion at Chicago O'Hare International Airport.

While the dominant carriers, United Airlines [UALAQ] and American Airlines [AMR], agreed to reduce their flights by 37 arrivals between noon and 8 p.m., the agreement with the Federal Aviation Administration (FAA) gives each carrier the flexibility to determine what aircraft will be flown. Likewise, the network carriers will continue to schedule the flights either on their own planes or with code-share partners.

"We are pleased that the FAA and the airlines were able to work out a voluntary agreement," said Deborah McElroy, president of the Regional Airline Association (RAA). "This is far more preferred than the government engaging in a process similar to re-regulation where it picks the winners and losers. It is absolutely not appropriate for the government to determine what type of airplane [the airlines] should be flying. That is a marketing decision that is the purview of the airlines."

The FAA said it was prepared to impose its own limits on O'Hare's traffic, if the 16 airlines that participated in the talks had not reach an agreement with the agency.

In recent months there were as many as 120 arrivals per hour at O'Hare while its capacity had been rated at 100 arrivals. Only 63 percent of the arrivals were on time for the first five months of 2004 - the poorest performance for any airport in the U.S. The delay continued despite FAA orders earlier this year for both United and American to reduce their daily flights by 7 percent - about 90 daily flights.

The new limits will take effect on Nov. 1 when the airlines implement their winter schedules. The FAA order expires on April 30, 2005.

Critics of the two hub operators noted that since April 2000 American and its affiliates have increased their daily O'Hare operations by 110 flights, United and its code-share partners increased their operations by 200 additional flights and all other carriers added just 16 flights.

In the agreement worked out after two weeks of negotiations, the FAA set a ceiling of 88 arrivals per hour between 7 a.m. and 8 p.m. Carriers can add flights outside of those hours. However, within the peak period any airline would be forced to trade time slots - measured in 15-minute blocks - if it wants to make schedule adjustments. New carriers - those that are not code-share partners of an existing carrier - still are permitted to begin serving O'Hare. But they will be limited to eight arrivals between 7 a.m. and 9 p.m. - and no more than one new arrival can be scheduled after 12 p.m.

Other than the 20 flights United will cut and the 17 that American will cut, no other operator is expected to cut arrivals during the peak periods, according to FAA documents. American will now have 499 arrivals effective with the winter schedule and United will have 588 arrivals.

Based on a consultant's study, the FAA claims the reduction to 88 hourly arrivals will cut the time delays by 20 percent.

"We emphasize that, by issuing this order, we are not deciding that a congested airport's hub operators are expected to yield arrival times to smaller carriers. Nor are we necessarily determining that the use of regional jets is disfavored versus the use of larger aircraft," the FAA order stated. "Although deregulation favors competition, it does not favor promoting one group of competitors over another. Our decision to permit limited entry by smaller carriers and to allow larger incumbents other than American and United to maintain their current level of operations, however, is consistent with the equities of the situation at O'Hare. United and American have added a very large number of flights in the last three years. While this build up was legal, it also can be seen as contributing to the congestion at O'Hare."

United has accused Independence Air, the new low-fare carrier operated by its former code-share partner Atlantic Coast Airlines (now FLYi Inc.), of causing the congestion. Independence Air has 10 flights into O'Hare - down 90 percent from its Atlantic Coast operations. The new carrier has said it will continue to fly the same number of flights under the new FAA order.

While Independence Air now flies Bombardier [BBD] CRJ 200s into O'Hare, the order gives it the flexibility to replace an RJ with a larger plane. In November, Independence will begin flying the first of 27 Airbus 319s it has on order.

In a footnote to the order, the FAA noted that it "is concerned that the size-based limitation on the use of aircraft could have the inadvertent effect of reducing the service via regional jets to small communities."

RAA's McElroy noted that the network carriers will consider service to small communities when they are considering which routes to cut. A recent study by Eclat Consulting found that the network carriers depend on market served by regional carriers for 39 percent of their revenue, McElroy said. "The service provided by regional airlines is critical for the financial success of the majors."

>>Contact: Deborah McElroy, RAA, (202) 367-1170.<<