Why American Eagle Might End Its Flying Days
By Justin Bachman February 14, 2014
The airline that once handled nearly all the regional flying for American Airlines (AAL) is likely to shrink into a company that merely transfers luggage and refuels other airlines’ jets.
American Eagle—one of the world’s largest regional airlines—had sought wage-freeze concessions from pilots in exchange for adding 60 new, larger Embraer jets and speeding the career path for Eagle pilots to move to American Airlines. But this week the local chapter of the Air Line Pilots Association declined to forward that contract to American Eagle’s 2,600 pilots for a vote.
American Eagle President Pedro Fabregas told workers on Thursday that American Airlines would begin seeking other airlines to fly the new Embraers and would move some of American Eagle’s Bombardier CRJ-700 jets to “more cost-effective carriers.” That means new business for rival airlines such as Republic Airways (RJET), SkyWest (SKYW), and Air Wisconsin Airlines. This isn’t the first time the giant airline has sought to disentangle itself from its regional partner: American’s former parent, AMR, had also tried to sell the Eagle unit before AMR’s 2011 bankruptcy filing.
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American Eagle will retain its 50-seat jets, but those models have rapidly lost favor in the industry and are being retired. Once American is able to move its regional operations away from the 50-seaters, American Eagle is likely to be a subsidiary that does little or no flying. What does a regional carrier do once its flying days are over? “Our ground-handling operation continues to thrive, and we have added new business and employees there at a rapid pace and will aggressively seek to continue this trend,” Fabregas wrote in a memo.
That plan appears to be fine with union leaders, given the widespread pilot shortage in the regional industry and the near-certainty that wages for regional airline crews will increase. “Our pilots decided they were not willing to work for less than the company is already paying our peers,” William Sprague, chairman of the local ALPA unit, told members. “We will now begin the process of assisting our pilots in identifying alternative career options within the industry.” Sprague told the Dallas Morning News on Wednesday that 30 American Eagle pilots are already leaving each month to fly for other carriers.
When large airlines sign new contracts with regionals to operate their “feeder” flights, those deals will reflect the higher costs of new federal rules mandating 1,500 flight hours for first officers. Those rules, supported by both ALPA and the major carriers’ trade group as a step toward further safety in the industry, virtually guarantee higher pilot salaries. Which is why the union was ready to risk seeing American Eagle grounded if it meant accepting stagnant salaries.
Bachman is an associate editor for Businessweek.com.