Pilot Outsourcing a Tough Challenge for United-Continental Merger

(MoneyWatch)  As the United (UAUA) and Continental (CAL) merger process continues to move forward, the SkyWest purchase of ExpressJet has turned me toward what I expect to be the biggest stumbling block in terms of labor integration: scope. Scope clauses determine how much flying can be outsourced on which types of airplanes, and United and Continental couldn't be further apart on that question right now. The ultimate goal for the airline is clear, but will labor let them get there? Could the SkyWest/ExpressJet deal play a role?

To really help explain the difference in philosophy, let's look at a chart showing the percentage of aircraft by fleet size.


As you can see, with the exception of the smaller prop aircraft, Continental and United have very different fleets. United offers more widebody aircraft and 70-seat jets, while Continental is more reliant upon narrowbody and 50-seat jets.

The difference in widebody versus narrowbody is more a function of route network than anything else. Both have pushed their networks to rely more on international routes over the last decade, but much of Continental's flying is within reach of narrowbody airplanes. In fact, Continental's forty-one 757-200 aircraft are dedicated to international routes, primarily from Newark to Europe. United, meanwhile, does not use narrowbody airplanes over any ocean (except to Hawai'i). When you include Continental's more robust flying to Latin America, the split becomes almost imperceptible.

But on the regional side, it's a different story. Neither airline operates airplanes with less than 100 seats by itself. All of that flying is outsourced to regional partners, but as you can see, United has concentrated its regional flying on 70 seat aircraft, while Continental has stuck with 50 seat airplanes. For Continental, that's not by choice.

Continental's scope clause with its pilots says that no jet with more than 50 seats can be outsourced to a third party. That small number of 70 seat airplanes you see? Those are 74-seat Q400 aircraft, which are allowed because they have little spinning props on the wing.

United, on the other hand, has absolutely the opposite. It can fly 70 seat airplanes all over the place and it does just that. It has tried to make it as close as possible to a mainline flying experience (it's not really that close) and that means there is a First Class cabin with many of the amenities you'd find on a big bird.

In fact, United has been so "successful" at shipping out its flying that it retired its fleet of around a hundred 737s last year and replaced them with outsourced regional flying on 70 seat airplanes.

Continental wishes it could do the same, and in fact it offered its pilots the exact same deal Delta's pilots have in their industry-leading contract plus $1. Why? Because it would allow Continental to outsource a lot more of its flying on 70 seat airplanes (which are far cheaper to operate on a per-seat basis and are more profitable than 50 seaters). In exchange, the Continental pilots would gain better work rules and higher pay. It's a big tradeoff, but now the pilots have to decide what to do.

The addition of United pilots to the mix makes things even more difficult. The United pilots are angry. They've taken big pay cuts and have seen an incredibly large amount of flying outsourced. Now they want it back. But they aren't going to be in a place to try to trade off with lesser work rules. They just want more all the way around.

The new United management will have to figure out how to reconcile the wants of both groups. There's no way management will want to give up the outsourced flying that is currently allowed on the United side. Meanwhile, the pilots won't want to allow more 70 seat flying on the Continental side. What to do?

Seeing the SkyWest-ExpressJet merger last week had my wheels turning. I keep trying to figure out if there's a connection between these two issues. Is this somehow going to turn into a play for increased 70 seat flying? Would the pilots consider doing an agreement with SkyWest to feed pilots into the mainline from its massively dominant position in the United/Continental regional system? I have no idea if this would even be possible in the eyes of the pilots, but management knows that something has to happen to ensure that scope doesn't get in the way of combining workgroups. This is going to require some creativity.

Related:

• Why is SkyWest Buying ExpressJet?
• Bad News: United, Continental Merger Already Seeing Pilot Unrest
• United-Continental Merger: Suspicions Confirmed as Exec Team Leans Toward Continental

Photo via Flickr user GenBug