Perceptions About U.S. Regional Airline Outsourcing National Transportation Safety Board October 26, 2010
Survey Method Business Travel Coalition conducted a survey of travel industry professionals over eight days, from October 14 through October 22, 2010. Twenty-five hundred (2,500) participants were randomly chosen from BTC s electronic community of over thirty-five thousand (35,000) travel industry participants. Two hundred and twelve (212) corporate travel managers, travel agency executives and other professionals from the ranks of airlines, technology firms and consultancies participated. Results can be filtered by type of survey participant, e.g., corporate travel manager, travel agency executive. 112 corporate travel managers participated in the survey 32 travel agency executives 68 other industry participants 2
Summary Analysis BACKGROUND The role of regional airlines in the U.S. is critical to small and mid-sized communities that depend on these airlines for connectivity to important U.S. and international business centers. Indeed, the regional airline industry is an economic fulcrum over the hundreds of U.S. communities for whom regional service is the only option. Growth in this sector has been substantial with 82 million passengers flown in 2000 to some 159 million in 2009. During the same period, stage length grew from 296 miles to 457 miles while load factors jumped from 57% to 74%. Today, regional airlines emplane some 25% of all U.S. commercial airline passengers accounting for more than 50% of all takeoffs and landings. The sector s growth and its business model have raised concerns in recent years. The crash of Colgan Air Flight 3407 outside of Buffalo, N.Y. in February 2009 amplified concerns about pilot training, experience, professionalism, pay and fatigue. A National Transportation Safety Board (NTSB) investigation determined that the accident was the result of pilot error and that the pilots were likely fatigued. 3
Summary Analysis (cont.) During the past 40 years, there have been some 320 airplane accidents and incidents related to fatigue. While the NTSB has issued 138 fatigue-related safety recommendations, only 68 have been implemented. Often times the airline industry stonewalls such recommendations on the basis of statistics that to them demonstrate a good, and even improving, safety record. However, there can be great risk in using statistics as a predictive tool regarding likely future outcomes. Statistics are most valuable and predictive when what's being observed is over a normalized period of time versus during a period of great change. For example, the day before the Deepwater Horizon disaster, oil industry executives and Minerals Management Service (MMS) officials would likely have pointed to the statistically validated safety record of the industry. Similarly, this is what the U.S. Federal Aviation Administration (FAA) and the airline industry communicate about outsourcing of aircraft maintenance even as the work is accomplished outside airlines' own facilities under lower quality standards of workmanship and FAA/Transportation Security Administration oversight, whether the maintenance is conducted in the U.S. or abroad. The exact same thing applies to the regional business model debate where industry and FAA officials point to safety statistics to quiet some observers concerns. 4
Summary Analysis (cont.) The nexus among these three models is that the statistics are not truly predictive because each environment has changed from a largely static one to one of rapid and accelerating change. Great change can leave in its wake obsolete oversight protocols and vacated operational and safety assumptions, policies, processes and practices. Consider these three models from a risk-analysis perspective. Oil Industry. The industry has shifted over a short period of time from primarily shallow water to increasingly deeper water drilling where the risk profile increased, experience was secured on the job and regulators' responsibilities were co-opted by the industry they were charged with overseeing. Aircraft Maintenance Outsourcing. In just a few years time airlines' maintenance dollars to outsourced firms have grown from roughly 26% to close to 70%. Again, rapid change is obsoleting oversight regulations, practices and resources, and overriding flawed assumptions regarding risks and business model outcomes. 5
Summary Analysis (cont.) Regional Airline Model. In the past decade the outsourcing to regional airlines had led to that segment's growth in production to some 50% of operations. The Colgan accident and the rapid change in this industry segment has caused a bright light to shone on safety as a component of the larger business model. Pilot issues mentioned above are under scrutiny as are FAA's, regional firms' and mainline carriers' oversight and other responsibilities. While regional and mainline carriers both comply with the minimum standards as codified in Part 121, the gap in standards between regionals and mainline carriers is considerable. Continental, for example, has said the Colgan pilots would never have been hired at Continental because of their experience and training levels. What s more troubling is that statistics in these three areas are not only not predictive, they can cause those industry and government participants vested in current models to have blinders on and not perceive risks on the horizon that should be perceptible from facts and logic. 6
Summary Analysis (cont.) SURVEY FINDINGS A majority of business travelers are concerned over perceived safety differences between regional airlines and major network carriers, and this concern has been consistent over time. To address this concern, in part, a majority of corporations allow travelers to choose an alternative travel option, even if it s a more expensive one. Indeed, a majority of corporations indicates that they would be willing to pay much higher airfares in return for higher safety standards at the regional airlines. Most business travelers are confused about what carrier will be operating their flights while a majority of corporate travel managers indicated that they view the painting of regional airplanes, operated by one company but with the logo of its code share major airline partner, as amounting to deceptive marketing. A majority of travel managers say travel management companies and online travel agencies have insufficient information at the point of sale for notifying travelers of code sharing arrangements. 7
Summary Analysis (cont.) IMPLICATIONS The confidence of business travelers and travel industry professionals with respect to the regional airline industry is not high either as it relates to safety standards or marketing practices. This does not bode well for the sustainability of the industry or its ability to avoid increased government intervention. The travel professionals who participated in this BTC survey likewise do not express a level of confidence and knowledge, that would be highly desirable, about the effectiveness of FAA s oversight of this industry segment. Importantly, a vast majority feels that if consumers and travel professionals were more informed about the regional airline business model, they would be in a position to better drive marketplace changes. 8
Key Quantitative Results (travel managers only) 66.6% of corporate travel managers indicated that business travelers whom they support voice concerns over perceived safety differences between U.S. regional and U.S. major airline code share partners. 65.5% of travel managers said that this safety concern has been consistent over time. 80.5% of travelers whom these managers support avoid turboprop aircraft. According to travel managers, the primary determining factors behind their travelers avoiding turboprop aircraft are a) perceived lower overall safety standards versus major airlines (75.8%); b) less comfortable cabin configurations (72.7%); and c) flying in harsher, lower altitudes, especially in winter months (48.5%). 9
Key Quantitative Results (cont.) 76.2% of travel managers indicated that travelers whom they look after are confused about what carrier will be operating their flights. 64.3% said that they are concerned that major carriers market their own brand but outsource the flight to another carrier. 63.4% of these managers indicated that they view the painting of regional airplanes, operated by one company but with the logo of its code share major airline partner, as amounting to deceptive marketing. 37.5% said that travel management companies (including corporate booking tools) and online travel agencies have sufficient information at the point of sale for notifying travelers of code sharing arrangements. 10
Key Quantitative Results (cont.) 62.5% of travel managers indicated that their companies travel policies allow travelers to book out of policy (e.g., lowest logical airfare) if they are uncomfortable with flying on regional airlines. 76.2% of managers felt that a more informed public and managed travel community (about the regional airline model) could drive the regional airline industry's business model closer to that of the major airlines. 60% said that their companies would support paying much higher airfares in return for higher safety standards. 61.9% of travel managers have concerns about liability and accountability when problems arise with regional airlines after travelers purchase tickets through a major airline but fly on one of its regional outsourcing partners. 11
Survey Results 412
Survey Results (cont.) 413
Survey Results (cont.) 414
Representative Comments We've seen no measurable ticket price savings, resulting in code share agreements with regional carriers. Additionally, travelers are very concerned when they don't realize they've booked themselves, or their arranger has, on a regional carrier and show up at the airport, very unhappy and concerned about their safety, especially in light of some of the tragic accidents with these carriers and sense that the same due diligence isn't done with these regional suppliers. More and more our company has prohibited the usage of some regional airlines due to their week financial situation and poor maintenance records. Without outsourcing to regionals during the economic downturn, some routes would have disappeared altogether. Customers just do not feel as safe on the smaller aircraft--even the smaller aircraft that the larger carriers own. Regionals cabins are too small for passengers and the bags they bring on board don't fit in overhead bin. Since big airlines like American and Southwest have recently been fined...the view it they are all the same. Some simply won't fly on a prop at all and to a lesser extent small jets if there is a "big" jet alternative. Not all are owned by the major airline the ticket was purchased from so you don't know differences in company training and safety records. 15
Representative Comments (cont.) With regionals a training ground and revolving door for inexperienced pilots, many industry experts, including me, have expressed concern over the level of training and experience for regional carriers, which was clearly brought home during the tapes of the Continental Express ATR crash in Buffalo last year. Outsourced maintenance has not helped the situation and of course, the more prominent regional airline crashes/mishaps of recent. Due to the locations we must travel to for customer requirements we are sometimes forced to use codeshares with airlines that are not well rated for safety. They go out of their way to avoid those [turboprop] aircraft whenever possible. Many prefer the smoothness of regional jets - which suffer the same inexperience problems with crews. Confusion is completely rampant--even for knowledgeable airline employees. Absolutely, they often don't read the fine print on the itinerary that says "operated by Most don't understand they are flying on a regional. They think they are on the flagship carrier. 16
Representative Comments (cont.) Always, which airline do I check in with? This is confusing at times for us in the industry. I would like to see clearer communication/documentation on tickets. My position would be that if they are outsourcing, then they are still responsible for safety. The regulatory environment makes it difficult to differentiate among airlines. As long as the regional meets the service standards set forth by the major airline it is not deceptive marketing. Very deceptive. I don't think it is deceptive, however, although the information is published, it is not always highlighted. You find out after you book the leg, not during process. I believe this information should be shared throughout the travel cycle, i.e. book, pay, check-in, board, travel and deplane... 17
Representative Comments (cont.) If you inquire, or look it up online, it can be determined, but no airline seems to go out of its way to ensure the traveler is automatically made aware. We have our own no fly lists of carriers, which we keep strictly confidential. Airlines should be safe period! Shouldn't have to pay extra for safety - airlines fees have increased at alarming rates already. The standards should be the same between major and regional airlines. This has created a bigger hassle on our travel department side on having to avoid some of these carriers, and constant change of travel arrangement requests from passengers uncomfortable in flying some of these commuter flights. The crash in BUF is the perfect example of what needs to be fixed with the regional outsourced carriers. Support for travelers at airports become diluted due to code sharing. No one wants to take responsibility. 18