Unique to the United States airline industry is a labor restriction called “Scope Clause“.  The clause essentially limits US regional airlines to an aircraft weighing no more than 86,000 pounds and limited to 76 seats.  The idea is protectionist.  Mainline airlines do not want regionals flying larger aircraft.  Because if regionals don’t have this limit, you can be sure the regionals will add larger aircraft and undercut mainline aircraft economics.

What does this look like though? The first chart compares the US market with the rest of the world in terms of deployed fleets of regional jet aircraft.  A few things to note.  The US was an early adopter of regional jets and has a substantial deployed fleet. But US airlines struggled mightily as regional aircraft have been stretched or offered in larger sizes.  Outside the US, regional aircraft follow a different pattern – bigger is better and has been deployed fast.

2015-03-12_14-33-59In the next chart we look at the same from a different perspective.  Here we break down the fleets by seat categories and show the data in percentage terms.  It is more clear now how quickly airlines outside the US have been able to exploit larger aircraft.  As the charts show, the US has not been able to exploit 100 seat aircraft.  As of 3Q14, while the US saw 62% of the fleet in the 50 seat segment, outside the US the 50 seat segment was down to 46%. The few 100-seaters in the US are used by airlines that are not subject to scope limits like jetBlue.

2015-03-12_14-38-40The CEO of one of the leading US regional airlines shared the view that he sees scope being moved to ever larger aircraft, because quite simply, the economics are too compelling.  Embraer has paced its E2-175 to reach EIS in five years’ time.  American’s recent pilot deal takes scope changes off the table for the next five years.

Throw into the mix the pilot shortage that is eating away at schedules and we think that scope has to give.  Take a look here, here and as Boeing points out, its not a problem unique to the US. There is another side (also here) to the argument about the pilot shortage though.

Of course the reason for the shortage is less important than the fact it exists.  Absent a massive number of people wanting to enter the profession, the problem only gets worse.  Whether its money or some other form of attraction, airlines are not getting the pilots they need.  Because it takes time to bring pilots into the airline industry, every lag adds pressure to the scope issue.  Something’s got to give and we won’t be surprised to see US airlines force scope to grow – perhaps 93,000 to 95,000 pounds and 100 seats.  This will ensure the next generation of regional aircraft fit inside that envelope. With the profits US airlines are now making, we also expect to see pilot pay improve.  American’s pilots recently approved their new contract.

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