United’s Clever Move to Be Competitive While Obeying Scope with the CRJ550

United put out a press release yesterday . Some of this (like adding a row to the A319/A320 fleet) is all about being competitive with similar aircraft at American and Delta. But changes on the regional side of the equation aren’t as easy to make thanks to restrictions in the airline’s pilot agreement. So what did United do? It got quite clever and introduced the CRJ550. In the short-term, I get this, but in the long run? It seems like there has to be a better way.

What United has decided to do is take 20 of its contracted CRJ700 aircraft that today seat between 66 and 70 seats and shrink those down to hold only 50 seats. If this sounds like madness, it is. But there is a calculated rationale behind it. And it all goes back to scope.

Airlines in the US have agreements with their pilots about how many aircraft they can outsource to regional partners with 76 seats or fewer. This restriction is called the “scope clause,” and I’ve written about it previously so I won’t rehash things here except for what’s necessary.

American has the least restrictive scope clause because it grows with the total fleet. The airline can outsource two 51 to 76-seaters for every five mainline aircraft it operates. Meanwhile, United and Delta have identical scope clauses that put hard limits on the number of aircraft with 70- and 76- seats, but they use them differently. Since Delta opted to add 88 small mainline jets (originally the 717, now the A220), it can have 70 more 76-seaters than United. So, in the current state of the industry, United has fewer desirable big regional jets than either Delta or American.

Where United does have flexibility is down in the land of 50-seat aircraft. It has been growing in small cities a lot lately, so it has been adding 50-seat flying like crazy. There are three problems with 50-seaters. First, they are old and new ones aren’t being made. Second, they are awful for passengers. The small cabins mean that they can only be efficiently operated in all-coach configurations the overhead bins are so tiny that they can barely hold anything. Third, without an Economy Plus and First Class cabin, these machines can’t generate the kind of revenue that United could otherwise earn. United’s ability to gain its “fair share” is also made much more difficult without these customer-pleasing cabins.

Delta has solved for this problem by upgauging. It has those 110-seat mainline aircraft which can serve markets that were operated by 76-seaters. Then everything else moves up the chain, leaving a small number of 50-seaters in the Delta fleet to work the smallest and shortest of routes where First Class isn’t as important and anything bigger wouldn’t be economical. American, meanwhile, can add more of the 76-seaters, so it is able to work toward a similar goal. Where does that leave United?

You can look at any number of markets to see just how bad things are from a competitive perspective, but let’s start with Chicago where United and American go head-to-head. For example:

Chicago to:UnitedAmerican
single-cabin flightsthree-cabin flightssingle-cabin flightsthree-cabin flights
St Louis6215
NW Arkansas3004
Tulsa4003

If you’re a Chicago-based frequent flier that goes to these cities, who are you going to fly? You get free Main Cabin Extra on American, but on United it’s not even an option to get Economy Plus, let alone First Class. It’s a big competitive disadvantage.

This explains why United wants scope relief. It thinks it needs to put more three-cabin airplanes on competitive routes. The pilots, however, have said, “Hey United, you already have two options. Buy small mainline jets for us and you can outsource more, or let us fly the regional jets ourselves.” United so far hasn’t been interested in either option.

This squeeze has caused United to start doing inefficient things. It placed an order last year for the Embraer 175SC. That’s basically an Embraer 175 with only 70 seats onboard instead of 76. United has already hit its cap of 70-seaters at 102, so I figured this order would replace older aircraft. That appears to be wrong.

Instead, United is going to take 20 of the CRJ700s that had between 66 and 70 seats and convert those into the new CRJ550. It’s the same airplane, but it’s just capped at 50 seats. I call this the “Great Lakes Strategy.”

Yes, it’ll be more expensive to fly a CRJ700 with only 50 seats onboard, but United doesn’t really have another good option to get three-cabin airplanes into those smaller markets right now.

The CRJ550 will, unsurprisingly, go into Chicago markets first followed by Newark. United will instantly become competitive with American on routes where today it simply isn’t. Is it inefficient to fly those bigger airplanes with only 50 seats? You bet it is. Just take a look at this seat map:

That’s four separate closets you see on that airplane to give people places for full-size carry-ons. There’s also a galley and little bar area for First Class passengers. It’s all pretty silly, actually, but in the short run, this seems like a quick and dirty way to be able to compete for traveler affections. As long as the economy remains good, I can see this configuration working.

All that being said, I would much rather see an extra 20 seats on this airplane from a profitability perspective. I’m sure United would as well.

If this is a long-term strategy, then I think it’s short-sighted. United needs to grow into smaller mainline aircraft at some point and that should provide some scope relief. But even beyond that, can United really make the argument that flying a 70-seat aircraft with a mainline pilot isn’t better economically than having a regional pilot fly the same plane with 50 seats? I can understand it (marginally) with the 6-seat spread on the Embraer 175SC, but this is whole different ballgame. The pilots must know that they’re in a pretty good place from a negotiating perspective for the next contract. Scope changes will undoubtedly be at the top of the list to discuss.

In the meantime, this is great news for those who fly United. Enjoy the luxurious configuration while you can get it. The only loser in the short-term is American since it just picked up a a lot of new competition in markets where it previously had the upper hand. Good for United for doing something creative here, even if it’s just creativity to close the gap with the others. Whether it makes sense or not, it shows some real outside-the-box thinking, and that’s the kind of thinking United needs.

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