MIAMI — Pilots at Piedmont Airlines, a regional provider for the new American Airlines, voted yes on a new contract by a margin of 77% to 23%, paving the way for Piedmont to receive regional jets in the coming years. Piedmont’s yes vote marks an important step forward in the new American’s plans to refine and up-gauge its regional feed.

Piedmont is a wholly owned subsidiary of American Airlines Group (AAG), operating short-haul feeder services at the pre-merger US Airways hubs of Charlotte, Philadelphia, and Washington Reagan. It operates a fleet of 43 Bombardier Dash 8 turboprop aircraft (32 Q100s, and 11 Q300s), with an average fleet age of 24.9 years, serving 47 destinations across the United States.

The new contract for Piedmont pilots is expected to offer similar economics to the one that was consistently rejected by pilots at Envoy Air, another wholly owned regional subsidiary of AAG. While Piedmont management stated that the carrier will continue to operate its turboprop fleet for sometime, the new contract raises questions as to potential replacement of the Dash 8s.

A somewhat one-to-one solution would come in the form of the ATR 42-500, a 50-seat aircraft, which would represent a one-to-one replacement for the Q300s and an increase in seating capacity of just 13 seats over the Q100s. However, the ATR 42 and ATR 72-600 offer the exact same trip cost, which has limited the market for the smaller ATR 42. The ATR 72-600 would represent a major up-gauge over the Q100s, nearly doubling them in capacity, while offering a 40% capacity increase over the Q300 at better trip costs (depending on the cost of capital). The faster Bombardier Dash 8 Q400 is likely to expensive for Piedmont’s needs.

Of the ATR options, the ATR 72 might be the better fit, as it allows American to consolidate Piedmont’s operations in manner similar to Delta’s strategy in reducing its fleet of 50-seat regional jets. In Delta’s case, it used larger 76-seat regional jets and mainline Boeing 717 aircraft to replace E145 and CRJ-200 flights on a one-to-one capacity basis, and AAG could use a similar strategy. Piedmont operates 206 flights per day with the Q100 and 90 with the Q300, but could conceivably operate just 160 combined flights with the ATR 72 as a replacement. Given that some of the markets served with the smaller props are unlikely to be profitable with the new American’s higher costs, Piedmont could conceivably re-fleet for just 150 ATR 72 flights per day. Even with the ATR’s longer turn time, that flying program could be operated with 25-27 ATR 72s and would have the added benefit of freeing up  at least 100 of Piedmont’s 340 pilots for new aircraft.

Indeed, the success of plans to add regional jets to Piedmont’s fleet will hinge on the regional airline’s ability to add new pilots. Envoy’s gambit was predicated on the idea that the looming pilot shortage would preclude American from finding adequate alternatives for placing 60 Embraer E175 aircraft. However, American placed 20 aircraft with Compass Airlines, and now has the option of placing additional aircraft with Piedmont. In fact, E175s are the most likely candidate for Piedmont. The CRJ-900s are off the table, and Envoy’s CRJ-700s will be moved to PSA. While Envoy has a fleet of 118 50-seat regional jets, it is unlikely that Piedmont would be able to fly even a substantial portion of those aircraft if it replaces its turboprops. In terms of E175s, if Piedmont opts for replacement turboprops as noted above, it will have to hire 250-300 additional pilots to fly all 40 E175s, which might be a tall order. But flying 20-25 of the E175s is certainly possible, and we see that as the most likely scenario. There is also another scenario where American eliminates Piedmont’s entire turboprop fleet, freeing up 340 pilots to operate 50-seat regional jets or E175s. Either way, interesting times lie ahead for Piedmont and American Airlines Group.

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