Regional airlines cut cost of flying, at what price?

By Catherine Rentz

Tuesday, February 9th, 2010 

The "Flying Cheap" doumentary was a finalist for this year's Invetigative Reporters and Editors award.

This story is based on reporting for "Flying Cheap," a FRONTLINE documentary co-produced with the Investigative Reporting Workshop. Rick Young is the producer of the film and Catherine Rentz is the co-producer. Both are members of the staff of the Investigative Reporting Workshop. Jacob Fenton, the Workshop's director of computer-assisted reporting, built the interactive data application and did the analysis of the airline, airport and safety data. The documentary premiered on Feb. 9, 2010. You can watch the full show and see more stories at Frontline's web site.

On Feb. 12, 2009, Continental Flight 3407 crashed on approach to the Buffalo-Niagara International Airport killing 49 people onboard and one person on the ground. Although 3407 was painted in the colors of Continental Connection, it was actually operated by Colgan Air, a regional airline that flies routes under contract for US Airways, United Airlines and Continental.

The crash and subsequent investigation revealed a little-known trend in the airline industry: Regional airlines account for more than half of all scheduled domestic flights in the United States. They also are responsible for the last six fatal domestic, commercial airline accidents.

A joint FRONTLINE and Investigative Reporting Workshop investigation makes it clear that the major airlines use the regionals to help keep fares low, leading to low pay and sometimes onerous working conditions for pilots and others. But the majors also keep the regionals at arm’s-length when it comes to overseeing safety, maintenance, training and other key elements of airline operations.

It is an arrangement that few in the flying public understand.

“No doubt in our mind that when she’s buying this ticket, she’s buying a flight on Continental,” says Scott Maurer, who lost his daughter, Lorin, on 3407. “She believed she had Continental pilots and Continental safety and Continental service, but, you know, we know different today.”

An investigation of the Buffalo crash by the National Transportation Safety Board identified pilot error as a probable cause of the accident. It has also put the spotlight on operations of regional airlines like Colgan Air, where the co-pilot on 3407 had made less than $16,000 the previous year. Federal records show that the captain had failed five flight tests and received inadequate training on stall recovery.

How codeshares work

Under a codeshare agreement, customers are booked on a flight with one airline, but actually fly with an independent airline with whom the ticketing airline has a close commercial relationship.

For example, Lorin Maurer, one of the Buffalo crash victims, bought her ticket on 3407 from Continental Airlines and everything on the ticket indicated she was flying Continental -- except for the fine print, which said the flight was operated by Colgan Air.

The plane was painted in Continental colors including Continental’s trademark globe on the tail, but it was really a Colgan plane operated by Colgan crew. Its maintenance, the crew’s training and all other aspects of the operation were overseen by Colgan, not Continental. In fact, most code-share contracts specifically give all responsibility and liability to the regional carrier.

The majors do exercise some control. For example, US Airways gives all employees working on behalf of the airline a pamphlet titled, "Impressions of Excellence." Among other things it specifies what they must wear -- down to the type of underwear and nail polish -- to create "a public perception about our capability as an airline." Former Colgan pilots who flew US Airways-branded flights told FRONTLINE and the Workshop that they were given copies of the pamphlet.

Advantages to the major airlines

From the major airlines’ perspective, these codeshare agreements streamline the airline experience for customers, providing branded airline service to smaller communities around the country that might otherwise difficult to reach.

“Here’s the real secret why people have to realize that there has been this transition – the passenger buys one ticket, doesn’t have to check his bag on two or three different airlines,” says Roger Cohen, president of the Regional Airline Association. “[The customer] gets on an aircraft that is modern, looks the exact same way. The seat magazine that says Continental and everything on there. So that is a seamless experience for the traveling public.”

Majors began to outsource to regionals in the wake of the 1978 deregulation of the airline industry. Intense competition following deregulation meant that majors needed to cut costs to lower prices and effectively compete; regionals with their smaller planes and non-unionized employees often offer a cheaper way to fly from A to B. Continental Airlines, for example, now outsources 60 percent of its flights to regionals, including Colgan Air.

Former Continental CEO Gordon Bethune told FRONTLINE and the Workshop that selling its regional carrier ExpressJet Holdings in 2002 and outsourcing those regional routes helped Continental mainline stay afloat after industry revenues plummeted in the early 2000s.The legacy carriers struggled after Sept. 11, 2001 with the Internet and low-cost carriers compounding the pressure to drive prices down. They all contributed to a perfect storm that forced many majors into bankruptcy. US Airways, United Airlines, Delta and Northwest all filed bankruptcy by 2005.

Codeshares shift liability away from majors

The arrangements also permit the majors to contract away much of the responsibility and liability inherent in flying millions of people around the nation. For example, federal safety records reflect only the planes an airline actually operates. If a major airline outsources flights to an independent operator, any accidents or incidents involving those flights will be reflected in the outsourced operator’s records – they will not appear in the major’s safety record. For example, Flight 3407 does not appear under Continental’s safety record – only under Colgan Air, which operated the flight.

And if something goes wrong, such as in Flight 3407, the majors have been able to escape liability after a crash, a key issue for victims’ families. In cases where regionals have had accidents while operating codeshared flights, the regional operator has always been held responsible after a crash because the typical codeshare contract spells it out that way. The agreement between Colgan Air and US Airways , which FRONTLINE and the Workshop obtained, lays out the legal responsibilities and liabilities of the contracting carrier.

First, the contract makes it clear that the pilots and others work for Colgan, not US Airways: "[Colgan] employees, agents and independent contractors … for all purposes, under no circumstances shall be deemed to be employees, agents or independent contractors of US Airways."

Additionally, Colgan is required to assume “liability for and shall indemnify, defend, protect, save and hold harmless US Airways … from and against any and all liabilities, claims, demands, suits, judgments, damages and losses … for death of or injury to any person whomever."

Former Transportation Department Inspector General Mary Schiavo, now a plaintiff’s attorney, told FRONTLINE and the Workshop that such codeshare contracts are typical in the industry and, effectively, let the major airlines “off the hook” for legal responsibility over the safety of its regional partners.

More federal scrutiny of arrangements

In the wake of the crash of Flight 3407, federal agencies now say they will focus more attention on these code-sharing relationships.

“Codesharing is a significant issue and something we believe is worthy of examination – from a safety perspective – as it relates to the overall commercial passenger system,”  Deborah Hersman, chairwoman of the NTSB, said when she announced the results of the Flight 3407 investigation. Hersman said the NTSB will hold a symposium on code-sharing this fall so that the board can more fully investigate the safety implications of the business arrangements.

Congress also wants to explore the relationships. On Feb. 3, the day after the NTSB concluded its investigation of Flight 3407, Rep. Jim Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee, and Aviation Subcommittee Chairman Rep. Jerry Costello, D-Ill., asked the Transportation Department’s Inspector General to study safety issues in airline code-sharing arrangements.

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