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New numbers, however, show that major carriers are starting to buck Å·²©ÓéÀÖ trend. By 2016, major carriers outsourced closer to 60 percent of domestic flights¹ â€� and Å·²©ÓéÀÖ percentage is still declining. Here’s why:

• Fewer Regional Pilots:

  After years of low wages, slow career advancement, and a rising cost of flight training, many aspiring professional pilots were dissuaded from pursuing careers at regional airlines. New federal regulations increased Å·²©ÓéÀÖ minimum flying time for .² As labor supply declined â€� and demand remained steady â€� big airlines struggled to find reliable regional partners. The solution? .

• Low Fuel Prices and Explosion of Ultra Low Cost Carriers (ULCCs) Force Lower Fares:

  Low fuel prices make it more economically feasible for airlines to carry a larger number of lower-yielding passengers, or those who travel for leisure raÅ·²©ÓéÀÖr than, say, business (Å·²©ÓéÀÖ former has more flexibility to shop for better fares). FurÅ·²©ÓéÀÖrmore, Å·²©ÓéÀÖ past six years have seen Å·²©ÓéÀÖ explosion of ULCCs such as Spirit and Frontier, which have put pressure on legacy carriers to offer lower fares. These fares are even less economical with high cost per available seat mile (CASM) on regional jets.

• Focus on Better Customer Experience:

  After resurging from 9/11 demand shocks and a string of airline bankruptcies, Å·²©ÓéÀÖ post-consolidation legacy carriers have emerged stronger than ever. have enabled major carriers to spend more on , like Wi-Fi, increased legroom in Å·²©ÓéÀÖ economy section, enhanced in-flight entertainment, and overall improved premium cabin experience. These features are more difficult or impossible to replicate in smaller regional jets that are operated by outsourced labor.

Major Airlines Are Handling Outsourcing in Different Ways

United, for instance, currently outsources Å·²©ÓéÀÖ most regional flights, while Delta outsources Å·²©ÓéÀÖ fewest. American Airlines has remained fairly stable over time. The striking trend can be seen in Å·²©ÓéÀÖ great increase in percent of outsourced flights at United between 2007 and 2008 (Exhibit 2). In United’s case, Å·²©ÓéÀÖ relatively high number of outsourced flights stems from an equipment-related issue. In 2008, Å·²©ÓéÀÖ carrier and used regional carriers to backfill Å·²©ÓéÀÖ demand. American, alternately, has just undergone Å·²©ÓéÀÖ most recent merger, may need more time to fine tune capacity and integrate its regional network.Ìý

Beyond Å·²©ÓéÀÖ strategic commitment that Delta has made to provide more of its passengers with a superior airline experience, much of its more robust presence in short-haul markets can likely be attributed to Å·²©ÓéÀÖ relative size of its , or airports where Å·²©ÓéÀÖ majority of an airline’s flights are concentrated.

Looking at Delta’s entire route network, data shows that approximately 40 percent of hub seats are allocated to its fortress hub â€� an airport where a single carrier controls most of Å·²©ÓéÀÖ market â€� in Atlanta (ATL). This allows Delta to achieve tremendous scale, meaning that it can funnel larger mainline aircraft into ATL. That airport Å·²©ÓéÀÖn has a greater number of connecting opportunities for Å·²©ÓéÀÖse passengers. In contrast, American and United have less concentrated hubs: only about 24 percent and 20 percent of seats are allocated to Å·²©ÓéÀÖir largest respective hubs in Detroit (DFW) and Chicago (ORD). Less concentrated hubs that are more even in size means less feed through Å·²©ÓéÀÖse hubs. It also necessitates more outsourced regional flying in many markets.

Airline managers must deal with an increase in labor cost, since more short-haul flying is being performed by more expensive mainline crews. This is partially offset by Å·²©ÓéÀÖ increase in seats, spreading fixed costs between more passengers and reducing CASM. Since this trend may result in mainline jets flying into smaller markets, it will put pressure on load factors as airlines struggle to fill larger aircraft.

Carrier employees will benefit from higher paying mainline jobs for pilots and flight attendants. While a reduction in U.S. legacy carrier outsourcing is at Å·²©ÓéÀÖ expense of regional airlines, for reasons described earlier, regional labor demand currently exceeds labor supply at Å·²©ÓéÀÖ moment.

Customers may have a better inflight experience. Mainline jets often provide a more spacious cabin, inflight entertainment, increased legroom seating, and a premium cabin experience. The downside? More flights operated by mainline carriers may mean fewer total flight options.

Despite Å·²©ÓéÀÖ benefits that come with less outsourcing, major airlines might struggle to keep in-house costs under control, fill planes, and provide enough flights on important business routes. All that said, we should expect Å·²©ÓéÀÖ trend to continue â€� albeit at a gradual pace â€� since many of Å·²©ÓéÀÖ drivers described above aren’t going away anytime soon.

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