There’s a good chance you missed it, but in SkyWest’s earnings release this week, the airline announced it bought a 25 percent stake in Contour. This is a shrewd move.
I haven’t spent much time covering Contour, but it is the little airline that could. Contour is an airline that successfully uses the Part 380/Part 135 loophole that I wrote about in August to do what Skywest has so far only been able to dream about. In short, Contour Airlines operates flights chartered from its parent company, Contour Aviation. Because of this arrangement, it can operate those airplanes with 30 seats and still fly under Part 135 rules which make it much easier to find pilots.
Unlike JSX which uses this model to provide a premium experience, Contour uses regular terminals and is just trying to serve smaller cities in an economical way where it can actually source enough pilots to do the work. And it generally has worked for the airline. Contour’s network is focused on Essential Air Service (EAS) markets. This can shift a fair bit over time — it just lost the Crescent City business in California — but here’s the July route map as of today.
If you look closely enough, you’ll see a pattern. With the exception of a handful of flights in Nashville, ever single flight Contour runs is to and from an American hub. It’s no surprise since Contour has an interline agreement with American, and it can feed people to the world.
According to Airfleets, it has about 20 Embraer 135/145s today but it has also started acquiring CRJ-100/200s as well with six in the fleet. Half of those came from Elite, and all but one were acquired post-pandemic. All of this combines to create an interesting opportunity for SkyWest.
SkyWest used to be an enormous EAS operator, but with the pilot shortage it had to scale back. In fact, some of its old routes have been handed over to Contour.
One of SkyWest’s initiatives has been the creation of SkyWest Charter (SWC) which was meant to operate the exact same way that Contour has been operating — with 30 seats on a CRJ-100/200 under Part 135 rules. SWC is up and running doing actual charters, flying sports teams around, etc. But its application to be given commuter authority to run flights like Contour has been held up as the feds debate how to handle this loophole. SkyWest is a pawn, and this might be a very long game of chess.
By acquiring 25 percent of Contour, SkyWest positions itself to do a few good things.
First is the most obvious benefit. Contour will take some of SkyWest’s CRJs and put them to use, presumably replacing Embraers over time and/or providing growth.
On the earnings call, SkyWest said it has about 150 CRJ-100/200s and about 50 to 60 that aren’t doing anything. These airplanes are owned outright by SkyWest, and they can’t really be sold for all that much, so the best financial option is to get them flying. That is exactly the plan.
The Contour arrangement also includes an asset provisioning agreement under which SkyWest will provide CRJ airframes, engines and rotable parts to Contour.
This is helped by the fact that SWC may or may not get approved someday to fly EAS routes. If I were SkyWest, I wouldn’t be thinking of this as a competitive situation. SkyWest is much better off having CRJs flying and generating money for Contour than it is having them wait around hoping that SWC will eventually be able to bid against Contour for those routes. Besides, SkyWest is so much bigger than Contour as an entity, even if SWC is approved you could imagine a world where SkyWest just buys Contour or sells off its SWC operation to merge them into a separate company.
The last benefit here is in regards to the pilots, though admittedly the information is scant on what that means. What we do know is that SkyWest says flight schools are full now, so they can’t pump out enough to provide what SkyWest needs. That leads us to this quote from SkyWest President and CEO Chip Childs from the earnings call.
So, we fundamentally think that over the next decade or so, we need to build a model that’s resilient relative to captains and first officers both…. I’d back up and just say, we have positive captain production today, but it’s still going to take at the rate we’re going today several years to get back to the 2019 levels.
Now, the most important part that we probably would tag on to that is we’re working very diligently with partners in creative ways in which we can produce captains faster than what we are producing today. That’s the Contour investment, that’s the pilot program investment with United.
In other words, pilots flying Part 135 for Contour will have some sort of path to move into SkyWest where they can do Part 121 flying before moving on to the legacies.
Add all this up and you have a pretty compelling reason to take a stake in Contour, even if it doesn’t amount to all that much.
23 comments on “SkyWest Finds a Place for All Those CRJs With Contour Stake”
It looks to me like Skywest has read the tea leaves and has concluded that a lot of Congressmen don’t like their constituents in the hinterland either having Essential Airline Service provided by 9 passenger planes (in which case most of those routes on the Contour map would be gone. Vernal-Phoenix or Macon-Baltimore in a Cessna Caravan?), or with the same jets flown by United Express or American Eagle, just with lesser qualified pilots.
If the Part80/Part 135 loophole is closed, that will take Surf Air, Advanced Air, and Denver Air Connection with it, and wipe out the hopes and dreams that some “electric airplane” startups have for “scheduled service”. So no wonder the FAA is taking so long, It is definitely in a no-win situation. All it’s going to take is another Southern Airways Express-type highway landing, but with an EMB-145 and a not so happy ending and the FAA with be flayed by Congress for not “having done something”, but at the same time, it will make all those E-planes history before they even get started.
But Skywest buying, or buying into, Contour has little to do with the “loophole” and everything to do with Skywest being able to fulfill its contract to provide service to American, Delta, United, and Alaska. All those shiny new, “diverse” faces coming out of United’s flight school are going to need some place to get their first right seat job and that will never happen if they are all relegated to flying cargo on a Metroliner until they get enough hours to be a first officer for a Part 121 carrier.
The captain shortage is the immediate issue for the mainline carriers and that will get worse before it gets better when the MAX’s finally get cleared and its customers can grow like they want to, but that is really a separate issue from the one involving the Part 80/Part 135 “loophole.”
Goforride – Denver Air Connection does not use this loophole. It has 9-seat Metroliners which is flies under Part 135, but the Dorniers and ERJ-145s fly under Part 121. And Surf Air does use this model,but it does need to since it only flies PC-12s and Grand Caravans that can operate under Part 135. Southern does use it for the couple Saabs it flies elsewhere, but that’s a small part of the business. Really, it’s JSX and Contour that have the most exposure here.
I think the issue is not simply Part 135 vs. Part 121. I think the real issue is the Part 50…part.
Denver Air Connection is still a “virtual airline” for Key Lime Air, even if some flights are operated under Part 121.
I think that’s why Denver Air Connection, as well as Surf Air, Southern Airways Express, and those electric plane startups are in trouble.
There are a host of regulatory issues about being “ready and fit” to provide interstate air transporatrion that these “virtual airlines” are skating around.
This is about SkyWest being tired of fighting ALPA and pilot unions insistence that 1500 hours is some ordained standard for experience even though airlines around the world hire pilots with far less experience and don’t crash planes any more often than US airlines. And don’t try to use the MAX issues and accidents as evidence otherwise. Pilot unions should be able to show w/ facts and data exactly what number of flight hours is necessary – but they have not because they cannot. As with any job, there is a combination of experience, training and oversight.
And SKYW recognizes its own future is on the line; it must have a process to keep developing a supply of pilots and all of the 4 US airlines that use regional aircraft – and also contract to SKYW – recognize the necessity of having a model that includes a steady supply of pilots and a place for regional carriers, of which SKYW is the largest and will be the last man standing.
While they are focusing on the EAS market right now, they will expand to the JSX model if they can. and despite union objections, if push comes to shove, the big 3 will support 30 passenger RJs flying lower time pilots if the alternative is a collapse of the RJ system.
SKYW, as usual, is a very well run company that is taking control of its own strategic direction.
Do you know the layout on these, do they rip out five rows of seats, give everyone a nice 40′ of legroom?
Emac – Yeah, I mean, the ERJ-135 has 36″ of pitch: https://www.contourairlines.com/images/pdf/CFM_Sales_Sheet_ERJ135_Branded.pdf
I I flew on contour several months ago between Philly and Plattsburgh New York. They didn’t have 36 inches of pitch in the seats… On the plane i was on, they had just ripped out rows of seats in the front.
The seats in the back were still just as they had been before they converted it to 30 seats. They didn’t spend the money on spreading the seats out… They just pulled some out of the front.
John G – Wow, that’s a bummer. It’s not expensive to move seats around on the tracks, so I wonder why they skimped.
Weight & balance profile. The CRJ often needs aft ballast if loads are light. Use humans before adding beanbags.
CRJ pilot – Ah, we’re talking about the CRJs here. I was thinking it was the ERJ-145. Either way, that makes a ton of sense.
And also to CF…this was an ERJ-145, not a CRJ.
I do think it was for weight an balance though.
John – Interesting. So they can have the 135s spread out at 36″ pitch but not the 145s.
Seating layouts need to have an approved STC, which are expensive to acquire. I believe both ERJ layouts previously existed and so licensing their use was less. For the 145, I’m pretty sure the layout was originally for a combi mission of some sort with tie down nets in the back.
That’s the 135. On the 145, they just took out seats.
It depends. Some JSX EMB-145 have been redone to have 30 luxury seats. On Contour, they just ripped out 20 seats.
Cranky, why do you refer to this as a loophole? The DOT and FAA regulations, by design, permit exactly how JSX, Contour, and others operate. How is that a loophole? “Loophole” is ALPA hyperbole — don’t take the bait.
MNG – It’s definitely a loophole, but that doesn’t mean I agree with ALPA.
Back in the 1990s, they lowered the Part 135 limit to 9 seats, but they left this public charter workaround in place without changing that. It should have all been changed back then if they really cared about consistency. I personally don’t like any of it. They should either just raise everything to 30 seats again or they should get rid of this silly 1,500 hour rule.
Wonder what the plan will be when these ERJs and CRJs age out and are no longer worth the cost of another overhaul.
There are no 30-50 seat aircraft in production anymore. I guess they can really hope that Heart pulls through and gets the ES-30 certified and built at a reasonable cost. Wouldn’t hold my breath on that one.
That has to be the issue that keeps Chip Childs, as well as Scott Kirby up at night, but for different reasons.
The NEWEST CRJ’s still flying for United Express were delivered in 2005, though most are a year or two older than that.
One would assume those are the “good” ones with the most hours left on their airframes and the ones that went to Skywest Charter are the high-time ones.
But maybe not. Maybe Skywest took newer ones since they were going to do interior overhauls. In any case, the CRJ ended production in 2006, so there can’t be many newer ones than the ones they fly for UAX.
I wonder how that’s going to work out. It would seem there will be a whole bunch of air frames aging out before the “pilot crisis” is solved.
ATR42 for short enough routes. Otherwise have to up-gauge to an E175.
I’d so much rather fly an ERJ-135 or -45 than a CRJ-100 or -200.
I flew IRK to ORD on Contour about 4-6 months ago on the 16 seat CRJ VIP model. Whoa.! Talk about a stunner. I no longer despised the CRJ200 on that experience!
The remote hard stands (and I mean REMOTE) are a significant issue but apparently they are getting gate space in the next month or two.
Hopefully with Skywest, the interline agreements might open up as well.
With Skywest’s contracts and help, we could se a renaissance in small jet regional flying for a bit.