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Regional airlines thrive while the big boys cut back
By David Grossman, special for USA TODAY
"You're lucky you're flying today," said the gate agent as I boarded my flight while they were closing the door. "Next month this will be an express flight," meaning that the 130-seat airplane will be replaced by a much smaller regional jet with little more than half the seating capacity of the bigger jet. Instead of a large airplane with 30 or so empty seats that day, if we fast forward to the next month, the replacement aircraft would be flying full and 30 passengers would be left behind.
At airports across the country and throughout the world, this scenario is playing out over and over again as the recession takes its toll on the airline industry. In survival mode, the major network airlines are cutting capacity by grounding their 100- to 150-seat narrow-body airplanes and, in many cases, replacing them with 50- to 70-seat regional jets or turboprops flown by regional airline affiliates.
While the recession has devastated the balance sheets of most big network airlines, smaller regional airlines everywhere are often finding new opportunities as their airplanes are pressed into service on routes formerly flown by the big guys with the big jets.
As network airlines are shrinking, regional airlines have grown by at least 10% over the past decade according to the Regional Airline Association. Today, regional jets carry one in four domestic passengers and account for more than half of all U.S. departures. Regional carriers serve nearly every U.S. airport with scheduled commercial airline service and provide the only means of scheduled air transportation to 442 communities or approximately 70% of all U.S. airports with scheduled service.
In many cases flying regional jets is the only way to make money on routes where travel demand is down. While the five U.S. network airlines (Delta and Northwest now combined) posted a $4.4 billion operating loss over the past 12 months, the top 20 regional airlines collectively turned a $785 million profit with only one major regional carrier in the red (see accompanying chart).
Although matching the supply of seats more closely to actual demand often favors regional aircraft, the regional airline business model also accounts for some of the success of these smaller airlines. Some regional airlines are wholly owned subsidiaries of network airlines while others are independent companies flying for multiple network airlines. In either case, most regional jet operators are compensated based on the quantity of seats provided or the number of hours flown. That puts the risk squarely upon their customers – the network airlines — as those regional operators get paid whether their seats fly full or empty.
Beyond guaranteed revenue, regional airlines have lower operating costs than their mainline partners as the network airlines generally cover the reservations, ticketing, ground handling, marketing and many other services required by their regional airline partners. All regional airlines need do is maintain their fleets, provide airplanes to their network airline partners on request, and fly wherever they are told to go.
The ever-expanding regional jet
As regional airlines expand, so do the airplanes they fly. The first regional jets generally held less than 40 passengers, but aircraft seating capacity is on the rise. Most new regional jets hold 50, 70, 90 or even 100 passengers.
As regional jets are stretched, their utility grows as replacement aircraft for narrow-body jets on many routes, such as Delta Airlines' Northeast Shuttle operation where 76-seat Embraer regional jets have replaced many 140- to 150-seat B737 and MD80 aircraft formerly flying those routes. Downsizing to regional jets to accommodate declining travel demand allows the network airlines to maintain their frequencies while lowering costs.
As regional airlines grow, some are entering new businesses or starting ventures in uncharted territory. Phoenix-based Mesa Airlines, which flies for Delta, United and US Airways, launched "go!", a regional, low cost airline in Hawaii, which may have been at least partially responsible for the demise of Aloha Airlines. Additionally, Mesa exported its regional airline management expertise to the booming Chinese air travel market with the launch of Kunpeng Airlines, a joint venture between Mesa and Shenzhen Airlines.
Flying into the future
While regional airlines are the apparent benefactors of the economic downturn, there is still uncertainty about their future, particularly when long haul partners, like Frontier and Midwest, are struggling to stay afloat. Additionally, industry consolidation, such as the combination of Delta and Northwest, is bound to shed excess capacity as the two airlines integrate in 2010.
Perhaps this is why Indianapolis-based Republic Airlines, recently acquired Frontier and Midwest. By purchasing those longer haul airlines, which fly standard size B717 and Airbus 320 family aircraft, Republic has assured its future as a feeder carrier for both airlines (assuming Republic's management will find a way to keep those carriers in business). At this point, it is difficult to speculate if this unprecedented move will foment additional merger activity where regional airlines take control of their larger, but financially weaker, mainline affiliates.
While regional jets are already stretched to accommodate up to 100 passengers, regional aircraft manufacturer Bombardier is currently developing its new C Series aircraft which will take regional jets to new heights with a 150-seat airplane projected to be 20% more fuel efficient than a similar sized craft today. With a range of almost 3,000 nautical miles and many airlines already adding first class cabins to their regional fleets, the new C Series is bound to blur the lines between mainline and regional airlines and compete directly with Airbus and Boeing narrow-body aircraft when it enters operation in 2013.
Bob Crandall, the former CEO of American Airlines, once said that the most profitable part of his airline was the computerized reservations system used by travel agents. If Crandall was at the helm of American today, he would surely say that his regional airline, American Eagle is the most profitable part of the airline. If good times for regional operators persist and newer jets get larger and capable of flying longer distances, we may one day find ourselves aboard regional jets for all domestic travel.
http://www.usatoday.com/travel/columnist/grossman/2009-11-03-regional-airlines_N.htm
By David Grossman, special for USA TODAY
"You're lucky you're flying today," said the gate agent as I boarded my flight while they were closing the door. "Next month this will be an express flight," meaning that the 130-seat airplane will be replaced by a much smaller regional jet with little more than half the seating capacity of the bigger jet. Instead of a large airplane with 30 or so empty seats that day, if we fast forward to the next month, the replacement aircraft would be flying full and 30 passengers would be left behind.
At airports across the country and throughout the world, this scenario is playing out over and over again as the recession takes its toll on the airline industry. In survival mode, the major network airlines are cutting capacity by grounding their 100- to 150-seat narrow-body airplanes and, in many cases, replacing them with 50- to 70-seat regional jets or turboprops flown by regional airline affiliates.
While the recession has devastated the balance sheets of most big network airlines, smaller regional airlines everywhere are often finding new opportunities as their airplanes are pressed into service on routes formerly flown by the big guys with the big jets.
As network airlines are shrinking, regional airlines have grown by at least 10% over the past decade according to the Regional Airline Association. Today, regional jets carry one in four domestic passengers and account for more than half of all U.S. departures. Regional carriers serve nearly every U.S. airport with scheduled commercial airline service and provide the only means of scheduled air transportation to 442 communities or approximately 70% of all U.S. airports with scheduled service.
In many cases flying regional jets is the only way to make money on routes where travel demand is down. While the five U.S. network airlines (Delta and Northwest now combined) posted a $4.4 billion operating loss over the past 12 months, the top 20 regional airlines collectively turned a $785 million profit with only one major regional carrier in the red (see accompanying chart).
Although matching the supply of seats more closely to actual demand often favors regional aircraft, the regional airline business model also accounts for some of the success of these smaller airlines. Some regional airlines are wholly owned subsidiaries of network airlines while others are independent companies flying for multiple network airlines. In either case, most regional jet operators are compensated based on the quantity of seats provided or the number of hours flown. That puts the risk squarely upon their customers – the network airlines — as those regional operators get paid whether their seats fly full or empty.
Beyond guaranteed revenue, regional airlines have lower operating costs than their mainline partners as the network airlines generally cover the reservations, ticketing, ground handling, marketing and many other services required by their regional airline partners. All regional airlines need do is maintain their fleets, provide airplanes to their network airline partners on request, and fly wherever they are told to go.
The ever-expanding regional jet
As regional airlines expand, so do the airplanes they fly. The first regional jets generally held less than 40 passengers, but aircraft seating capacity is on the rise. Most new regional jets hold 50, 70, 90 or even 100 passengers.
As regional jets are stretched, their utility grows as replacement aircraft for narrow-body jets on many routes, such as Delta Airlines' Northeast Shuttle operation where 76-seat Embraer regional jets have replaced many 140- to 150-seat B737 and MD80 aircraft formerly flying those routes. Downsizing to regional jets to accommodate declining travel demand allows the network airlines to maintain their frequencies while lowering costs.
As regional airlines grow, some are entering new businesses or starting ventures in uncharted territory. Phoenix-based Mesa Airlines, which flies for Delta, United and US Airways, launched "go!", a regional, low cost airline in Hawaii, which may have been at least partially responsible for the demise of Aloha Airlines. Additionally, Mesa exported its regional airline management expertise to the booming Chinese air travel market with the launch of Kunpeng Airlines, a joint venture between Mesa and Shenzhen Airlines.
Flying into the future
While regional airlines are the apparent benefactors of the economic downturn, there is still uncertainty about their future, particularly when long haul partners, like Frontier and Midwest, are struggling to stay afloat. Additionally, industry consolidation, such as the combination of Delta and Northwest, is bound to shed excess capacity as the two airlines integrate in 2010.
Perhaps this is why Indianapolis-based Republic Airlines, recently acquired Frontier and Midwest. By purchasing those longer haul airlines, which fly standard size B717 and Airbus 320 family aircraft, Republic has assured its future as a feeder carrier for both airlines (assuming Republic's management will find a way to keep those carriers in business). At this point, it is difficult to speculate if this unprecedented move will foment additional merger activity where regional airlines take control of their larger, but financially weaker, mainline affiliates.
While regional jets are already stretched to accommodate up to 100 passengers, regional aircraft manufacturer Bombardier is currently developing its new C Series aircraft which will take regional jets to new heights with a 150-seat airplane projected to be 20% more fuel efficient than a similar sized craft today. With a range of almost 3,000 nautical miles and many airlines already adding first class cabins to their regional fleets, the new C Series is bound to blur the lines between mainline and regional airlines and compete directly with Airbus and Boeing narrow-body aircraft when it enters operation in 2013.
Bob Crandall, the former CEO of American Airlines, once said that the most profitable part of his airline was the computerized reservations system used by travel agents. If Crandall was at the helm of American today, he would surely say that his regional airline, American Eagle is the most profitable part of the airline. If good times for regional operators persist and newer jets get larger and capable of flying longer distances, we may one day find ourselves aboard regional jets for all domestic travel.
http://www.usatoday.com/travel/columnist/grossman/2009-11-03-regional-airlines_N.htm
