The following is from the Boyd Group, who over ten years ago predicted the RJ revolution:
Timely Quote:
"The 50-seat jet has likely peaked and is probably in decline..."
Steve Ridolfi, President of Regional Aircraft, Bombardier. Aviation Daily, 6/19/03
Bank on it. And watch for the usual suspects of Washington "analysts" to begin parroting this bit of wisdom that until now they treated as total heresy. Now that it's obvious even to Bombardier, they'll do a 180 and begin "predicting" a slowing of orders for 50-seat jets
The Regional Jet Glut?
Join Us In Nashville, Oct. 5-7 And Find Out
Speaking of Trans-States, the 25 (or more) 50-seat jets they're moving into United colors are said to be replacing CRJs now operated by Atlantic Coast, an SJP (small jet provider) that has not been successful yet in re-negotiating an Express agreement with United. That means there's a possibility that over the next year ACA could have 25 jets sitting idle on a ramp somewhere. There's a message here - the US fleet of <51 seat jets may be reaching market saturation sooner than expected.
The cold fact is that the number of RJs that the US transportation system can economically use is finite, as is the case with any aircraft category. The pull-down of AA at STL will affect that number. Looking at the dance cards of the mega-carrier systems, it's beginning to appear that with the existing fleet and the existing firm orders (forget options), the ultimate demand for RJ's may have been already reached. It's even possible that in the next 18 months we could see some RJ's sunning themselves in the desert.
This tends to track with the fleet forecasts accomplished by The Boyd Group over the past three years. The US fleet mix is changing a lot faster than the rearview mirror analysts are expecting. They've just noticed the emergence of the E-Jet (70-110 seat) category, but only after a couple of large orders splashed across the headlines. They're just noticing the dramatic fall-off in RJ orders. We'd note, however, that the aviation leaders who have attended our annual Aviation Forecast Conferences, were aware of these trends well before they ever appeared on the horizon.
Bottom line: our fleet forecasts very clearly point to a major shift away from <51 seat jets later in the decade. And, it also predicts a range of other trends which are total anathema to the in-crowd aviation consultant cognoscenti, who get their information from the DOT and from the "consensus." A Ouija Board would be more accurate.
Fleet Trend Predictions
Last year we predicted that 727s would become as rare as a shark attack in Nebraska. By mid-2003, they will almost all be retired from passenger service in the US. Beyond that, the hottest properties in 2003 will be desert parking space for a whole passel of MD-80s, 737-300/500s, 747-400s, and an occasional just-off-the-line new aircraft waiting for a deferred delivery.
Regional jet <51 seats – there could be some knee-jerk orders that will be regretted within 18 months. As noted above, there is a limited niche for these aircraft, and their economics are pretty tight. It is believed that United is putting the full court press on their current and potential small jet providers to buy several hundred more 50-seaters for UAX applications in replacing mainline flying. Big time risk for the SJPs.
Watch for strong interest in the Embraer 170/190 series by the end of 2003, both domestically and from non-US carriers. These are essentially mini-737s. Ergonomics are more compatible with larger jets than are commuter-cabin 50-seaters, and it appears their economics are likely to be far better for 737-type replacement. This, unfortunately, does not apply to the 70 and 86-seat CRJ aircraft. They have most of the same cabin limitations (an hence, less service transparency with larger jets) as do the 50-seat CRJs.
Major Trend: Emergence SJPs As An Industry Force
One of the most visible areas of change this year will be the extent to which mega-carriers restructure their route systems.
As part of that process, there will be much in the media about "regional jets" and "regional airlines" and the role they will play. In both cases, the term "regional" is out of date. The small jets are anything but "regional" in application. And the entities that operate them have in most cases long since ceased being anything vaguely close to what is implied by the term "regional airlines."
So, let’s start with this: There is no "regional airline industry." It’s gone. There simply is no longer a definable segment of the airline industry that is focused on serving small airports. It disappeared long ago.
In fact, there are very few "regional airlines" left. What we have today is an industry that has evolved into the real growth area of aviation: Small Jet Providers, or, SJPs for short.
In a 1986 published white paper that was presented to the President’s Council of the Regional Airline Association, we made some predictions about what the newly-approved practice of code-sharing would bring. At the time, a lot of regional airline presidents were enamored with the idea of painting their ratty Beech-99s in Eastern’s colors (or whoever.) Not to mention the vast prestige of getting a C1-R pass card that gave them – like, wow - positive space travel on the big guy. Hey, some reasoned, just how bad can code-sharing be?
It depended entirely on the whim and strategic direction of the major partner. Actually, "partner" was not an accurate term for the smaller airline. "Captive" would be more appropriate, we suggested, back in 1986. The white paper cautioned the regional airline natives against becoming distracted by such shiny objects offered by the big guys from afar.
We pointed out – correctly - that the code-sharing agreement was essentially a quit-claim deed giving the regional’s route system and its independence to the major partner. Once done, there was no going back. Depending on the major partner and its future, the deal could work well, or work really, really badly. The regional’s former routes were now operated in the major’s name and identity. If the major wanted to dump the regional and pick up another, there was no place to go, as carriers such as Rio, Royale, and Trans-Colorado (among others) eventually discovered.
In the long term, we predicted, the system would evolve from dual "regional and major" route systems into a single one directed and dominated by the major, with the "regional" merely providing lift where the major dictated. And while code-sharing has had benefits, the downside is that it eliminated the independence – and the future potential expansion – of a host of potential new competitors
And that’s exactly where we are today. Big, (and well-run, by the way) entities such as Skywest, Mesa, and Chautauqua, among others, are really no longer "airlines" in the traditional sense. They have limited, if any, route systems of their own. Many don’t have much in the way of traditional airline marketing and product infrastructure, like reservations systems, revenue accounting, even pricing and ticket stock. Except in a very few markets, a consumer cannot even book a seat on one of these entities. That’s because they’re no longer direct sellers to the public.
These companies are not in the business of competing for passengers, per se. Today, what were once independent regional airlines have by-and-large evolved into the business of selling lift to major airlines – specifically small jet lift (and, to a declining degree, turboprop lift as well.) The major pays for it, decides where it will operate, and does most of the scheduling. Therefore, they are not "airlines" but instead are part of a new segment of the airline industry - vendors of capacity and lift to major carrier systems. These include independently-owned and internally-owned SJPs, like American Eagle.
Going forward, it is important to recognize this distinction. It represents an entirely different industry, with different dynamics, a different product cycle, and most importantly – a different customer base. As independent airlines, the customer was the flying public. Today, the immediate customers are the major airline systems to which these companies sell lift. Events affecting major airlines will affect these SJPs just as surely as shifts in demand for PCs affect suppliers of memory chips.
With this background established, we can suggest the following trends to watch in 2003:
Watch For: Pull-Backs In Small Airport Service
Small to mid-size airports are facing a tough year. As turboprops are replaced and small jets are re-deployed into mainline markets, losses of air service are inevitable at a number of smaller airports.
Plan on seeing mega-carriers continuing to shift SJP lift over the next 12 months out of thin markets and into replacement of mainline aircraft on what have been traditionally mainline, large-jet markets.
In that process, several airports may be squeezed out of the scheduled air transportation system. Forget wide-scale replacement of these RJs with turboprops. Consumers are increasingly turboprop-averse, and mega-carriers are having their SJPs retire them.
As we’ve said before, the economics of 50-seat jets are not well-suited to small community service. Those unfortunate communities who coughed up money for that ridiculous "Proposition RJ" boondoggle of a few years back might want to ask for their money back.
Prediction: Increasing Consumer Resistance to Small Jets.
You betcha. Resistance.
That’s because from an ergonomic standpoint, these are not aircraft well suited to long-haul passenger service. There’s a limit to human endurance – try nesting yourself in a window seat for nearly three hours (enplanement to deplanement) on a CRJ next to a woman of substance on her way to a Jenny Craig convention. It's an experience not to forget.
So by all means, therefore, do forget the less-than-a-centimeter-in-depth media stories about how much passengers just love regional jets. This is not to say that small jets are not fine machines, only that they do have cabin and seat size issues that come to bear on increasingly-longer stage lengths.
Nevertheless, going forward in 2003, the applications of small jets will continue to be focused in large part on down-gauging from 737 and similar airliners. And that means material shifts in cabin comfort that will have a consumer backlash. Take it to the bank.
Example: That Delta customer who finds he must ground-level board an RJ in DFW to fly to Denver may well re-think his level of brand-loyalty. Again we emphasize that this is not to say that <51 seat jets (as well as the longer-fuselage Canadair 70 & 86 seaters) are not fine aircraft. But they have ergonomic limitations for longer haul applications, and/or in competitive markets where the alternative larger jets could be a deciding factor in airline choice. They have cabins with nonstandard overhead storage, and less passenger room than the 737s they may be replacing on markets that entail an in-cabin experience, boarding to deplaning, of two to three hours.
Prediction: Year 2003: Mixed Success In SJP Missions.
But successful application of these small "RJs" will depend on time-and-place considerations. Therefore, write this down, the expanded use of SJPs by major carriers will have very disparate results in 2003. Some successful. Some much less so.
The American Airlines experiment running Embraers on a DCA-LGA-BOS shuttle would appear at first blush to be lunacy, especially when the competition is operating very roomy 737NGs and A-320s. But when the specific market is considered – huge concentrations of populations containing tens of thousands of AAdvantage members, the concept of snaring 15 or 16 of them per flight who are eager to pay Jolly-Roger fares to Boston represents not only a strong potential, but also a miniscule part of the market where AA can make a buck and retain brand loyalty.
Besides, these East Coast shuttle markets tend to have passengers who’ll put up with untold amounts of human misery, as anybody who remembers the Eastern Shuttle can testify.
But it’s unclear how many such mission applications may be out there. Let’s go back to the Delta decision to replace its DFW-DEN service with RJs. To be sure, the concept is to reduce sector costs and retain the premium-fare customers. That sounds great, but let’s remember that the premium fare customer might demand more than a product that makes him leave his "carry-on" under the wing, then sit in a tight seat with no earthly chance of using a laptop unless it’s surgically pre-attached to his solar plexus.
DFW-DEN, like most markets, is not a strong out-and-back shuttle market like LGA-BOS. This Delta RJ product competes with United with its Economy-Plus seating, American, with its entire-coach extra legroom, and Frontier, with its low walk-up fares and inflight service that’s a throwback to the 1950s when flight attendants actually cared about passengers. Tough competition for that premium passenger.
Then take the Delta-loyal premium passenger in Austin, where that weekly trip to Denver now entails not one, but two Encounters-Of-The-RJ-Kind, with a DFW connection. That low-fare Frontier AUS-DEN nonstop starts to look a whole lot better.
Another issue is that these small jets, (again, while fine airplanes) have relatively high per-seat costs, and by virtue of their size, have limitations in being able to feed the hub-beast.
Summary Prediction: Some re-thinking of how small "RJs" are used by the end of 2003.
Timely Quote:
"The 50-seat jet has likely peaked and is probably in decline..."
Steve Ridolfi, President of Regional Aircraft, Bombardier. Aviation Daily, 6/19/03
Bank on it. And watch for the usual suspects of Washington "analysts" to begin parroting this bit of wisdom that until now they treated as total heresy. Now that it's obvious even to Bombardier, they'll do a 180 and begin "predicting" a slowing of orders for 50-seat jets
The Regional Jet Glut?
Join Us In Nashville, Oct. 5-7 And Find Out
Speaking of Trans-States, the 25 (or more) 50-seat jets they're moving into United colors are said to be replacing CRJs now operated by Atlantic Coast, an SJP (small jet provider) that has not been successful yet in re-negotiating an Express agreement with United. That means there's a possibility that over the next year ACA could have 25 jets sitting idle on a ramp somewhere. There's a message here - the US fleet of <51 seat jets may be reaching market saturation sooner than expected.
The cold fact is that the number of RJs that the US transportation system can economically use is finite, as is the case with any aircraft category. The pull-down of AA at STL will affect that number. Looking at the dance cards of the mega-carrier systems, it's beginning to appear that with the existing fleet and the existing firm orders (forget options), the ultimate demand for RJ's may have been already reached. It's even possible that in the next 18 months we could see some RJ's sunning themselves in the desert.
This tends to track with the fleet forecasts accomplished by The Boyd Group over the past three years. The US fleet mix is changing a lot faster than the rearview mirror analysts are expecting. They've just noticed the emergence of the E-Jet (70-110 seat) category, but only after a couple of large orders splashed across the headlines. They're just noticing the dramatic fall-off in RJ orders. We'd note, however, that the aviation leaders who have attended our annual Aviation Forecast Conferences, were aware of these trends well before they ever appeared on the horizon.
Bottom line: our fleet forecasts very clearly point to a major shift away from <51 seat jets later in the decade. And, it also predicts a range of other trends which are total anathema to the in-crowd aviation consultant cognoscenti, who get their information from the DOT and from the "consensus." A Ouija Board would be more accurate.
Fleet Trend Predictions
Last year we predicted that 727s would become as rare as a shark attack in Nebraska. By mid-2003, they will almost all be retired from passenger service in the US. Beyond that, the hottest properties in 2003 will be desert parking space for a whole passel of MD-80s, 737-300/500s, 747-400s, and an occasional just-off-the-line new aircraft waiting for a deferred delivery.
Regional jet <51 seats – there could be some knee-jerk orders that will be regretted within 18 months. As noted above, there is a limited niche for these aircraft, and their economics are pretty tight. It is believed that United is putting the full court press on their current and potential small jet providers to buy several hundred more 50-seaters for UAX applications in replacing mainline flying. Big time risk for the SJPs.
Watch for strong interest in the Embraer 170/190 series by the end of 2003, both domestically and from non-US carriers. These are essentially mini-737s. Ergonomics are more compatible with larger jets than are commuter-cabin 50-seaters, and it appears their economics are likely to be far better for 737-type replacement. This, unfortunately, does not apply to the 70 and 86-seat CRJ aircraft. They have most of the same cabin limitations (an hence, less service transparency with larger jets) as do the 50-seat CRJs.
Major Trend: Emergence SJPs As An Industry Force
One of the most visible areas of change this year will be the extent to which mega-carriers restructure their route systems.
As part of that process, there will be much in the media about "regional jets" and "regional airlines" and the role they will play. In both cases, the term "regional" is out of date. The small jets are anything but "regional" in application. And the entities that operate them have in most cases long since ceased being anything vaguely close to what is implied by the term "regional airlines."
So, let’s start with this: There is no "regional airline industry." It’s gone. There simply is no longer a definable segment of the airline industry that is focused on serving small airports. It disappeared long ago.
In fact, there are very few "regional airlines" left. What we have today is an industry that has evolved into the real growth area of aviation: Small Jet Providers, or, SJPs for short.
In a 1986 published white paper that was presented to the President’s Council of the Regional Airline Association, we made some predictions about what the newly-approved practice of code-sharing would bring. At the time, a lot of regional airline presidents were enamored with the idea of painting their ratty Beech-99s in Eastern’s colors (or whoever.) Not to mention the vast prestige of getting a C1-R pass card that gave them – like, wow - positive space travel on the big guy. Hey, some reasoned, just how bad can code-sharing be?
It depended entirely on the whim and strategic direction of the major partner. Actually, "partner" was not an accurate term for the smaller airline. "Captive" would be more appropriate, we suggested, back in 1986. The white paper cautioned the regional airline natives against becoming distracted by such shiny objects offered by the big guys from afar.
We pointed out – correctly - that the code-sharing agreement was essentially a quit-claim deed giving the regional’s route system and its independence to the major partner. Once done, there was no going back. Depending on the major partner and its future, the deal could work well, or work really, really badly. The regional’s former routes were now operated in the major’s name and identity. If the major wanted to dump the regional and pick up another, there was no place to go, as carriers such as Rio, Royale, and Trans-Colorado (among others) eventually discovered.
In the long term, we predicted, the system would evolve from dual "regional and major" route systems into a single one directed and dominated by the major, with the "regional" merely providing lift where the major dictated. And while code-sharing has had benefits, the downside is that it eliminated the independence – and the future potential expansion – of a host of potential new competitors
And that’s exactly where we are today. Big, (and well-run, by the way) entities such as Skywest, Mesa, and Chautauqua, among others, are really no longer "airlines" in the traditional sense. They have limited, if any, route systems of their own. Many don’t have much in the way of traditional airline marketing and product infrastructure, like reservations systems, revenue accounting, even pricing and ticket stock. Except in a very few markets, a consumer cannot even book a seat on one of these entities. That’s because they’re no longer direct sellers to the public.
These companies are not in the business of competing for passengers, per se. Today, what were once independent regional airlines have by-and-large evolved into the business of selling lift to major airlines – specifically small jet lift (and, to a declining degree, turboprop lift as well.) The major pays for it, decides where it will operate, and does most of the scheduling. Therefore, they are not "airlines" but instead are part of a new segment of the airline industry - vendors of capacity and lift to major carrier systems. These include independently-owned and internally-owned SJPs, like American Eagle.
Going forward, it is important to recognize this distinction. It represents an entirely different industry, with different dynamics, a different product cycle, and most importantly – a different customer base. As independent airlines, the customer was the flying public. Today, the immediate customers are the major airline systems to which these companies sell lift. Events affecting major airlines will affect these SJPs just as surely as shifts in demand for PCs affect suppliers of memory chips.
With this background established, we can suggest the following trends to watch in 2003:
Watch For: Pull-Backs In Small Airport Service
Small to mid-size airports are facing a tough year. As turboprops are replaced and small jets are re-deployed into mainline markets, losses of air service are inevitable at a number of smaller airports.
Plan on seeing mega-carriers continuing to shift SJP lift over the next 12 months out of thin markets and into replacement of mainline aircraft on what have been traditionally mainline, large-jet markets.
In that process, several airports may be squeezed out of the scheduled air transportation system. Forget wide-scale replacement of these RJs with turboprops. Consumers are increasingly turboprop-averse, and mega-carriers are having their SJPs retire them.
As we’ve said before, the economics of 50-seat jets are not well-suited to small community service. Those unfortunate communities who coughed up money for that ridiculous "Proposition RJ" boondoggle of a few years back might want to ask for their money back.
Prediction: Increasing Consumer Resistance to Small Jets.
You betcha. Resistance.
That’s because from an ergonomic standpoint, these are not aircraft well suited to long-haul passenger service. There’s a limit to human endurance – try nesting yourself in a window seat for nearly three hours (enplanement to deplanement) on a CRJ next to a woman of substance on her way to a Jenny Craig convention. It's an experience not to forget.
So by all means, therefore, do forget the less-than-a-centimeter-in-depth media stories about how much passengers just love regional jets. This is not to say that small jets are not fine machines, only that they do have cabin and seat size issues that come to bear on increasingly-longer stage lengths.
Nevertheless, going forward in 2003, the applications of small jets will continue to be focused in large part on down-gauging from 737 and similar airliners. And that means material shifts in cabin comfort that will have a consumer backlash. Take it to the bank.
Example: That Delta customer who finds he must ground-level board an RJ in DFW to fly to Denver may well re-think his level of brand-loyalty. Again we emphasize that this is not to say that <51 seat jets (as well as the longer-fuselage Canadair 70 & 86 seaters) are not fine aircraft. But they have ergonomic limitations for longer haul applications, and/or in competitive markets where the alternative larger jets could be a deciding factor in airline choice. They have cabins with nonstandard overhead storage, and less passenger room than the 737s they may be replacing on markets that entail an in-cabin experience, boarding to deplaning, of two to three hours.
Prediction: Year 2003: Mixed Success In SJP Missions.
But successful application of these small "RJs" will depend on time-and-place considerations. Therefore, write this down, the expanded use of SJPs by major carriers will have very disparate results in 2003. Some successful. Some much less so.
The American Airlines experiment running Embraers on a DCA-LGA-BOS shuttle would appear at first blush to be lunacy, especially when the competition is operating very roomy 737NGs and A-320s. But when the specific market is considered – huge concentrations of populations containing tens of thousands of AAdvantage members, the concept of snaring 15 or 16 of them per flight who are eager to pay Jolly-Roger fares to Boston represents not only a strong potential, but also a miniscule part of the market where AA can make a buck and retain brand loyalty.
Besides, these East Coast shuttle markets tend to have passengers who’ll put up with untold amounts of human misery, as anybody who remembers the Eastern Shuttle can testify.
But it’s unclear how many such mission applications may be out there. Let’s go back to the Delta decision to replace its DFW-DEN service with RJs. To be sure, the concept is to reduce sector costs and retain the premium-fare customers. That sounds great, but let’s remember that the premium fare customer might demand more than a product that makes him leave his "carry-on" under the wing, then sit in a tight seat with no earthly chance of using a laptop unless it’s surgically pre-attached to his solar plexus.
DFW-DEN, like most markets, is not a strong out-and-back shuttle market like LGA-BOS. This Delta RJ product competes with United with its Economy-Plus seating, American, with its entire-coach extra legroom, and Frontier, with its low walk-up fares and inflight service that’s a throwback to the 1950s when flight attendants actually cared about passengers. Tough competition for that premium passenger.
Then take the Delta-loyal premium passenger in Austin, where that weekly trip to Denver now entails not one, but two Encounters-Of-The-RJ-Kind, with a DFW connection. That low-fare Frontier AUS-DEN nonstop starts to look a whole lot better.
Another issue is that these small jets, (again, while fine airplanes) have relatively high per-seat costs, and by virtue of their size, have limitations in being able to feed the hub-beast.
Summary Prediction: Some re-thinking of how small "RJs" are used by the end of 2003.
