A300Capt
Freight Dawg
Too many RJ\'s?
Finding the right fit
Smaller jets lift profits, but have airlines overindulged?
09:19 AM CDT on Saturday, June 5, 2004
By ERIC TORBENSON / The Dallas Morning News
A decade ago, the 50-seat regional jet started an industry revolution.
Faster than the noisy turboprop planes they replaced, regional jets allowed
airlines to profitably serve markets they couldn't touch before.
Major airlines fly about 800 50-seat regional jets today, or about a third
of all their planes. More are coming each month.
New discount carrier Independence Air has staked its identity around a fleet
of 87 50-seaters, dubbing them "I-jets."
"They're great aircraft, and they're capable of handling the range of flying
for most of the markets we want to serve," said Lisa Bailey, a spokeswoman
for the AMR Corp.'s American Eagle unit.
But some analysts and consultants are starting to ask whether domestic
carriers have indulged in too much of a good thing.
"It can be a long haul in a small tube," said Stuart Klaskin, an aviation
consultant with Klaskin Kushner & Co. in Miami, a self-described "big guy."
Part of the problem is how major carriers have used the 50-seaters.
Fliers in small towns who were accustomed to traveling in turboprops
welcomed the sleek-looking jets that replaced them.
But lately, major airlines have substituted 70-seat and 50-seat regional
jets for larger planes serving big markets.
Some say their welcome has been worn out.
"They're like the antibiotics of the airline industry," Mr. Klaskin said.
"They're good for its economic health, but they've been dangerously
overprescribed. And passengers have developed an immunity to them, to some
degree."
No resale value?
For the most part, regional jets have been flown by regional affiliate
airlines. American Eagle, for example, provides feeder service for Fort
Worth-based American Airlines Inc. Its 50-seat jets are Eagle's most
profitable planes.
Independence Air, meanwhile, represents the reinvention of Atlantic Coast
Airlines, which was unable to renegotiate an existing agreement to fly
regional jets for United Airlines Inc. It launches June 16 from Washington
Dulles International Airport.
"ACA has the right idea because they know there's no future in flying
50-seaters for United," said Michael Boyd, an aviation consultant in
Evergreen, Colo.
Once the darling of fleet planners everywhere, 50-seat regional jets face an
uncertain future as assets for airlines, said Mr. Boyd, who thinks major
carriers have bought far too many of the planes.
"There's not going to be any aftermarket for 50-seaters in a few years," he
predicted. "They're not going to be able to sell them."
In a sign of the glut of 50-seaters, Mr. Boyd said, United had no problem
immediately replacing the 87 planes that will now fly the Independence
livery with other aircraft from other regional carriers hungry for business.
As with any start-up airline, Independence Air faces steep odds to stay
aloft for long, analysts said.
New math
Part of the challenge, analysts say, is that the math behind the regional
jet business has changed.
The regional jet, built primarily by Bombardier Inc. of Canada and Embraer
of Brazil, gave airlines a new way to serve "thin" markets that didn't have
enough people to profitably fill standard jets with 120 or more seats.
What's different is the same issue that bedevils airlines on virtually every
front: Travelers aren't willing to pay as much to fly as they did in the
mid- to late 1990s, said Bob Mann, an industry consultant.
Airlines make most of their money from business travelers who may pay up to
four or five times more on the same flights than vacationers who book
further in advance. It's those business fares that carriers crave.
Until recently, airlines have relied on smaller regional jets to boost
average fares on a flight.
For example, if a flight has 30 passengers paying higher fares, that would
account for 25 percent of the seats on a 120-seat plane, but 60 percent of t
hose on a 50-seater.
The problem is that with far fewer business fliers paying top dollar, it's
harder for an airline to fill a regional jet with high-fare passengers.
Some discounters have already stepped back from relying on regional jets.
Orlando-based AirTran Airways Corp. quietly ended its regional jet
partnerships this year. Officials at America West Airlines have said they
have too many regional jets.
At the big network carriers, many travelers are reluctant to shell out a
four-figure fare for what can be a cramped flight without a first-class
cabin.
Mr. Boyd half-jokingly says flying in a regional jet for three hours is a
"recipe for DVT" – deep vein thrombosis, in which blood clots form due to
tight conditions. Few trips on regional jets are very long, but the average
flight time has been increasing.
Also, without the higher fares, smaller jets can't overcome the higher costs
borne from having fewer seats than mainline jets.
The fare meltdown especially hurts the economics of high-cost 50-seaters.
Independence Air faces the daunting prospect of flying at a cost of 16 cents
per seat mile, while earning only about 10 cents, analysts say. A seat mile,
a standard industry measure, represents one seat flown one mile.
Key market
Independence Air is expected to burn through cash for quite some time. The
upstart carrier's salvation may come when the first of its 27 Airbus A319s
arrive this fall. Those planes will have lower per-seat costs because
they'll have 130 seats instead of 50.
The carrier intends to fly them initially to the West Coast. As more of the
Airbus jets arrive, Independence will consider Houston and Dallas/Fort Worth
as destinations, said Rick DeLisi, an airline spokesman.
"We definitely expect that Texas and the upper Midwest are possibilities for
us," he said.
Although regional jets may have lost some allure with high-dollar fliers,
they're still the best solution for serving smaller cities.
Airlines continue to receive new jets every month. Most large hubs wouldn't
work without the stream of passengers from regional jets.
Research from Citigroup's Smith Barney unit shows that regional jets will
account for nearly three-quarters of the fleets of both Continental Airlines
Inc. and Delta Air Lines Inc. by 2005 and 59 percent of United's.
At struggling US Airways Corp., regional jets are seen as the centerpiece of
a turnaround effort, as the carrier struggles to fight off low-fare
competitors such as Dallas-based Southwest Airlines Co.
Delta depends on regional jets more than any other traditional carrier. It
reconfigured nearly all its hub airports, including its 180-flight-per-day
hub at Dallas/Fort Worth International Airport.
The small jets have replaced most of Delta's large planes serving D/FW. By
offering more flights a day on regional jets, Delta aims to attract
high-dollar business travelers.
Delta executives say they're encouraged by the changes at D/FW, but they're
not finished tinkering.
Some expect Delta to dump the hub as it rethinks its business plan in an
attempt to avoid bankruptcy.
"We've improved our financial performance compared to what it was before,
but we still have some work to do at D/FW," said Peggy Estes, a Delta
spokeswoman.
American Eagle has been expanding its schedule, mostly using regional jets,
by at least 20 percent annually. Its fleet of 158 regional jets continues to
grow as AMR tries to catch up to Delta and others in deploying the planes.
American officials concede they trail competitors in using regional jets to
boost their hubs, accounting for just 34 percent of AMR's total aircraft
fleet this year, according to Smith Barney.
Eagle uses regional jets for other types of routes, including its shuttle
service from New York's LaGuardia Airport to Boston and to Washington, D.C.
Eagle executives say they like the results.
It remains unclear whether AMR will follow the lead of Continental and
Northwest Airlines Inc., both of which have sold their respective regional
carriers and banked hundreds of millions from the sales.
"I don't know why they don't spin off Eagle," Mr. Boyd said.
AMR chairman and chief executive Gerard Arpey said in an April interview
that the company continues to weigh the merits of a possible spin-off but
that it also sees benefits to keeping Eagle under its wing.
Positive attitude
At Independence Air, the carrier is determined to make it with 50-seaters,
Mr. DeLisi said.
The airline won't fly any of its small jets more than two hours, and most of
its flights will average just over an hour from its Dulles hub.
Independence will emphasize frequent flights on its routes to allow business
fliers to get to a city and come back home the same day. The airline is
installing brand-new interiors with leather seats.
"We did a lot of research asking customers about the plane, and though some
did share that they didn't like it as well as others, we saw some
surprisingly positive impressions of the plane in a lot of our markets," Mr.
DeLisi said.
"Our feeling is that as long as the interior of the plane is comfortable and
the service is excellent, we're going to do well."
Finding the right fit
Smaller jets lift profits, but have airlines overindulged?
09:19 AM CDT on Saturday, June 5, 2004
By ERIC TORBENSON / The Dallas Morning News
A decade ago, the 50-seat regional jet started an industry revolution.
Faster than the noisy turboprop planes they replaced, regional jets allowed
airlines to profitably serve markets they couldn't touch before.
Major airlines fly about 800 50-seat regional jets today, or about a third
of all their planes. More are coming each month.
New discount carrier Independence Air has staked its identity around a fleet
of 87 50-seaters, dubbing them "I-jets."
"They're great aircraft, and they're capable of handling the range of flying
for most of the markets we want to serve," said Lisa Bailey, a spokeswoman
for the AMR Corp.'s American Eagle unit.
But some analysts and consultants are starting to ask whether domestic
carriers have indulged in too much of a good thing.
"It can be a long haul in a small tube," said Stuart Klaskin, an aviation
consultant with Klaskin Kushner & Co. in Miami, a self-described "big guy."
Part of the problem is how major carriers have used the 50-seaters.
Fliers in small towns who were accustomed to traveling in turboprops
welcomed the sleek-looking jets that replaced them.
But lately, major airlines have substituted 70-seat and 50-seat regional
jets for larger planes serving big markets.
Some say their welcome has been worn out.
"They're like the antibiotics of the airline industry," Mr. Klaskin said.
"They're good for its economic health, but they've been dangerously
overprescribed. And passengers have developed an immunity to them, to some
degree."
No resale value?
For the most part, regional jets have been flown by regional affiliate
airlines. American Eagle, for example, provides feeder service for Fort
Worth-based American Airlines Inc. Its 50-seat jets are Eagle's most
profitable planes.
Independence Air, meanwhile, represents the reinvention of Atlantic Coast
Airlines, which was unable to renegotiate an existing agreement to fly
regional jets for United Airlines Inc. It launches June 16 from Washington
Dulles International Airport.
"ACA has the right idea because they know there's no future in flying
50-seaters for United," said Michael Boyd, an aviation consultant in
Evergreen, Colo.
Once the darling of fleet planners everywhere, 50-seat regional jets face an
uncertain future as assets for airlines, said Mr. Boyd, who thinks major
carriers have bought far too many of the planes.
"There's not going to be any aftermarket for 50-seaters in a few years," he
predicted. "They're not going to be able to sell them."
In a sign of the glut of 50-seaters, Mr. Boyd said, United had no problem
immediately replacing the 87 planes that will now fly the Independence
livery with other aircraft from other regional carriers hungry for business.
As with any start-up airline, Independence Air faces steep odds to stay
aloft for long, analysts said.
New math
Part of the challenge, analysts say, is that the math behind the regional
jet business has changed.
The regional jet, built primarily by Bombardier Inc. of Canada and Embraer
of Brazil, gave airlines a new way to serve "thin" markets that didn't have
enough people to profitably fill standard jets with 120 or more seats.
What's different is the same issue that bedevils airlines on virtually every
front: Travelers aren't willing to pay as much to fly as they did in the
mid- to late 1990s, said Bob Mann, an industry consultant.
Airlines make most of their money from business travelers who may pay up to
four or five times more on the same flights than vacationers who book
further in advance. It's those business fares that carriers crave.
Until recently, airlines have relied on smaller regional jets to boost
average fares on a flight.
For example, if a flight has 30 passengers paying higher fares, that would
account for 25 percent of the seats on a 120-seat plane, but 60 percent of t
hose on a 50-seater.
The problem is that with far fewer business fliers paying top dollar, it's
harder for an airline to fill a regional jet with high-fare passengers.
Some discounters have already stepped back from relying on regional jets.
Orlando-based AirTran Airways Corp. quietly ended its regional jet
partnerships this year. Officials at America West Airlines have said they
have too many regional jets.
At the big network carriers, many travelers are reluctant to shell out a
four-figure fare for what can be a cramped flight without a first-class
cabin.
Mr. Boyd half-jokingly says flying in a regional jet for three hours is a
"recipe for DVT" – deep vein thrombosis, in which blood clots form due to
tight conditions. Few trips on regional jets are very long, but the average
flight time has been increasing.
Also, without the higher fares, smaller jets can't overcome the higher costs
borne from having fewer seats than mainline jets.
The fare meltdown especially hurts the economics of high-cost 50-seaters.
Independence Air faces the daunting prospect of flying at a cost of 16 cents
per seat mile, while earning only about 10 cents, analysts say. A seat mile,
a standard industry measure, represents one seat flown one mile.
Key market
Independence Air is expected to burn through cash for quite some time. The
upstart carrier's salvation may come when the first of its 27 Airbus A319s
arrive this fall. Those planes will have lower per-seat costs because
they'll have 130 seats instead of 50.
The carrier intends to fly them initially to the West Coast. As more of the
Airbus jets arrive, Independence will consider Houston and Dallas/Fort Worth
as destinations, said Rick DeLisi, an airline spokesman.
"We definitely expect that Texas and the upper Midwest are possibilities for
us," he said.
Although regional jets may have lost some allure with high-dollar fliers,
they're still the best solution for serving smaller cities.
Airlines continue to receive new jets every month. Most large hubs wouldn't
work without the stream of passengers from regional jets.
Research from Citigroup's Smith Barney unit shows that regional jets will
account for nearly three-quarters of the fleets of both Continental Airlines
Inc. and Delta Air Lines Inc. by 2005 and 59 percent of United's.
At struggling US Airways Corp., regional jets are seen as the centerpiece of
a turnaround effort, as the carrier struggles to fight off low-fare
competitors such as Dallas-based Southwest Airlines Co.
Delta depends on regional jets more than any other traditional carrier. It
reconfigured nearly all its hub airports, including its 180-flight-per-day
hub at Dallas/Fort Worth International Airport.
The small jets have replaced most of Delta's large planes serving D/FW. By
offering more flights a day on regional jets, Delta aims to attract
high-dollar business travelers.
Delta executives say they're encouraged by the changes at D/FW, but they're
not finished tinkering.
Some expect Delta to dump the hub as it rethinks its business plan in an
attempt to avoid bankruptcy.
"We've improved our financial performance compared to what it was before,
but we still have some work to do at D/FW," said Peggy Estes, a Delta
spokeswoman.
American Eagle has been expanding its schedule, mostly using regional jets,
by at least 20 percent annually. Its fleet of 158 regional jets continues to
grow as AMR tries to catch up to Delta and others in deploying the planes.
American officials concede they trail competitors in using regional jets to
boost their hubs, accounting for just 34 percent of AMR's total aircraft
fleet this year, according to Smith Barney.
Eagle uses regional jets for other types of routes, including its shuttle
service from New York's LaGuardia Airport to Boston and to Washington, D.C.
Eagle executives say they like the results.
It remains unclear whether AMR will follow the lead of Continental and
Northwest Airlines Inc., both of which have sold their respective regional
carriers and banked hundreds of millions from the sales.
"I don't know why they don't spin off Eagle," Mr. Boyd said.
AMR chairman and chief executive Gerard Arpey said in an April interview
that the company continues to weigh the merits of a possible spin-off but
that it also sees benefits to keeping Eagle under its wing.
Positive attitude
At Independence Air, the carrier is determined to make it with 50-seaters,
Mr. DeLisi said.
The airline won't fly any of its small jets more than two hours, and most of
its flights will average just over an hour from its Dulles hub.
Independence will emphasize frequent flights on its routes to allow business
fliers to get to a city and come back home the same day. The airline is
installing brand-new interiors with leather seats.
"We did a lot of research asking customers about the plane, and though some
did share that they didn't like it as well as others, we saw some
surprisingly positive impressions of the plane in a lot of our markets," Mr.
DeLisi said.
"Our feeling is that as long as the interior of the plane is comfortable and
the service is excellent, we're going to do well."
