"Regional Airlines"? - The Cost Advantage Is Going Away. And So Are Their Fleets.

"Regional Airlines" - The Cost Advantage Is Going Away. And So Are Their Fleets.

Summary: With a declining cost advantage compared to mainline, and fleets gravitating toward mainline-cabin airliners, the logical question is where is the future for this contract segment of the industry. The segment that's still mis-labled as "regional airlines."

First, For The Media Folks Out There, The Name Is Completely Obsolete. Just to be clear, we can start with this, what are still called “regional airlines” is a category that is neither “regional” nor “airlines.” It is an anachronistic description the accuracy of which has been dead for a quarter century.

These operators, be they independently-owned, such as Mesa and SkyWest, or owned by major airlines, like Envoy and Piedmont, are not in the airline business. They lease aircraft and crews under contract to major carrier systems, who utilize them as they see fit, as with all of their aircraft, leased-in or owned.?

These Entities Aren't Calling The Market Shots. The claims by the Regional Airline Association that “X-hundred” US airports are served exclusively by “regional airlines” is pure misleading and inaccurate nonsense. They are served by major carriers, applying the appropriate sectors of their fleet - which include aircraft leased in from these "regionals," based on their own strategies, their own fares, their own schedules, with little input from the operator itself.

It wasn't SkyWest that yanked service between Kalamazoo and Chicago. It was United. In the same way, it was Delta that made the decision of drop South Bend - Detroit. We can go down the line - the "regional airline" isn't making the call as to where their aircraft are being applied.

Some History Is Instructive. Initially – until starting in the mid-1980s – there were indeed independent regional airlines, with their own geographic route systems, their own identity, their own ticket stock and fares, and their own reservations systems. And, to be clear, their own independent futures.

Then code-sharing came along, where the agreement was made that the "regional" would adopt the identity of a major airline partner. That started a process that by the end of the 1990s had simply subsumed into the fleets and operational control of the major partner the aircraft and operational resources of the “regionals."

At least that was accurate for those former "regionals" that were left. In this process, combined with changes in airline economics and competing communication channels, the majority of point-to-point regional geographic flying evaporated. The "regionals" which didn't go the code-sharing route - or were eventually culled out afterwards - mostly just went out of business.

In any case, the geographic “regional” route systems were gone. And at these operators, so were in-house market and route planning as well as control over fares and scheduling.

What were independent airlines are now basically contract lift, with the major carrier determining where these resources will be used. In concept, it's pretty much the same with the fleets they lease in from entities such as ILFC or AirLease or BOC, except it includes crews and operators with their own certificates. And in no way is it "regional." As with the rest of the major airline's operation, these airliners are used across the system, and not focused on a geographic area.

Nor even on just smaller airports. These units are often used from time to time as capacity additions to major routes as well, like DEN-PHX (United) or even LGA-ORD (Delta).

Ominously, as more 50-seat jets get retired, the replacement is the Embraer E175, which from a mission and customer cabin perspective, is essentially not much different from a lot of the applications of mainline narrow-body jets. Oh, and by the way, the E-175/195 platform is the only game in town. Or on the planet. There are no others. (For the people playing the home game, the A220 is a much larger and more mission-comprehensive airliner.)

The Labor Cost Incentive Is Going Away. One of the main drivers of having this lift contracted in he first place was that it was cheaper than having the major operate it. Labor rates at these contractors – particularly pilots – were much less.

But things have changed.

The Small Airliners Are Going Away, too.The labor cost advantage is evaporating with the implementation of new pay and much higher compensation rates at these contract carriers. That in turn tends to make current fleets of 50-seat, and even CRJ-700 airliners a lot less viable.

Here's the fleet game plan realities: The small turboprops once operated by "regionals" are gone. Now, the 50-seat jets are increasingly uneconomic due to new pilot rates, higher fuel and the fact the average age is now over 20 years. Plus, these ERJ and CRJ platforms are out of production.

In the future, the main “regional” airliner is the Embraer 175/195 platform. The point missed in most analyses is that the initial feasibility projections of this aircraft was as a replacement for smaller mainline airliners such as the DC-9-10 and F-100. (We were there, working with Embraer.)

This is the reason the seats are actually wider than on a 737, and there is sufficient overhead storage. They are not “cramped” cabins inside aircraft developed off of earlier business jets. The E-175/195 was designed from the start as an airliner. A mainline airliner.

?So, Will The Earlier Advantages of Contract Flying Still Apply? The upshot here is that, assuming there is a declining cost advantage of farming out flying to these contractors, and the airliners being flown are not “little puddle-jumpers” but instead E-Jets with mission capabilities fitting into major fleet applications – then it is a question of whether there a need for having these contractors at all.

This is not an issue to be taken likely. There are thousands of employees at the remaining contract carriers. But the writing is on the sky: the economic advantages of contracting out flying to these entities may be in severe question.

Get The Study, And the Wider Picture. Boyd Group International has accomplished a brief review, “Optimizing The Future Airline Industry Structure” chronicling the evolution of the entire regional airline history from the start of code sharing to today, and some projections for the future, including strategies airports need to consider to deal with the retirement of 50-seaters and the less-than-one-for-one replacement with E-Jets or other mainline aircraft.

We will be sending it shortly to our active clients. ?Others can order the review by clicking here and requesting a copy. The cost is $150 for non-clients.?

In any case, big changes are in the air in regard to airline fleets.

And they will affect air service access. Airports and communities need to start considering the fallout. Now.

______________________________

Vince Zecca, Ph.D

Consultant, Independent Contractor

2 年

Thank you for posting this.

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Mike, insightful as usual. Thanks for pointing out the realities of the modern airline industry.

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