Air Transport World

'Vendors competing against other vendors'.(regional airlines)

REGIONAL AIRLINES IN the US have been forced to find new resiliency as they respond to mainline carriers' increasing demands for lower costs. No longer partners in the traditional sense of the word, they have become interchangeable suppliers of commodity lift to the legacy airlines under the fee-for-departure arrangements that reshaped the industry in the 1990s.

"These guys are vendors competing against other vendors," says Doug Abbey, an analyst with The Velocity Group, while one regional airline CEO describes the current climate as "hypercompetitive."

The new reality is quite different from the one experienced in the first five years of the 21st century when business was booming and robust orders for regional jets or fleet restructuring were de rigueur. Faced with the collapse in yield after the dot.com meltdown and 9/11, mainline carriers downsized and transferred marginal routes to regionals under generous fee-for-departure arrangements that insulated the latter from many of the vagaries of the business. Bankrupt legacies squeezed scope clause concessions from pilot unions that made it possible for regionals to order and operate larger RJs. They enjoyed 10% profit margins as their major partners were losing hundreds of millions of dollars.

According to FAA's 2007 Aerospace Forecast, regional airline domestic capacity grew at an average annual rate of 15.8% between FY00 and FY06, from 38.3 billion ASMs to an estimated 92.5 billion for the year ended Sept. 30, 2006, while mainline capacity fell 5.9% (an average of 1% per year) to 657.7 billion ASMs from 688.3 billion over the same period.

Even this rapid pace, however, could not keep up with traffic demand, which climbed at an average rate of 20.1% per year, according to FAA, pushing average regional load factors from 59.5% in FY00 to an estimated 74.1% in FY06 (mainline domestic RPMs lifted just 0.8% per year during the period). Between those years, the regional share of US domestic capacity jumped from 5% to an estimated 12.5% and the regional fleet rose from 2,274 units to 2,743, propelled by a more than threefold increase in 40-seat-and-larger RJs from 496 units to 1,591.

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But Chapter 11 cut both ways, and it was not too long before the mainline carriers began to use it as a club to beat down fee-for-departure payments and pit regional against regional for the opportunity to repaint their fleets and take on the major's two-letter code. …

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