Flies With The Hat On
- Mar 31, 2006
- Total Time
Analysts offer gloomy outlook for US regionals
Wednesday February 11, 2009 This year may not be a good one for regional airlines as mainline partners continue to cut capacity and seek contract concessions, analysts from Raymond James & Associates said at last week's Growth Airline Conference in New York.
"Capacity is being reduced and organic growth opportunities are limited," analyst Duane Pfennigwerth said. "Future growth could come from consolidation or a move towards more high risk opportunities."
In the past, regionals enjoyed robust growth during financial downturns when mainline partners outsourced flying to their lower-cost regional operators. In addition, major airlines in or facing bankruptcy were able to gain scope relief that allowed greater latitude in the use of regionals. Now, some legacy carriers--Delta Air Lines was cited as the most "aggressive manager of its regional suppliers"--are trying to cancel or restructure their long-term contracts with regionals unilaterally.
The CEO of one regional told ATWOnline that in years past, air service agreements were signed and "stuffed away in a drawer." Those same contracts now are being examined with a fine-tooth comb by mainline partners looking for loopholes that would enable them to restructure the deals, he said. On the positive side, some pressure is being taken off 50-seat jets because of the drop in fuel costs.
"While lower fuel costs have removed some of the urgency from regional capacity reduction efforts, we believe the sector no longer offers meaningful organic growth opportunities under its existing fixed-fee/capacity agreements for the foreseeable future," RJ analysts concluded.
by Sandra Arnoult