Interesting Delta article......read this

[On Your Six]

Pretty simple economics. If the airfares are low due to competition - average fare is $X.00, then you need more seats at lower fares to cover your operational break even. After break even, everything else is gravy. An RJ at low fares requires more seats filled to cover costs. With aircraft like the 717 or EMB-190, their efficiency enables lower break even load factors - then every other seat filled is bonus.

Three recent examples that demonstrate the economic benefit of using 100 seaters:

1. Jet Blue selects EMB-190 for small-to-midsized markets

2. AirTran cancels 50-seater contract with Air Whiskey and elects to use its own 717s on those routes

3. ATA is in advanced negotiations with lessors to lease 717s to take advantage of small-to-midsized markets (and to take some popular Saab 340 routes - MDW- Des Moines).


The CR7 does an OK job on some of these routes because, again, you can spread the costs out better over the additional seats. However, the CR7 is very uncomfortable - especially for business travelers who have more discretionary spending power. The 717 is a lot more comfortable than the CR7. 50 seaters will continue to work well in markets untouched by the LCCs - despite the fact that they too are very uncomfortable for passengers.

 

[MedFlyer]

Pretty simple economics. If the airfares are low due to competition - average fare is $X.00, then you need more seats at lower fares to cover your operational break even. After break even, everything else is gravy. An RJ at low fares requires more seats filled to cover costs. With aircraft like the 717 or EMB-190, their efficiency enables lower break even load factors - then every other seat filled is bonus.

Three recent examples that demonstrate the economic benefit of using 100 seaters:

1. Jet Blue selects EMB-190 for small-to-midsized markets

2. AirTran cancels 50-seater contract with Air Whiskey and elects to use its own 717s on those routes

3. ATA is in advanced negotiations with lessors to lease 717s to take advantage of small-to-midsized markets (and to take some popular Saab 340 routes - MDW- Des Moines).

Unfortunately, your recent examples don't actually show any economic benefit.

JetBlue has never flown a 100 seater and we have no idea if they will be successful doing so.

Airtran has struggled in many smaller markets using the 717. Take a look at ICT (a market that is being converted back to 717's) where Airtran is requiring $2.5 million in subsidies in order to keep service going. If the 717 was working so well, why the subsidies? In GPT, the only reason the 717 works is because the casinos subsidize it. If not for that, Airtran would be gone. In TLH, the conversion from CRJ's to 717's means that Airtran will only fly TLH-ATL 2x daily. TLH has already warned Airtran that this frequency is inadequate and will drive customers back to DL (who flies ATL-TLH 8x daily).

ATA is looking at the 738 because they have too many big planes.

In fact, the moves by JBLU and ATA seem to undermine the General's point that more seats to spread out costs is better. If that is so, why are JBLU and ATA both going toward smaller planes with higher unit costs (JetBlue has admitted that the EMB190's will raise their unit costs)?

I'm not saying the 100 seater doesn't have a place for DL. It certainly does. However, unless DL can operate the 100 seater at a competitive cost/revenue structure, it won't matter.

 

[On Your Six]

Why would AirTran cancel AW contract?

If the Air Whiskey contract had been profitable for AirTran it would have kept it. Clearly there was upside to be had by using larger aircraft on some routes. Sure, ICT might not support anything but a CRJ. However, many other markets probably could support larger aircraft with reduced fares to drive more traffic... The other issue is comfort for passengers - the CRJ just doesn't cut it. A more uncomfortable aircraft (as a passenger) I have never flown on. What's up with the low windows and zero leg room?

Jet Blue "claims" that the economics were so compelling on the EMB-190 that it decided to change its "one-fleet" plan as a result. Sure, there will likely be some manufacturer guarantees in place, but Jet Blue evidently spent a long time doing the analysis. Jet Blue has done pretty well so far, and I am inclined to believe that their analysis is pretty sound....

Regardless, the 50 seater is both uncomfortable (ask any business traveler) and uneconomical on highly competitive, low-fare routes. You can't use it to compete against Southwest on popular routes like SLC-PHX - that's crazy unless all of your seats are connecting traffic and there is no surplus demand (more than 50 seats' worth of demand per flight).

 

[XRMEFLYER]

Pretty simple economics you say well I'm a pretty simple guy, but it still isn't quite adding up.

As has been stated before, public math is dangerous, but the precedent has been set so I will try my hand at it.

If you have say a 9.5 cent CASM CRJ200 flying a 800 mile leg from ABC to XYZ that flight will cost $3800 to operate.

If you have a 8 cent CASM 100 seater flying the same route it costs $6400 to operate that same flight.

If you have 50 people looking to pay say $150 a head for that flight then you take in $7500 making for a $3700 profit in one case and a $1100 profit in the other. How is it that the 100 seater is better in this case?

If you have 35 people which is more like the norm on many of these routes that we are talking about here, then you take in $5250 making for a $1450 profit in one case and a $1150 loss in the other. How is it that the 100 seater is better in this case?

Obviously, when you start leaving people at the gate or losing them to the competition(more people wanting to go than available seats) that is when the bigger plane becomes the correct choice.

 

[FDJ2]

Airtran on competing against DAL RJs

MICHAEL LINENBERG: Bob, as a follow-up and I know I wasn't clear when I initially articulated the question. When you look at markets, let' s throw a Newport News out there as an example, where Delta, I think, is flying the CRJ 700s, I guess its really a ComAir, or an ASA shell, at a market where you may actually be flying the 717. I'm curious about just what your performance revenue-wise has been in that market, you know, year-over-year because you have a business class cabin and they don't. I mean, is it possible that you could be generating premium revenue at least with respect to the local passenger in some of these markets? I mean, that is what I am trying to get at too?

BOB FORNARO: Ok. It is a two-step process. Generally when a competitor has capacity in the market, there always is an initial hit. Because that is what capacity does. But I will tell you in many of our markets, you know, we face RJs, we have by far superior ride.

You put a 717 with large bins, full-size cabin of business class, up against a 50 or 70 seat RJ. I mean from a product perspective it really isn't close. You know, we're seeing RJs flying 800 to 1100 miles, that's not a very good product. So I think eventually in some markets where we were in these markets initially, we're probably stronger today than we were three or four years ago. Because we have a superior product and we have certainly have brand loyalty in a market where we have been there first. So, I think all over time, again, we compete against all kinds of equipment. But, I think an RJ clearly is an inferior product. And I think again, the longer the routes these things are on, the more inferior it gets. You can't upgrade on an RJ. You can' t put your bag overhead and certain sized bags overhead. It really makes me wonder how effective RJs will be in the long run against the low-cost carriers.

JOE LEONARD: I think the other thing I would add, Michael, is the beauty of the 717 is the plane mile costs are not that much different than an RJ. But, the seat mile costs are incredibly lower.

 

[On Your Six]

Bingo. From the horse's mouth.... The product is better (more comfortable - I agree) and the seat mile costs are lower... That's a killer combination in a low-cost/low-fare environment.

 

[Tim47SIP]

XRMEFLYER is correct

How many times does he have to say the same thing over and over? ECONOMICS! If you can only fill a 717 with 45 people, you CANT make money no mater how comfortable that aircraft is. If you can fill the 717, then FLY that airframe on that route. Just because the RJ is so uncomfortable and no one wants to fly on it rolleyes: ), does not mean that you consistently fly empty airframes around to please the pilot group. There is a market requirement for every airframe out there. I have seen Delta mainline replace several ASA/Comair cities is the last few months. That is the way it is supposed to work!

 

[wms]

Ditto! And when 50 and 70 seat aircraft are consistently oversold on certain segments, DAL will have to upgrade those segments to ML aircraft. We won't be complaining about our jobs being taken away (except the RJDC pukes), we'll be glad to see things get back to normal. And the RJs can be redeployed for what they were intended, shorter legs to feed the hubs, opening new markets and low volume over flights.

And when 73s and MDs are oversold they'll go to 75s, and when they're oversold they'll go to 76s, etc. But you can't fly 73s and MDs around with 75 empty seats and make money. If that was how it worked, we could've been flying 777s to Macon.

I just hope pricing power comes with the increase in demand, which I believe it eventually will.

 

[On Your Six]

Only talking about LCC routes...

CRJs make sense on many routes - just NOT on hyper-competitive, low-fare routes due to their low seat numbers (to spread costs) and limited revenue potential upside.

The point is that you can always find a place for the 50-seaters - on non-LCC competitive routes. Sure, you would probably never put a 717 on the ATL-Newbourgh route or on the SLC-Kalispel route. CRJs work well on those non-competitive, hub routes (despite the fact that they are not comfortable for passengers). Just don't put them up against Southwest (with its low fares) on LCC routes (like SLC-PHX) and expect them to make big profits.

 

[~~~^~~~]

You mainline guys still don't understand what an RJ does. It builds and feeds a network. It provides frequency.

And business travellers complain about 737's and MD88's, I heard it today on one of my business trips. But like me, business travellers pick flights on convenience (meaning frequency). I had the choice of Airtran, or Delta, today. I bought a Delta ticket because it cut hours out of my already busy schedule.

It amazes me how the Delta MEC still does not have its stuff together on this issue. Park RJ's and the Delta mainline fleet gets smaller. Buy a 100 seat airplane and it will replace the MD88's and 737-200's. Sell ASA and Comair and Delta just takes a huge loss that goes on the books, while diminishing revenue and future profits.

All of your myopic ranting about RJ's is missing the point, that these jetliners are part of the Delta system and your MEC has allowed management to run around your scope. Of course your MEC would prefer that you missed the forest for the trees, otherwise you might want to hold them responsible for their flawed scope policy.

~~~^~~~

 

[XRMEFLYER]

Just don't put them up against Southwest (with its low fares) on LCC routes (like SLC-PHX) and expect them to make big profits.

As opposed to the big profit your 73 or mad dog or phantom 100 seater will make when more than half empty. Your argument is assuming that there are enough people wanting to go to fill these planes up and that is simply not always the case. I wish that it were, but it is not. Thus the need for right sizing the aircraft to the market.

 

[On Your Six]

I guess AirTran is WRONG then....

Are you ignoring AirTran's recent decision to drop CRJ usage? What does that tell you? Hmmmmmmmmmm. The 717 will always be more comfortable than the CRJ/CR7 and its economics are favorable in a low-fare environment. It's like a plan out of Southwest's playbook - drive additional traffic (i.e., people who would take the train or car) with lower fares but still have a reasonably lower cost structure to support healthy margins.

I agree that CRJs are great for non-competitive hub-feeding routes. You want to offer an LAX passenger the opportunity to fly to ISP or HPN. vs. just to JFK. Hub connecting traffic tends to be pretty profitable - that's a fact. But we are talking about LCC competitive routes here and not hub-connecting, non-competitive routes.

However, until DAL has a 100-seater plan (besides using the gas guzzler 737-200s), all of this is moot. DAL currently has no serious alternatives at the moment because it failed to plan long ago. Fred Reid went RJ crazy and now he is gone to Virgin - although he talked about incorporating A318/9s a long while ago but no plan was implemented for a variety of reasons...

The CRJ works in a number of markets - but not directly up against LCCs - that's why delaying a 100-seat decision was not a good idea. Now Jet Blue, AirTran and maybe ATA will be using 100 seaters to take advantage of mid-sized markets in which passenger-unfriendly CRJ/ERJs are so prevalent. Read the AirTran article in FDJ2's post above - you'll see why using CRJs on LCC-competitive routes is not such a good idea...

 

[XRMEFLYER]

Are you ignoring AirTran's recent decision to drop CRJ usage?

Yes, what does that have to do with the price of tea in
China? If you have 50 people who want to go put them on a 50 seat airplane, 70 people put them on a 70 seater, 100 people...
This is not difficult!

 

[InclusiveScope]

Ditto! And when 50 and 70 seat aircraft are consistently oversold on certain segments, DAL will have to upgrade those segments to ML aircraft. We won't be complaining about our jobs being taken away (except the RJDC pukes),

As one of those "RJDC pukes", I have to correct you. Us "RJDC pukes" will not complain if a mainline plane replaces an RJ as has happened in VPS, MYR, GPT, MHT, among others. We understand better than most that the decision on which airplane to use should be made based on demand - not arbitrary "scope limitations". If the market is built up and there is more demand, then by all means put a larger aircraft on it. It is good for both of us. Likewise, if the demand drops in a mainline market, it is smart to replace the mainline aircraft with an RJ. We will only complain if they take away our jobs in our aircraft, not if their aircraft replaces one of ours ON A MARKET THAT CAN SUPPORT IT.

 

[wms]

RJs aren't the only uncomfortable ride. SW crams 'em in and Air Tran is no joy ride when the plane is full, as is coach on a DAL 75. To get the nice ride you have to pay the bucks or earn the points to sit up front. Granted an RJ doesn't give you the option, but the points are still accrued for when there is an opportunity.

I do agree on the LCC issue, though. That is a job for ML, but no matter who does it, it's for market share and results in a financial loss, because neither ML or the RJ can match the ASMs of the LCC.

 

[FDJ2]

Yes, what does that have to do with the price of tea in
China? If you have 50 people who want to go put them on a 50 seat airplane, 70 people put them on a 70 seater, 100 people...
This is not difficult!

But the mile costs of the 717 are equivalent to the CRJ and it provides, more seating, business class upgrades and more overhead space. A superior product at roughly the same segment cost.

JOE LEONARD: I think the other thing I would add, Michael, is the beauty of the 717 is the plane mile costs are not that much different than an RJ. But, the seat mile costs are incredibly lower.

 

[Pez D. Spencer]

Fee for departure.

Six, Whereas your contract carriers operate this way, the WO's don't. Perhaps "fee for departure" with contract carriers is more costly (Airtran, UAL)? You might look at that when you talk about why Comair and ASA are dragging down DAL. (Still reporting profits -- or did you not read the Cinci Enquirer today?)

FDJ2, if Michelle Burns was such a good representative of DAL's finacial books, why couldn't she say what Comair/ASA'a direct contribution to the overall bottomline is?? Don't be naive -- she would have known that -- were it true, they would have shouted it from a mountain top to get wage concessions from us -- and to squash ASA's contract negotiations. There's a reason why she won't say that I think you might be missing.

 

[FDJ2]

Fee for departure.

Six, Whereas your contract carriers operate this way, the WO's don't. Perhaps "fee for departure" with contract carriers is more costly (Airtran, UAL)? You might look at that when you talk about why Comair and ASA are dragging down DAL. (Still reporting profits -- or did you not read the Cinci Enquirer today?)

ASA and CMR are also contract carriers, being wholly owned does not change the fact that they operate under contract with DAL just like the non wholly owned. Regardless, just because a contract carrier can pull down a guaranteed profit, doesn't mean that carrier's operations are profitable for the carrier that contracts out for the small jet lift. NWA and UAL have both posted losses from their use of RJs. ASA and CMR are wholly owned, but their operations are just as costly, if not more so, particularly in CMR's case. Which might be the reason why DAL opted for Chautauqua over CMR on the recent RFP. Is DAL profitable using ASA/CMR? Hard to tell, since DAL subsidizes those operations. ASA/CMR only pay for direct operating costs, the rest is picked up by DAL. DAL doesn't file whether or not DCI makes a profit or not for DAL, those numbers are blended in for the entire network.

 

[XRMEFLYER]

But the mile costs of the 717 are equivalent to the CRJ

Yes they are on a per seat basis, if not cheaper(although I doubt they could put them at Delta right now and achieve anything on the order of the costs that Citrus flys them for).

What you are conveniently leaving out of your argument is that since there are twice as many seats, the total cost to operate a given flight is twice that of the RJ.

This argument reminds me of how my wife will tell me how much she "saved" by buying such and such for this or that on sale. I say "We only have $100 in the account how much did you spend?" She says " $150 but look at how much I saved."

 

[ADG]

70 seat aircraft for UAL have or will have first class.

The 50 seat jet is a, "scope aircraft" they would all be at least 70 seats if management would of had their way.

Why order more RJ's if they do not work and do not make money?

Funny thing, I fly an RJ, but I avoid jumpseating on it (50 seater) because of comfort, but then again I also avoid SouthWest on certain routes because I know the airplane will be packed, again not very comfortable. On the other hand, if the flight is short, then I really don't care what I am on. As long as it is on time!

But back to the question, why is Delta ordering more of them RJ's?

ADG

 

[~~~^~~~]

ASA and CMR are also contract carriers, being wholly owned does not change the fact that they operate under contract with DAL just like the non wholly owned.

Is DAL profitable using ASA/CMR? Hard to tell, since DAL subsidizes those operations. ASA/CMR only pay for direct operating costs, the rest is picked up by DAL. DAL doesn't file whether or not DCI makes a profit or not for DAL, those numbers are blended in for the entire network.

FDJ,retread:

Which is it? Are ASA and Comair contract carriers, or integrated into the entire network? Why would Delta subsidize a subcontractor, then claim a false profit? Do you have a copy of the mysterious contract? I'm raising the B.S. flag.

Delta management is doing everything they can do to make this airline survive. That would not include lying about RJ performance and buying billions of dollars worth of airplanes just to pick on you. Delta is focused on bottom line performance first, they have to be.

The RJ makes money. A Cessna 210 on these routes would also make money. The problem is that the 210 and the RJ don't generate near the revenue that a 150 seat MD88 will. If the Delta MEC would negotiate in good faith to get the MD88's operational costs in line with American's MD88's I can guarantee the company would be focused on money making MD88's rather than using RJ's to avoid a loss on cash and market position.

"Full pay to the last day" is your enemy, not the RJ. But who you choose to believe is up to you.

~~~^~~~

 

[~~~^~~~]

70 seat aircraft for UAL have or will have first class.

The 50 seat jet is a, "scope aircraft" they would all be at least 70 seats if management would of had their way.

But back to the question, why is Delta ordering more of them RJ's?

ADG

Because the difference between Delta's current payroll and the payroll if they had American's contract is a billion dollars a year according to Fred Reid.

But you hit the scope comment exactly right. Duane Woerth said years ago that the line would be 50 seats and ALPA got what it bargained for.

The pivotal event in both cases was not 9/11. It was the ratification of Contract 2000. Just look at the numbers.