Interesting Delta article......read this

[On Your Six]

Numerous examples.

Skywest/Delta has used RJs to fly between SLC and PHX, SLC and PTL, SLC and SEA and even SLC-SAN - competing with both Southwest and America West in many cases (not all).

I have seen Comair CRJs used between DCA and ATL - competing directly with AirTran 717s. In fact, you'll find many cases in which Comair and ASA CRJ-200s and 700s compete against AirTran 717s out of Atlanta (e.g., ATL-BUF and ATL-ROC). Then again, you won't find any competition on the ATL-HPN or ATL-ISP routes where 50 seat jets are a great fit. Competing directly with 110 seat aircraft like the 717 in a low-fare environment does not help the bottom line (especially when fares are low to compete and you can't spread the costs over many seats)... In this case, 50 seaters on a low-fare competitve route just won't cut it.

 

[MedFlyer]

While I agree that DL needs the 100 seaters, they won't magically solve all of DL's problems. The 100 seaters will still likely have a CASM of 9.5+ cents....which is far higher than Airtran or JetBlue. DL will still struggle to compete...not to mention that replacing the RJ's with 100 seaters will likely drive already low-yields even lower.

 

[General Lee]

Medflyer,

You don't know that. It is "likely" that we will lose more money with 50 and 70 seaters directly against Airtran 717s than if we had 100 seaters after pay cuts. The only way to counter LCCs and their lower fares is with more seats. More seats spread out the costs.....

Time to go on vacation.......adios dudes.

Bye Bye--General Lee

PS--On Your Six----Portland is PDX

 

[80drvr]

I believe as soon as they resolve the issues with the ML pilots they will. They obviously know the need of the 100 seaters as they have taken the 732s out of retirement. DAL is in a better position and more formidable and flexible than they are willing to admit while these issues are still unresolved. Hopefully they are resolved soon and DAL really has a plan, and we can all get on with it.

What's the issue with the ML pilots?

 

[letthebigdogeat]

B]There are hundreds of markets that have been identified and can support rj flying with guaranteed profitability that have not even been tapped yet.[/B]

True. South America here we come. Mark my words!

It's all common sense and profit. The RJs are here to stay, sorry for those who wish they weren't.

 

[XRMEFLYER]

Competing directly with 110 seat aircraft like the 717 in a low-fare environment does not help the bottom line (especially when fares are low to compete and you can't spread the costs over many seats)... In this case, 50 seaters on a low-fare competitve route just won't cut it.

That is assuming that there is more than 35-60 more people on any given proposed segment who want to go. If there are not then a 40-70 seat airplane is the correct choice.

 

[FDJ2]

You really need to decided if DL should own its regional carriers or just contract out. On this thread, you complain that DL should not have bought ASA/CMR because it would be cheaper to use contract carriers. But in another thread, you posted about UAL's big losses using regional carriers...ALL of which are contract carriers. Apparently, UAL's strategy of contracting everything out isn't working so well either.

It's not up to me to decide if owning the equity in our regional feed makes sense. DAL can get the same economic benefit without owning the equity in its regional partners. Unquestionably, acquiring that equity in our WO'ed has adversely effected DAL's liquidity and debt. Has DAL made a profit from CMR or ASA? Michele Burns, DAL's CFO until recently, doesn't even know that, since DAL does not breakout DCI profitability or unprofitability from the network. Certainly CMR has priced itself out of any competitive bidding for any future growth, whereas the non wholly owned have not and neither has ASA, yet. DAL burned through aproximately $3B simply in acquiring it's regional feed, plus taken a $700M strike shortly thereafter. Has DAL recouped that investment from owning its regional feed? Would DAL be in better financial shape if it had that $3.7B in additional cash or reduced debt today without owning the equity in its regional feed? Could DAL even sell ASA/CMR for anything remotely close to what it paid for them even though they have both grown significantly since 1999?

 

[On Your Six]

Use RJs on non-LCC routes....

Hey, RJs are great for NON-LCC competitive routes. That's the big point that NOBODY on this board seems to understand....

The economics of RJs don't work well in a low-fare environment (i.e., routes with LCC competition). It makes sense to use them on the Atlanta-Newburgh or Salt Lake City-Pasco routes because of the lack of low-fare pressure (you can still charge high fares). Don't put them on the SLC-PDX or DCA-ATL routes where the lower fares will make them less economical - can't spread the costs over 50 seats well and you LIMIT the revenue upside because you are cut off at 50 seats vs. 50-60 additional revenue seats on the 717.

I agree with others on this board that DAL does not need to actually own regional feed to use it. Delta is doing just fine with CHQ and ACA (soon to be Skyway) and it owns neither. Continental doesn't own all of COEX and their operational relationship is the same now as it used to be while under full control.

 

[wms]

What's the issue with the ML pilots?

That the company wants cuts from them.

 

[XRMEFLYER]

Don't put them on the SLC-PDX or DCA-ATL routes where the lower fares will make them less economical - can't spread the costs over 50 seats well and you LIMIT the revenue upside because you are cut off at 50 seats vs. 50-60 additional revenue seats on the 717.

Again, only true if there are 50-60 more people interested in flying on each proposed flight. Not always the case as I often see with 25-40 people in the back on a lot of these routes you are talking about. How exactly would having a 717 on these flights equate to a better bottom line?

 

[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.

~~~^~~~