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Regional airlines are doomed!

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Erlanger

Well-known member
Joined
Aug 4, 2002
Posts
1,693
U.S. regional carriers must find a new business model to survive

Aviation Week and Space Technology February 13, 2012

There are worrying signals that a significant part of the airline industry could implode in the coming months, and despite the doom and gloom predictions from Europe this horror is occurring on the other side of the Atlantic.

U.S. regional airlines have always been perceived as tertiary to the majors and low-cost carriers that are household names across large swathes of the country. But despite the low-key brand awareness, most U.S. passengers have a first-hand experience of regionals as legacy carriers are becoming increasingly reliant on these smaller operators for feed.

Those feeder contracts used to be lucrative, with the majors assuming most of the risk while providing near-double-digit margins for a slew of companies. Indeed, these contracts were so healthy that regional airlines at times came to the financial aid of those same majors.

But those days are long gone, as mainline operators rein in costs, restructure the loosely written capacity purchase agreements and stringently enforce every condition of the new contracts.

The effect of these changes has been devastating. Mesa Air Group (above), a leading force in the growth of 50-seat jet feed in the early part of this century, is a shadow of its former self, having shed most of its fleet during a Chapter 11 protection proceeding that saw it emerge last year as a privately owned company with just a handful of contracts.

ExpressJet has disappeared completely after rewritten contracts by then-owner Continental Airlines eventually forced a sale to SkyWest, itself a stalwart of fiscal sobriety that is now posting consecutive quarterly losses because of that very acquisition. Elsewhere, Pinnacle Airlines' future is bleak after recently noting that just two of its contracts—both with Delta Air Lines—are viable, and Republic Airways' journey into mainline branded operations has traveled almost full circle as it attempts to offload Frontier Airlines. Worryingly, Republic last week also promoted its relationship with AMR Corp., which only entered Chapter 11 on Nov. 29, 2011, as its saving grace.

The viability of privately owned Trans States Holdings and Air Wisconsin is less known, although chatter from within indicates all is not well at either carrier, and while US Airways' patronage of Air Wisconsin means the feeder will shift capacity from New York LaGuardia to Washington Reagan National Airport, it came at the expense of the Arizona-based major's own regional subsidiary, Piedmont Airlines.

Piedmont's distress is mirrored at other wholly owned feeders, with Delta's Comair perpetually for sale and AMR's American Eagle Airlines operation under review and likely dependent on a combination of new scope clauses and drastic cuts in fleet costs.

And that is the crux of this sector's problem—the regionals' only option is to ask suppliers to share their pain.

Now this is nothing new to the airline industry and the majors have asked the same from their suppliers, which included the regionals. But this bandage does little to stanch a systemic problem that plagues the regional airline industry. It simply cannot survive on the current business model.

And it will only get worse. While reduced aircraft payments will provide a timely reprieve for many operators, there are other issues that need to be resolved, many of which were summarized in an internal memorandum posted earlier this month by Mesa Chairman/CEO Jonathan Ornstein.

In that message Ornstein warned that while his Chapter 11 reorganization eliminated some aircraft costs, the downsizing of the U.S. airline industry has produced a crew roster heavy in seniority but with a smaller fleet to spread that higher cost. Compounding this is an unexpected maintenance requirement for the airline's fleet of Bombardier CRJ900s that the launch customer thought was coming several years from now, and, according to Ornstein, new regulations that will increase fixed costs.

But the most telling part of that memo was Ornstein's insistence that he, like his peers, is signing contracts that will never make a profit simply to “live to fight another day.” This can only ensure that the regional industry is destined for failure.

Consolidation has been a byword for the global airline business model for years, but that will do little to help U.S. regionals, in fact it has contributed to their dilemma. Something deeper is required, but for now that solution is as absent as their profits.
 
That's why the smart ones get their experience, and get out.
 
That's why the smart ones get their experience, and get out.

...and why when the hiring starts again, I'll be racing for the door with so many others.

The regionals are going to run head first into some serious staffing issues when folks that are tired of being treated like crap bolt for the exit at the first opportunity.

The meltdown that ensues will be interesting to watch...
 
This is something I've long since argued. Skywest Inc. has some big decisions to make over the next few years. The influx of cash from the mainline partners will not increase. So we're boxed in. Scope will absolutely not relax. I'd bet everything in my 401K, my savings, and investments on that- the ship has sailed. Nobody is going to relax scope to facilitate larger airframes at the regional level. Skywest will be forced to survive by "going it alone" as a stand alone carrier. The question is when, and how, that this will happen. The typical feeder style regional business model a dead and dying one. The regional airline industry WILL be forced to change.
 
The world is not a "better place" because life-sucking regionals exist. I work for one, and I too say let 'em fail.
 
What you guys don't understand is that this is neither good nor bad.

Regional airlines were used so mainline carriers could pay crap wages to pilots.

It was just a workaround for a union problem. Thanks to bankruptcy and years of anti-union legislation and appointments (thank you both democrats and republicans) the mainline carriers will no longer need to work around the union. They will just hire the pilots directly and continue to pay them the lowest salary the market will bear.
 
I think regionals will change.

Maybe we will see a return to turboprops.....

But I just don't see regionals going "poof" and disappearing into thin air. Hub and spoke majors need feed-and a lot of it. You sure can't do that more efficiently with a 737.

I have heard this same song and dance many times. Things will change, but regionals will still exist.
 

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