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Air Transport
Regional Airlines Cautiously Optimistic About Challenging Year Ahead
Aviation Week & Space Technology
05/29/2006, page 43
Frances Fiorino and Lori Ranson
Dallas
Regionals hope for success, but face a challenging year in the industry's 'nearly constant state of tumultuous change'
Printed headline: Cautious Optimism
What is the regional airlines' best hope for prosperity? Adapt to the ever-changing industry landscape and keep costs in check.
That's what Regional Airlines Assn. (RAA) Chairman Jeff Pinneo told executives from 42 member airlines, 241 associate member carriers and 200 suppliers who convened in Dallas May 22-25 to discuss the state of the industry and develop strategies to enhance financial and operational efficiencies. And he warned the year ahead promises to be just as much of a challenge as the past few years--and in an industry that is in a "nearly constant state of tumultuous change."
Pinneo, also Horizon Air president and CEO, was referring to the merger of two major carriers, US Airways and America West; the bankruptcy filings of two others, Delta and Northwest; and the failure of an aspiring low-cost carrier, Independence Air. About 45% of major airline capacity was operating in Chapter 11 in several months of 2005, added Pinneo, with the "upward pressure on costs necessitating renegotiation of contracts with both labor groups and suppliers." Scope clauses, while relaxing somewhat, are continuing to hamper some airlines from operating larger aircraft that would allow them to compete with low-cost carriers now starting to enter traditional regional markets (AW&ST May 22, p. 48).
As a result, the regionals' customers have had to bear the "collateral burdens" of change, such as reduced service levels at airports and increased airport congestion. Add to the mix fees and taxes related to regulatory and legislative actions, and regionals could cease fulfilling their main role: feeding traffic from small- and medium-size airports to partners' major hubs.
Maintaining that service is vital and ultimately drives the economics of network carrier partners, notes Pinneo. Regional airlines, for instance, operate one-third of nonstop daily flights at Seattle and 51% at Chicago O'Hare, he says. In 2005, the regionals carried 150.9 million passengers, or one out of five domestic U.S. passengers.
The RAA airline presidents at the convention discussed significant government issues, including their two main concerns: reauthorization of the FAA Airport and Airway Trust Fund and development of the Next Generation Air Transportation System, specifically whether funding will come from user fees. "If those fees add costs, it would put regionals at a disadvantage," says Pinneo.
While the RAA is reserving an official stand on user fees pending FAA issuance of a proposal, Pinneo says the organization "cannot support an approach that increases regional airline costs and puts at risk the small community air service that is the center of our tradition."
There has been rising debate surrounding the Air Transport Assn.'s (ATA's) proposal on user fees, which suggests they be based on airport arrivals and departures, and the time a flight spends in the air traffic control system. Cape Air President Daniel Wolf said what ATA was agreeing to would "kill all small community air service. . . . If we want to get the user fee system [implemented], it needs to be a united front."
Pinneo suggests that regionals' partnerships with major airlines and suppliers must continue to deepen as all parties wrestle with costs.
Other signs of change evident at the RAA Convention included:
*The return of the turboprop. Manufacturers generally agree that fuel costs are driving some customers to the more fuel-efficient turboprop. Saab Aircraft Leasing (SAL) President and CEO Michael Magnusson says fuel prices have created a "very robust market," leading to SAL's engagement in 30 Saab 340A/B transactions in 2005 and 15 (excluding Northwest) in January-April.
Bombardier claims its 68-78-seat Q400 is a cost-effective alternative to regional jets on routes under 600 mi. The direct operating cost on a 575-mi. trip in the U.S. is 5.6 cents per available seat mile.
ATR Senior Vice President Commercial John Moore says demand for new aircraft hit an all-time high last year, with ATR selling 90 turboprop aircraft. In January-April, ATR logged 46 orders. In addition, he says the company placed 55 used aircraft in service in 2005 and expects to reach similar levels this year. Moore notes that demand has outstripped supply of used ATRs, causing lease rates to remain stable or increase slightly. Older-generation ATR 42s lease for about $50,000-65,000 per month.
SkyWest CEO Jerry Atkin acknowledges the benefits of larger turboprops on shorter stage lengths. SkyWest is now floating proposals to U.S. majors for possible Bombardier Q400 and ATR 72 service. As fuel prices continue to challenge all airlines, Atkin notes, "It's probably fair to say" that some major airlines are examining large turboprop operations.
*Use of larger regional jets on longer-haul routes. Velocity Group forecasts increased use of aircraft such as the Bombardier CRJ700, CRJ900 and Embraer 170 on new, longer-haul routes. SkyWest, for example, offers nonstop CRJ700 service on the 1,650-mi. route between Long Beach, Calif., and Salt Lake City. About 30% of all new nonstop regional routes in 2006 were 1,000 mi. or more. Velocity also predicts that relaxation of scope clause restrictions at US Airways, Delta and Northwest will accelerate the trend.
Bombardier estimates that about 40% of its CRJ200 customers have opted to buy CRJ700/705/900 aircraft and many of the planned operations will be on non-stop routes. Air Canada Jazz CRJ705s have an average stage length of 955 mi., and the longest route is 1,748 mi.
Bombardier says competitive operating costs will lead to increased use of larger regional jets. On a 500-mi. segment, the CRJ200 cost per available seat mile is 13.6 cents, the CRJ700, 11.3 cents and the CRJ900, 9.7 cents. This compares to narrowbodies at 15 cents for a 100-seater, and 13.7 cents for a 130-seater and 12.1 cents for a 150-passenger aircraft.
Mark Hale, Embraer's vice president of marketing and sales in the U.S., Canada and the Caribbean, notes the Embraer 170/190 70-110-seat family supplements mainline narrowbody schedules, operating at times for more than 5 hr. between city pairs. In addition, about 41% of what it calls "E-Jets" in North America have been deployed to right-size markets.
*Introduction of "new" jets. Bombardier reports renewed interest in its CRJ900. As of Jan. 31, the manufacturer had logged 62 orders for the 86-seat aircraft. A stretch version is planned, although no date has been set. Vice President of Marketing and Communications Trung Ngo says a 100-seat stretch version would likely precede a 90-seat stretch version of the Q400 turboprop, now in a 70-76-seat configuration.
Russia's Sukhoi Civil Aircraft this fall is to decide on developing a 100-110-seat stretch version of its 95-seat Russian Regional Jet (RRJ), according to Sukhoi Deputy General Director Svetlana Issaeva. The other member of the family is the 83-seat RRJ75. The company has frozen development of the smaller 60-65-seat RRJ60. The RRJ will be powered by the 14,000-17,500 lb.-thrust SaM146 engine, manufactured by PowerJet, a joint venture of Snecma and NPO Saturn.
The RRJ certification process in Europe started this month, assembly of the RRJ wing and fuselage center section is to start in June and the fuselage is to be completed by year-end. First flight is scheduled for September 2007, Issaeva says, with a planned entry-into-service date of November 2008.
Sukhoi has firm orders for 40 of the aircraft, 30 from Aeroflot and 10 from Russia's Financial Lease Co.
Find this article at:
http://www.aviationnow.com/publication/awst/loggedin/AvnowStoryDisplay.do?pubKey=awst&issueDate=2006-05-29&story=xml/awst_xml/2006/05/29/AW_05_29_2006_p42-44-02.xml&headline=Regional+Airlines+Cautiously+Optimistic+About+Challenging+Year+Ahead
Regional Airlines Cautiously Optimistic About Challenging Year Ahead
Aviation Week & Space Technology
05/29/2006, page 43
Frances Fiorino and Lori Ranson
Dallas
Regionals hope for success, but face a challenging year in the industry's 'nearly constant state of tumultuous change'
Printed headline: Cautious Optimism
What is the regional airlines' best hope for prosperity? Adapt to the ever-changing industry landscape and keep costs in check.
That's what Regional Airlines Assn. (RAA) Chairman Jeff Pinneo told executives from 42 member airlines, 241 associate member carriers and 200 suppliers who convened in Dallas May 22-25 to discuss the state of the industry and develop strategies to enhance financial and operational efficiencies. And he warned the year ahead promises to be just as much of a challenge as the past few years--and in an industry that is in a "nearly constant state of tumultuous change."
Pinneo, also Horizon Air president and CEO, was referring to the merger of two major carriers, US Airways and America West; the bankruptcy filings of two others, Delta and Northwest; and the failure of an aspiring low-cost carrier, Independence Air. About 45% of major airline capacity was operating in Chapter 11 in several months of 2005, added Pinneo, with the "upward pressure on costs necessitating renegotiation of contracts with both labor groups and suppliers." Scope clauses, while relaxing somewhat, are continuing to hamper some airlines from operating larger aircraft that would allow them to compete with low-cost carriers now starting to enter traditional regional markets (AW&ST May 22, p. 48).
As a result, the regionals' customers have had to bear the "collateral burdens" of change, such as reduced service levels at airports and increased airport congestion. Add to the mix fees and taxes related to regulatory and legislative actions, and regionals could cease fulfilling their main role: feeding traffic from small- and medium-size airports to partners' major hubs.
Maintaining that service is vital and ultimately drives the economics of network carrier partners, notes Pinneo. Regional airlines, for instance, operate one-third of nonstop daily flights at Seattle and 51% at Chicago O'Hare, he says. In 2005, the regionals carried 150.9 million passengers, or one out of five domestic U.S. passengers.
The RAA airline presidents at the convention discussed significant government issues, including their two main concerns: reauthorization of the FAA Airport and Airway Trust Fund and development of the Next Generation Air Transportation System, specifically whether funding will come from user fees. "If those fees add costs, it would put regionals at a disadvantage," says Pinneo.
While the RAA is reserving an official stand on user fees pending FAA issuance of a proposal, Pinneo says the organization "cannot support an approach that increases regional airline costs and puts at risk the small community air service that is the center of our tradition."
There has been rising debate surrounding the Air Transport Assn.'s (ATA's) proposal on user fees, which suggests they be based on airport arrivals and departures, and the time a flight spends in the air traffic control system. Cape Air President Daniel Wolf said what ATA was agreeing to would "kill all small community air service. . . . If we want to get the user fee system [implemented], it needs to be a united front."
Pinneo suggests that regionals' partnerships with major airlines and suppliers must continue to deepen as all parties wrestle with costs.
Other signs of change evident at the RAA Convention included:
*The return of the turboprop. Manufacturers generally agree that fuel costs are driving some customers to the more fuel-efficient turboprop. Saab Aircraft Leasing (SAL) President and CEO Michael Magnusson says fuel prices have created a "very robust market," leading to SAL's engagement in 30 Saab 340A/B transactions in 2005 and 15 (excluding Northwest) in January-April.
Bombardier claims its 68-78-seat Q400 is a cost-effective alternative to regional jets on routes under 600 mi. The direct operating cost on a 575-mi. trip in the U.S. is 5.6 cents per available seat mile.
ATR Senior Vice President Commercial John Moore says demand for new aircraft hit an all-time high last year, with ATR selling 90 turboprop aircraft. In January-April, ATR logged 46 orders. In addition, he says the company placed 55 used aircraft in service in 2005 and expects to reach similar levels this year. Moore notes that demand has outstripped supply of used ATRs, causing lease rates to remain stable or increase slightly. Older-generation ATR 42s lease for about $50,000-65,000 per month.
SkyWest CEO Jerry Atkin acknowledges the benefits of larger turboprops on shorter stage lengths. SkyWest is now floating proposals to U.S. majors for possible Bombardier Q400 and ATR 72 service. As fuel prices continue to challenge all airlines, Atkin notes, "It's probably fair to say" that some major airlines are examining large turboprop operations.
*Use of larger regional jets on longer-haul routes. Velocity Group forecasts increased use of aircraft such as the Bombardier CRJ700, CRJ900 and Embraer 170 on new, longer-haul routes. SkyWest, for example, offers nonstop CRJ700 service on the 1,650-mi. route between Long Beach, Calif., and Salt Lake City. About 30% of all new nonstop regional routes in 2006 were 1,000 mi. or more. Velocity also predicts that relaxation of scope clause restrictions at US Airways, Delta and Northwest will accelerate the trend.
Bombardier estimates that about 40% of its CRJ200 customers have opted to buy CRJ700/705/900 aircraft and many of the planned operations will be on non-stop routes. Air Canada Jazz CRJ705s have an average stage length of 955 mi., and the longest route is 1,748 mi.
Bombardier says competitive operating costs will lead to increased use of larger regional jets. On a 500-mi. segment, the CRJ200 cost per available seat mile is 13.6 cents, the CRJ700, 11.3 cents and the CRJ900, 9.7 cents. This compares to narrowbodies at 15 cents for a 100-seater, and 13.7 cents for a 130-seater and 12.1 cents for a 150-passenger aircraft.
Mark Hale, Embraer's vice president of marketing and sales in the U.S., Canada and the Caribbean, notes the Embraer 170/190 70-110-seat family supplements mainline narrowbody schedules, operating at times for more than 5 hr. between city pairs. In addition, about 41% of what it calls "E-Jets" in North America have been deployed to right-size markets.
*Introduction of "new" jets. Bombardier reports renewed interest in its CRJ900. As of Jan. 31, the manufacturer had logged 62 orders for the 86-seat aircraft. A stretch version is planned, although no date has been set. Vice President of Marketing and Communications Trung Ngo says a 100-seat stretch version would likely precede a 90-seat stretch version of the Q400 turboprop, now in a 70-76-seat configuration.
Russia's Sukhoi Civil Aircraft this fall is to decide on developing a 100-110-seat stretch version of its 95-seat Russian Regional Jet (RRJ), according to Sukhoi Deputy General Director Svetlana Issaeva. The other member of the family is the 83-seat RRJ75. The company has frozen development of the smaller 60-65-seat RRJ60. The RRJ will be powered by the 14,000-17,500 lb.-thrust SaM146 engine, manufactured by PowerJet, a joint venture of Snecma and NPO Saturn.
The RRJ certification process in Europe started this month, assembly of the RRJ wing and fuselage center section is to start in June and the fuselage is to be completed by year-end. First flight is scheduled for September 2007, Issaeva says, with a planned entry-into-service date of November 2008.
Sukhoi has firm orders for 40 of the aircraft, 30 from Aeroflot and 10 from Russia's Financial Lease Co.
Find this article at:
http://www.aviationnow.com/publication/awst/loggedin/AvnowStoryDisplay.do?pubKey=awst&issueDate=2006-05-29&story=xml/awst_xml/2006/05/29/AW_05_29_2006_p42-44-02.xml&headline=Regional+Airlines+Cautiously+Optimistic+About+Challenging+Year+Ahead
