Regional consolidation is coming

[FDJ2]

[FONT=Tahoma, Verdana, Lucida]The Boyd Group Advantage[/FONT]​

Aviation Perspectives & Insights
Available Nowhere Else

[FONT=Tahoma, Verdan, Lucida]Hot Flash[/FONT][FONT=Tahoma, Verdan, Lucida] - October 10, 2005[/FONT]​

[FONT=Tahoma, Verdan, Lucida]Mesaba, Comair - Just The Start
Of A Major SJP Consolidation[/FONT]
[FONT=Tahoma, Verdan, Lucida]Okay, where are those learned university professors now? [/FONT]
[FONT=Tahoma, Verdan, Lucida]We're referring, of course, to the academics and the other battery-powered analysts who so confidently predicted just weeks ago that regional airlines would certainly fill in the gaps when those dumb legacy carriers met their timely and well-deserved ends. After all, they contended, regional airlines remained profitable while the big guys were filing chapter 11 in droves.[/FONT]

http://www.aviationplanning.com/images/hf1017.JPG[FONT=Tahoma, Verdan, Lucida]Now that Mesaba has done a one and a half gainer into chapter 11, you can plan on these same empty suits suddently "predicting" more problems for these "regional airlines."[/FONT]

[FONT=Tahoma, Verdan, Lucida]What they'll miss, however, are the fundamental differences between bankruptcies at mega carriers and those at small jet providers.[/FONT]
[FONT=Tahoma, Verdan, Lucida]The legacies in chapter 11 such as Delta and Northwest are re-jiggering theit cost structures to accomodate $2 per gallon jet-A. The "regionals" that may go into bankruptcy will do so mainly because market need is evaporating. They are vendors of a product that is in declining demand. That's a problem that bankruptcy can't fix.[/FONT]

[FONT=Tahoma, Verdan, Lucida]For SJPs, in bankruptcy or out, the fact is that they and many of the aircraft they operate are becoming econmically obsolete. To be sure, going forward, there'll be a need for these entities, but a much reduced one.[/FONT]

[FONT=Tahoma, Verdan, Lucida]The Economics Are No Longer Positive.[/FONT][FONT=Tahoma, Verdan, Lucida] While other consultants were out touting "regional" airlines and "regional" jets, our forecasts predicted this situation over four years ago. Our analyses of fleet trends and airline strategies pointed clearly to a coming glut of both RJs and the entities that operated them. [/FONT]

[FONT=Tahoma, Verdan, Lucida]The Comair pilots strike was a watershed event that illumated the fundamental changes that had taken place in what was (and is) still mis-labled as the "regional airline industry." These entities were no longer small. They were no longer "regional." They were no longer second-string, either in terms of quality of operation, nor in overall employee compensation. They were graduating into the big leagues. But that also brought big league expense levels.[/FONT]

[FONT=Tahoma, Verdan, Lucida]Employee demographics changed, too. In what some might refer to as "the good old days" of independent regional airlines, these entities were mostly places where pilots built time flying Beech 99s, Cessnal 402s, Shorts 360s and such, while they eagerly blanketed major carriers with resumes.[/FONT]

[FONT=Tahoma, Verdan, Lucida]Enter code-sharing, regional jets, and, in many cases, wage rates that no longer required food stamps to assure daily nutrition, and "regional airlines" became less of a transition job and more of a main career.[/FONT]

[FONT=Tahoma, Verdan, Lucida]And while this was laudable in some ways, it also exposed the Achilles heal of that segment of the air transportation industry: its value was fundamentally based on its ability to sell lift cheaply. That, in turn, was largely based on low labor costs. The advent of sophisticated, expensive new jet aircraft raised the cost bar, and pointed to labor unions at "regional airlines" demanding closer parity to employees at larger carriers.[/FONT]

[FONT=Tahoma, Verdan, Lucida]Poof! A lot of the raison d'etre for having these carriers operate under contract started to erode. Toss in the thin economics of RJs, and high fuel, and the spread between what these entities could deliver in terms of feed traffic on one hand, and the costs of doing it on the other, got real thin, real fast.[/FONT]http://www.aviationplanning.com/images/sjppredict.JPG

[FONT=Tahoma, Verdan, Lucida]Our forecast clients - including aircraft and engine manufacturers - were made well aware of these trends and the data that supported them. Most other consultants ran with the pack, "forecasting" growth and prosperity for both "regional airlines" and regional jets.[/FONT]

[FONT=Tahoma, Verdan, Lucida]The SJP Future: Bleak. And It's Going To Get Worse. The folks who attend our annual Aviation Forecast Conferences were apprised of the trend. This year's Conference, being held this week in Savannah, reviews other emerging trends in the industry. [/FONT]

[FONT=Tahoma, Verdan, Lucida]As one example, we'll be reviewing the data and trends that point to the fundamental long-term strengths of "legacy" carriers, and the high potential for very tough times ahead for the LCC segment of the industry. We'll be reviewing issues of mergers and airline consolidations - and why such events won't reduce "over capacity." We'll be looking at the tougher times that airports will be facing in retaining air service, and how airport costs will be increasingly pivotal.[/FONT]

[FONT=Tahoma, Verdan, Lucida]The attendees will be hearing a lot of heresies - heresies just like they heard four years ago in regard to a coming glut of RJ. Heresies that other consultants will be "predicting" in the years ahead. [/FONT]

[FONT=Tahoma, Verdan, Lucida]After they're too obvious to miss.[/FONT]

 

[Dumbluck]

uh-oh

anybody have the number to that truck driving school

oh well I can always go back to the farm and milk cows

 

[indianboy7]

anybody have the number to that truck driving school

I'd say be a garbage man....the bastard just picked up my trash....didn't get out of the truck or nothing....just lined it up right, pushed the buttion and like magic, the trash was emptied and the can but back on the friggen curb......they even have air conditioning and radios.......bastards...

 

[JD2003]

I am pretty sure trashmen earn a respectable living too. The same cannot be said for all of us.

 

[Nindiri]

As usual, Boyd demonstrates a firm grasp of the obvious. He pats himself on the back for telling us what everyone has known now for several years: supply is outpacing demand for 50 seat RJ's.

He uses the shotgun approach to forecasting trends. He simply makes dozens of vague predictions, then latches on to the one or two that turn out right and acts like he's the only person to ever think of it.

 

[V1cutsrfun]

SJP=Shiny Jet Phenomena.............why is it that there are so few Majors that contract out RJ service are profitable? Isn't the definintion of insanity doing the same thing over and over again expecting different results. There are I think 3 Major carriers that are expanding that have Contract RJ's..CAL Frontier, jetBlue (on oder) and a 190 isn't an RJ either, and America west. Why else does J.O. want out the 50 seaters so bad. Just my 2 cents.

 

[pianoman]

You'd think a hotshot consulting group would know that it's Achilles' HEEL, not "heal". Maybe my next career can be copy editing. Are they unionized?

 

[Jurassic Jet]

Now now. Not garbage men or trashmen.

They are "Sanitation Disposal Engineers"

 

[FDJ2]

As usual, Boyd demonstrates a firm grasp of the obvious. He pats himself on the back for telling us what everyone has known now for several years: supply is outpacing demand for 50 seat RJ's.

Actually, Boyd has been predicting an RJ glut for sometime now. Many on this forum have been in denial with regards to the high costs of RJs, their poor economics and the urban myth that RJs are profitable.

The 70 seat CRJ is not far behind the 50 seater.

 

[miles otoole]

Many on this forum have been in denial with regards to the high costs of RJs, their poor economics and the urban myth that RJs are profitable.

The 70 seat CRJ is not far behind the 50 seater.

Are you delusional? Who exactly has been saying that? Please show a SINGLE statement which supports your claim.

 

[Superpilot92]

which regionals are going to merge next thats the question

 

[indianboy7]

Now now. Not garbage men or trashmen.

They are "Sanitation Disposal Engineers"

My mistake.............uke:

 

[spinproof]

Actually, Boyd has been predicting an RJ glut for sometime now. Many on this forum have been in denial with regards to the high costs of RJs, their poor economics and the urban myth that RJs are profitable.

The 70 seat CRJ is not far behind the 50 seater.

...and so have you! one question please. Since DAL has decreased domestic flying and increased international, with what airframe and /or regional carrier will you folks be using to supply your increased international lift?

 

[Dangerkitty]

Are you delusional? Who exactly has been saying that? Please show a SINGLE statement which supports your claim.

Well I have been saying it for some time now.

 

[WhiteCloud]

I'd say be a garbage man....the bastard just picked up my trash....didn't get out of the truck or nothing....just lined it up right, pushed the buttion and like magic, the trash was emptied and the can but back on the friggen curb......they even have air conditioning and radios.......bastards...

Can we be respectful of those who work for a living here? Airplane flying is the same kind of deal today....just press a button and throw a switch and like magic the airplane practically drives itself. We even have airconditioning and radios too. Or is there more to it?

 

[BeCareful!]

Are you delusional? Who exactly has been saying that? Please show a SINGLE statement which supports your claim.

I can support his claim with two words: Independence Airlines


RJ's started as an experiment with Bombardier and Comair in the early 1990's, which was not exactly a level playing field since Comair had new hires buying their jobs through the academy at the time. In other words, Comair had an economic advantage through PFT, and they were able to do the RJ thing when no one else was.

Then, the Eagle ATR crashed in 1994. USA Today, with its ever accurate and hard hitting reporting informed the traveling public of what it had long suspected: that flying in a propeller-driven aircraft was inherently unsafe, and that jet power was the only way to fly safely.

By 1995 we had Brazilian jets, Canadian jets, re-engined British jets.....every kind of small, un-economical jet you can imagine.......flying short, former turboprop routes and burning tons of fuel at 14,000 feet. Factor in the tremendous fun MANAGEMENT has had toying with LABOR, enticing us with illusions of grandeur, Shiny New Jets, flow throughs, etc., and in true American Capitalistic style: We've never looked back!

RJ's have done a great job of leveling wages in our profession. They've also burned up a gazillion gallons of fuel. Not much else.

Oh, except they've educated millions of passengers with this fact: Small airplanes are LOUD inside, even if they are pushed through the air with jet engines.

 

[~~~^~~~]

For starters.... the title of this thread is all wrong. There will not be consolidation of small jet providers because ALPA doesn't care about alter ego flying on our level. There will be turnover of small jet providers, as each airline ditches its seniority and renews its cost structure by simply operating on another certificate without so much as a squeek from "The Pilots' Union." Reference the fact that DCI is growing with the addition of CHQ and Mesa flying while Comair is shrinking.

Actually, Boyd has been predicting an RJ glut for sometime now.

So have I. Big deal. Back in the days when the Delta boys were convinced that RJ's were taking over the planet, I was telling you that a 737-200 burned the same, if not less, fuel per seat mile than an RJ. That was my arguement against the Delta MEC's apartied scope policy. The uses for RJ's were self limiting and as you can see, Delta now appears to have bought too many 50 seaters under the scope arrangement the Delta pilots voted on.

The 70 seat CRJ is not far behind the 50 seater.

Nope, you are wrong. The 70 seat jets provide 40% more revenue for around 10% higher costs.

One big difference, if it happens, is Delta's 100 seat rates ( $44.01 for a second year First Officer to $88.93 for a 12 year Captain). These are lower than any of the so called "regionals." If the Delta MEC buys back into small jet flying it proves my contentions that:
1) The Delta MEC sold regional flying and it does not currently belong to them
2) Predatory scope usually ends up biting the predator. In this case, the Delta pilots are now bidding against the regional guys in the "race for the bottom."
3) And before you start trumpeting that it is for the airline's survival you might want to consider the DP3 guys who all carried out between $750,000.00 and $2,000,000.00+ after earning well in excess of $250K yearly and who are now angry that their remaining 50% is getting cut from around $7,000 a month. Most of us "regional" guys never have made the $7,000 a month that your pilots are making for sitting around their Estates on retirement at age 54.
Of course the airline they left to the future "Delta" pilots will never pay $7,000 a month either - at least not on the 100 seater.

The turboprops that used to do this flying were good airplanes, but they were completely used up before being sent to the next tier of operators. There is a market for regional feed at cities that cannot support the level of service provided by RJ's. I wish some airline would promote turboprops for what they are - safe, fast, efficient and clean aircraft. The ATR burns 1/3 the gas of the RJ, it also spews 1/3 the pollutant and goes faster when the weather gets bad (money lines in ATL for one example). It is a shame Delta execs still think jets are sexy. This isn't 1963 anymore.

 

[FDJ2]

Are you delusional? Who exactly has been saying that? Please show a SINGLE statement which supports your claim.

fast.http://www.aviationplanning.com/images/sjppredict.JPG

Boyd has been ahead of the herd on the RJ Glut, and the fact that some don't want to hear it is irrelevant.

Here is a sample of some Boyd quotes from the past:

The RJ Glut
Based on initial (and aggressive) steps taken by both Northwest and Delta over the last week, it's becoming clear that when the music stops, a whole passel of "regional" jets won't have any place to sit. Except maybe in the desert.
Delta is aggressively adjusting its schedule, and it appears it's using the chapter 11 opportunity to pare down the number of RJs in the system. Lots of point-to-point RJ flying to Florida is going away, and RJ departures at SLC are being cut by 20%. More at this week's Airports:USA™ Forecast Flash.

Four Engines Are Nice. Until You Get The Bill. Northwest intends to cancel leases on all 35 of the four-engined Avro RJ-85s that are being operated by Mesaba. While this airplane is eons different from the CRJs and ERJs that are fixin' to get parked, the reason for the action is the same as what's being done at Delta: these machines are getting too expensive to operate.

In Danger: Comair - unless it can get its costs down, it's entirely possible that Delta will shift flying to other small jet providers, regardless of who owns them. There appears to be an iron-clad, chapter 11-proof agreement with Skywest/ASA, so if some RJ lift has to go, it may well be at Comair.

Possible Winner: Mesa. This entity has not only low costs, but management that can get deals done. Any SJP with higher costs, could be replaced with Mesa.

More Shake-Outs To Come For Small Jet Providers. The hard economic fact is that small jet ("RJ") operations are going to face increasing economic pressures, both from higher fuel costs as well as from the continuing squeeze on revenues driven by competing small jet providers vying to sell services to major carriers. (Witness the recent shifts of aircraft by Air Wisconsin, and the Mesa/Delta deal - both left somebody else out in the cold.) Then consider the inevitable continuing efforts on the part of major carriers to pay their SJPs (and all of their other vendors) less for their services, and we have a picture that's a whole lot less rosy than some on Wall Street would have us believe about "regional airlines."

Delta paid a reported $700 million for ASA, and sold it for what will ultimately be just over $400 million.
Do the math. RJs and RJ-providers are not a growth industry.

"The Regional Carriers Are Profitable. They've Got A Better Model." Another statement that's in total conflict with reality. Some folks read about the traffic growth and the profits at "regional airlines" and conclude that these entities have their act together. The fact is that "regional airlines" are neither regional, nor are they airlines. They are merely vendors of lift, and their customers are legacy carriers. If the legacy goes down, the "regional airline" goes with it.
And, no, a carrier like ExpressJet, or Chautauqua, or Pinnacle can't just break away and operate as a stand-alone carrier. Establishing the necessary infrastructure - reservations, ticketing, marketing - would be very expensive. Establishing brand loyalty would be tough. Furthermore, "regional" jets are economic dogs in most stand-alone, non-feed market situations. It's a situation that's getting worse with higher fuel prices and increasingly inept FAA management of the ATC system.

By the way, it's already been tried. It's called Independence Air.
Get Ready. Some Major Airline System Adjustments May Be Coming. Tumble to it: there's a good chance that the price of airplane go-juice could continue to go up on a trajectory roughly akin to a moon launch, regardless of the eventual price of crude.
Here's some of the outcomes that need to be considered:
Regional Jets: Shrunken Mission Applications. In the event of much higher fuel prices - say, over $2 a gallon (on average) the CRJ and ERJ series of airliners will become very large sources or raw materials for Budweiser displays. In that event, look for as much as a third of the current RJ fleet quickly finding retirement in Arizona.

 

[FlyComAirJets]

FDJ2

So RJ pilots are worried about job security (as if they weren't before) and you stoop to pour gas on the fire? Makes you just giddy to cut and paste bad news. At least Gee Lee knows better than to pile on after the whistle.

Way to go.

 

[jehtplane]

Actually, Boyd has been predicting an RJ glut for sometime now. Many on this forum have been in denial with regards to the high costs of RJs, their poor economics and the urban myth that RJs are profitable.

The 70 seat CRJ is not far behind the 50 seater.

So if the 70seat is not far behind does that mean the 100 seat is not far behind that, or is it just because you will get to fly them they will be profitable.