Regional Jet Economics - Mike Boyd

[DoinTime]

The FAA wanting reduced schedules out of ORD has nothing to do with regional jets. It's simply a logistical issue of having not enough capacity and too many flights.

ORD has to many flights because every narrowbody is being replaced by three RJ's.

 

[sweptback]

ORD has to many flights because every narrowbody is being replaced by three RJ's.

Well, but my point is that the number of flights aren't being reduced because of some phantom FAA policy against RJs like what Boilerup insinuated.

 

[BoilerUP]

I never insinuated the FAA had a phantom policy against RJs.

Many of flights these days out of ORD are Eagle or UAX regional jets. If you restrict the number of flights out of ORD, that almost by default forces AAL and UAL to reduce RJ frequency and replace them with narrowbodies.

The regional jet was a great advancement, but they are being used for purposes other than what they were designed for. Who 10 years ago would have envisioned regional jets flying the same basic routes Eastern did with 727s on the shuttle?

The same number of seats is going to any given city, but in a higher number of smaller aircraft, driving up the strain on the ATC system. It takes the same ATC resources to work a 737 that it does to work on an RJ, but takes three times the resources to work the RJs required to work the same number of pax seats.

 

[LegacyDriver]

Okay, but does an RJ generate traffic that the turboprops it replaces can't?

 

[General Lee]

Boilerup,

You are correct, and the passengers are supposedly coming back, but to less mainline sized aircraft. Think of how many mainline sized aircraft that used to fly pre-9-11 (like USAir DC-9s, DL L10's, UA 727s, AA 727s....etc) and now they are all parked in the desert. To make up for those lost seats, you'd have to have three times as many RJs-----and now the system is clogged up and the fares are half-----and the LCCs are coming with mainline sized aircraft that can turn a profit with the lower fares---but the RJs cannot. That is what we are facing here......


Legacydriver,

The RJs are replacing props and mainline airplanes on routes that used to support mainline planes---and could again but they are all parked. The fares are half, and the RJs cannot bring in enough revenue to the hubs to make them profitable. You need many many passengers to fill every plane at the hubs to create a chance for a profit.

Bye Bye---General Lee

 

[exphojump]

Are RJ's profitable?

It depends on how the airline allocates the fare.

Take for example, when I tried to get my mother back to MCI after the gate agent in MCI took the return pass, last summer.

One day prior:

DAY CVG MCI $200 one way
CVG MCI $550 one way

SDF STL MCI $102 on LUV

I had to drive to SDF.

Thankfully now I have the travel cards, at least until Oct.

So how does DAL bill DAY CVG on an RJ?
How do they bill CVG MCI on a 737/MD80?

Unless the Legacy carriers charge per segment based on the cost to operate that flight, they probably don't know.

It appears that Delta weighs the RJ flights profitably, while negotiating mainline concessions.

It appears that Northwest weighs the RJ flights unprofitably, while Mesaba negotiated and Pinnacle negotiates now.

Unless airlines base rates on cost per segment we may never know for sure. Mainline rates are 9.5 to 11+ CASM while LCCs are 6 to 9.0 CASM. Could it be that the majors are weighing the mainline aircraft as more of the combined fare?

If DAL broke down the ticket based on segment, the customer would decide.

DAY-CVG $20 - 80
CVG-MCI $150 - 450

How many people would drive to CVG instead of filling up RJs and some narrowbodies going from SDF/LEX/DAY/IND to CVG?

independence will prove or disprove RJ profitability.

 

[General Lee]

You're right---they will. Let's hope things don't get too clogged up in the NE, and the weather stays perfect. Any disruptions, and they will have to cancel a lot of banks worth of flights. I believe their idea is to fly the RJs an average of 12-13 hours per day---which is what Southwest does for their 737s. That is a great feat---and Song is trying to copy it. But, if anything goes wrong or there is a glich, then the whole hub will turn into Chaos. Other airlines can reroute people through other hubs, or bypass the hubs all together ---point to point flying. It sounds like Indy will do everything through IAD (as of right now), and that could make or break them. United will also try to compete on the same routes as Indy with Airwisky an Chataqua (Republic) and that will create longer takeoff delays and arrival delays at IAD. It will be interesting to watch---just from a logistical stand point. Maybe they can do it....? But, the majority of their initial flights will be flown with RJs, and we will see if they can trim the CASM down, and if passengers like flying MOST of their NE flights on RJs.....Their limited number of A319s will be enroute most of the time--flying longer flights to San Diego, Las Vegas, etc....flying 5 or more hours enroute. That is a lot of wasted time when you only have 15-20 or so A319s in the first few years---and the rest on RJs....We shall see....

Bye Bye--General Lee

 

[exphojump]

I was a bit nervous about that too.

Mangement is going to use 7+ fully staffed spares(two ready reserve crews per aircraft/per day). So if an area is blocked due to weather you can cover flights and delays. They latest presentation indicates 9 banks on the CRJ and 11.8 hours a day with 80 CRJs. Spreading out the banks should help with the congestion and construction. Using that many spares is smart even though it adds a cent or so to CASM. If customers are going to fly instead of drive on the east coast it has to be an on time 99+% completion airline.

We'll see if customers are willing to pay a $20 a segment premium over LUV to go straight to a destination and avoid the beltway.

It will be interesting to watch from a FRJ with pay protection.

Good luck

 

[fam62c]

RJ's

I wish that the term "RJ" was never invented. All we have here is another airliner of a different size. The important thing in the future will be matching the correctly sized aircraft to the appropriate market. There's room for many different sized planes. Isn't an American F-100 really an "RJ" when compared to an MD-ll? I also think that the CASM discussion is not very useful. Why not fly a 747 from MKE to BNA? It has a much lower CASM than a Dornier 328 Jet? You have to look at total segment cost Vs. available segment revenue. There are markets for the 747, the 328Jet and everything in between. The RJ is not the answer to every market by any means and there are certain markets where they won't work at all.

Also, for everyone that wishes the RJ was never invented so we could all make big bucks at the majors; come on. The small jet aircraft HAD to happen, it was inevitable. The driving force for pilot wages/benefits is influenced more by the LCC's than anything else. It took awhile but all of this is the result of deregulation, it simply had to happen. The majors have a cost structure that is simply unsustainable in anything but a booming economy where supply and demand are in balance enough to allow for pricing power to be maintained. Southwest is the only large carrier that has proven the ability to be profitable in good times and bad. SWA has chosen a simple business plan and they do one thing really well. They never tried to be all things to all people. The majors try to do it all with many different fleet types and complex operations. I think in the future you will see more specialization of airplanes and airlines. The legacy carriers will gravitate to longhaul flying with big planes and leave the feed and shorthaul to LCC's and partner carriers with smaller planes and cost structures that match their operations. What I want to know is where the new 100 seat Embraers will go? The operating economics of this plane will be hard to ignore. It should be the CASM champ when compared to current narrowbodies of this seating range. Once JetBlue gets these babies they will not be able to be ignored so what happens? Right now the scope clauses prevent them from going to regionals and the major's cost structures make operating the plane effectively against a JetBlue or similiar carrier impossible. What will happen? Will the major airline pilots give in and throw out their scope clauses or will they agree to contracts that will allow the planes to be operated by mainline carriers at costs to compete with discounters? I see the 100 seat EMB as the next battleground. Any thoughts?

 

[General Lee]

The mainline unions will NEVER give up the 100 seaters. They will just give in to managment and allow their own junior people to get a lot less pay and still keep the flying. Delta did that in 96 with the "Delta Express" flying---and after that 2nd year pilots were already Captains on the 737-200s. That will happen again, but with 100 seaters.....That is how the furloughs will come back.

Bye Bye--General Lee

 

[LegacyDriver]

Legacydriver,

The RJs are replacing props and mainline airplanes on routes that used to support mainline planes---and could again but they are all parked. The fares are half, and the RJs cannot bring in enough revenue to the hubs to make them profitable. You need many many passengers to fill every plane at the hubs to create a chance for a profit.

Bye Bye---General Lee [/B]

But they are replacing turboprops (or *were*) in many markets. My question is, does this result in more traffic?

 

[MW44]

That is a good question. It's almost as if the legacy carriers spent billions fixing a problem that didn't exist. People complain when flying, period. The same ones that hated turboprops now can't stand flying on a cramped RJ. In most cases the turboprops were not competing against LCC's so their was really no need to replace them with rj's. If the legacy carriers had spent all that time and money to compete directly with the LCC's they might not be in such a bind now.

 

[NuGuy]

Okay, but does an RJ generate traffic that the turboprops it replaces can't?

Hiya Legacy Driver,

RJs NEVER generated traffic that the turboprops didn't. People are going to travel, or they won't. The size of the aircraft, or the type of propulsion only determines the squawk factor. I'm willing to bet that a very, very small percentage (on the order of 0.5% or smaller) of people would actively refuse to fly on a turboprop when they REALLY wanted or needed to go somewhere.

When RJs were new, and perhaps in a particular market one regional flew them, and other didn't, you might see some shift in one from the other, but now that everyone flys them, there is no significant difference. The same number of people are still flying.

When fares were high, and the idea of the RJ was to act as a "pathfinder" for long, thin routes, or hub bypass at a premium fare, it made sense.

Another way of looking at is now you are trying to carry the same people over the same routes in 5 limos that the LCCs are carrying in 1 bus, but in this case, the bus is nicer than the limos, but the limos cost more to run.

The legacy airlines got jacked into the RJ deal by stupid competition (IE "keep up with the Joneses") and trying to solve a problem that DID NOT EXIST. Now everyone is driving Ferrari's, nobody can afford them, and no one wants to be the first to get rid of theirs. Meanwhile, the frugal families, driving the Ford Family Trucksters, are laughing all the way to the bank.

Some of the more vengefull regional guys may cackle and laugh over the plight of the mainline pilots, but consider this: Not one of the LCCs fly's RJs. If all the legacy carriers go away, so does your RJ job.

Best,
Nu

 

[belchfire]

AirTran isn't stupid

That is what I was saying, in different
words. They figured out that it cost
about the same to run their own 717
as it does to give AirWiskey a profit
in an RJ...

The plus side is that it is a larger, more
comfortable aircraft with a "business"
class section,you don't have to give
up your carryon and they are in direct
control of the quality of service. Very
smart move, and I would love to go there
or to one of the few other operations that
are showing a profit in what is possibly
the most difficult chapter in passenger
transport history.

I have wondered a great deal about why
the mainlines are contracting out these
services to the rj's instead of running more
717's, a-319's...why USAir and DL are
creating dissention in their family by
getting outside contractorslike Mesa,
instead of running their own rj's if they
insist, or beefing up their own regional
airlines. The first thing AA did was park
all of the new 717s and keep running the
f-100's for two years. I wonder how much
that cost! Maybe it worked out better
(less training and cheaper leases vs.
fuel savings) I don't know.

FDJ 2 showed some numbers on NWA vs.
RJ. Yeah, 17% loss operating the RJ
or -4% on mainline...what we didn't see
was how big the -4% at mainline was. I
bet it was a much larger number than the
-17% on the rj's was. How much would
they have lost if they had all been
mainline flights? Dollars, not %! They are
really looking at the bottom line, dollars.
there are only three kinds of lies. Lies,
damm lies and statistics.

Boyd says on flights less than 300 mi
costs go "bonkers"...what about a
73 on a 300 mi trip? Bet they go bonkers
too! I love it when journalists/analysts
(like politicians) try to make a case for their
views by presenting one side of the story
as gospel.

Are RJ's profitable...probably sometimes.
Do they loose less money over the same
route with the same number of butts in
the seats (not percent of capacity, but the
same whole number of pax), bet your bum.

And when the mainline can loose less/show
a profit with one of their own planes on
that same route, guess what...they will
do it.

Bet Indy air gets more airbuses when/if
the number of enplanements justifies it.
For quite some time Midway was profitable
running RJ's and F-100's. IMHO only two
factors killed them. 1) Poor management
and 2) a weekening economy pre 9/11.

 

[fam62c]

RJ economics

I still say that this discussion is somewhat strange. The main question seems to be: is an RJ more or less economical than a 717 or 737? Let me pose the question another way: is a 737 less economical than a 767 or DC-10? The answer is.....that there is no answer to the question. It all depends on the route and the key is matching the correct aircraft to the route. Airplanes and routes come in all shapes and sizes and it's the fit that's important. The LCC's aren't flying "RJ's" but they're not flying 777's either. To say that they don't operate RJ's because the CASM's are too high wouldn't be true. They could acheive lower CASM"S with the 777 than with the 717 or 737. The LCC's have zeroed in on the most accessible and well traveled short to medium length routes where they are most able to compete effectively with the majors and that mission demands that 717,737,A-319 etc. RJ's have a certain niche and so far the LCC's aren't interested in short/thin routes. Additionally, they LCC's don't seem to be interested in having hubs that need feed. They are happy to pick off the passengers that want to go between cities and they don't want to mess with connecting passengers. This may change in the future and at some point LCC's may get into the feed business but for now they have plenty of passengers at the fare levels they offer. An "RJ" is just another airliner and a "regional airline" is just another airline. It's all about matching the plane to the market and creating the proper cost structure so each aircraft can be profitable when used in it's optimal role. Competition and the market will determine which airplane types are in which markets and what cost structure is necessary to make money.

 

[LegacyDriver]

Maybe the LCCs will pick up RJs when the Legacy Carriers being to die off. After all, if there is nobody around to compete for the routes then why not snatch them up and make them your own? You will eventually run out of 133-seat city pairs over time.

I think the Legacy Carriers are using the RJs to compete against each other more than against the LCCs. The LCCs cannot be beaten by Legacy Carriers no matter what airplane they fly.

It's like Delta, American, etc. are wrestling for a deck chair while Southwest, AirTran, etc. are firing torpedoes at the boat!

 

[Heavy Set]

It comes down to being able to cover the costs with enough seats. After that, any additional revenue is profit. You can't spread the costs over a limited number of seats and make a profit as airfares continue to fall on LCC routes - that's the big point here. An RJ on contested routes just won't work. Why would Delta put a CRJ on the Salt Lake to PHX route when it competes with SWA and AWA? You can't spread the costs very well over 50 seats... RJs should be kept on secondary and tertiary routes (non-LCC routes) so that they can charge a premium that allows it to cover costs per seat and make some profit...

As for the RJ and passengers preferring jets vs. big props, I have flown on RJs recently where the passengers were "horrified" by how small the airplane was (a 50-seat ERJ). I think there is an aversion to flying on anything "small" when compared to an A320 or 757. I think the regionals should consider more large, economical props for short-distance flights. There are plenty of ATR-72s in storage (ASA continues to use them) and the Dash 8-400 seems to be a winner in Europe where it is used on short stage flights profitably. In this case, we should be looking at the economics vs. the "prop aversion" problem because "RJ aversion" also appears to exist - passengers will never be happy unless they are flying on a 777.

We need to think more in economic terms going forward and the RJ doesn't make a lot of sense on LCC and short-stage routes...

 

[MedFlyer]

It comes down to being able to cover the costs with enough seats. After that, any additional revenue is profit. You can't spread the costs over a limited number of seats and make a profit as airfares continue to fall on LCC routes - that's the big point here. An RJ on contested routes just won't work. Why would Delta put a CRJ on the Salt Lake to PHX route when it competes with SWA and AWA? You can't spread the costs very well over 50 seats... RJs should be kept on secondary and tertiary routes (non-LCC routes) so that they can charge a premium that allows it to cover costs per seat and make some profit...

Here's the problem with your argument. In order for DL to compete on the SLC-PHX leg, they need to run 6-8 flights a day. If they convert all those flights to mainline, DL would be dumping hundreds of seats into this market. Yields on this route are already low and in order to fill the extra seats DL is dumping, they would have to trash the yields even lower!

Of course, when DL lowers fares, you can bet that HP and WN will respond. This creates a fare war. Who do you think will win a mainline fare war? HP and WN with CASM's of 7-8cents or DL with a CASM of 10+cents.

Sometimes you have to run RJ's on major routes in order to provide frequency at off-peak times. And sometimes, you have to use RJ's to be more selective with who you sell tickets to.

Everyone on this board complains that fares have fallen too low (and they're probably right), so your solution is to dump tons of extra capacity and drive yields even lower.

 

[Heavy Set]

Clearly DAL will need to lower its costs in order to better compete with SWA, Jet Blue, AirTran and others. The DAL pilots will do their part and negotiate lower wages - and hopefully all other labor groups will contribute as well (including regional employees).

Hopefully DAL will eventually incorporate what is good about Song (including low fares, entertainment units and food selections) into mainline flights (especially those that compete directly with LCCs). This may take some time, but I hope that it eventually happens because the Song experiment has proven that passengers will positively react to low fares, entertainment systems superior to those at Jet Blue and superior food selections vs. the other LCCs.

Throwing an RJ into the LCC routes is almost guaranteed to stifle profit potential because of the limited "upside" after the costs are covered. Utilizing larger airplanes on the LCC routes will at least give DAL an "opportunity" to make a profit given the ability to spread costs over more seats. With impending cost cuts (everyone expects them now), DAL should be able to compete better using mainline aircraft. Throwing more RJs into the LCC routes will not lead to higher profits... Just look to AirTran for an example - adios to the RJs...

 

[bvt1151]

RJ's offer more frequencies and therefore more revenue potential. Also they allow for the bypass of hubs with point-to-point service.
Contrary to what Boyd believes, the RJ is the greatest threat to the LCC.