Regional Jet Economics - Mike Boyd

[bvt1151]

If we had managed to get your payrates plus 10 percent, for example, our DOC would still only increase anywhere from 10-25 dollars per hour.

Comair + 10% would cost much much more than 10-25 dollars per hour. The average ERJ-145 crew cost per hour is $232. Thats one captain, one first officer and one flight attendant. That means that if the flight attendant is paid $30 and hour, and the FO is paid $50 an hour, then the Captain must be paid $152 an hour right? The actuallity of it is that with benefits, and guarantees, and reserves, and training, etc, there is a lot more to the crew cost than what the three people are being paid. Comair + 10% would cost you an extra $104 per block hour. But for the sake of the rest of my post, lets say there really is only a $10 difference between crew costs.

The industry average for a CRJ is $1,279 per block hour. ERJ145 - $1,186. Thats $93 an hour difference, not including the profit margin.

Just to give you an idea where $93 a block hour can go:

Comair spends $343 per block hour on fuel. ASA spends $289. That's $54 that is attributed solely to ASA's longer stage lengths (472 compared to Comair's 448). Also Comair spends much more time in the Northeast buying what must be better fuel, because it costs more
Yet, when you compare these costs side-to-side ASA must be conserving more fuel, right? If you've been on the ramp in ATL and heard all the APU's screaming you'd know that wasn't true. The problem is that while you can look at the numbers and say ASA can fly with cheaper fuel numbers than CMR, the truth is that ASA would never have the fuel advantage it does if it were flying the same routes. That being said, CHQ looks good right now because the 145's are flying long-haul. CMH-MCO, CMH-TPA, SDF-MCO. The average stage length on the 145 at CHQ (not 135's. They've got their own category) is enourmous, which drives the numbers down. Could Comair operate a CRJ on that route and compete, absolutely, but Delta doesn't look at the actual numbers on a route to route basis, there is no way to. They are all calculated using monthly averages which must include Mx, leases, etc. CHQ has offered to fly each flight for a set rate, and Delta compares that to Comair's numbers based on an average 448-mile stage length. Those numbers will appear much higher than they actually are.

Again, back to my profit margin point, Delta has to pay, not only for the cost of the aircraft, but also for CHQ's profit. The contract was negotiated that Delta would pay CHQ enough to cover their costs, and then turn a profit. If that weren't the case, CHQ would be out of business. With Comair and ASA being owned, the money that is paid them only has to cover their costs, since the profits are put right back into Delta's pockets. Typically you're looking at a 10-15% profit margin, but we'll say its 7% for conservative numbers. That brings the price Delta must pay for each blockhour of CHQ's flying from $1186 up to an average of $1269. That's now a $10 difference from the $1279 CRJ, based on numbers that artificially show Comair's numbers high (stage length).

Now that $10-$25 per hour extra crew pay seems quite significant, doesn't it?

 

[B6Busdriver]

I've had my moments when I thought Mike Boyd was a nutcase. But the more I read and the longer I'm in the industry, the more credility I give him. Long before 9/11 he was talking about the limits of the RJ (50 seat). Interestingly, we are now seeing lots more talk of the 70-100 seat range.

Amen. He called the UAL-U merger as it happened. He was right about the 100 seat market. Say what you want but the guy has been dead on for a long time.

 

[AFELLOWAVIATOR]

OK. I will be hated and yelled at for this, but here goes.

It is sickening to read all this from pilots. All this economics talk shows me you people have bought in to mgt.'s little game. Who gives a shi tt about these numbers people. We at Comair are the highest paid and still turn a heck of a profit. The fact is, WE ARE UNDER PAID FOR THE JOB WE DO.

You sound like a bunch of brain washed zombies.

 

[surplus1]

CMR breakeven load factor is low because the mainline has to subsidize the operation. CMR only pays for its direct operating costs, the mainline then picks up all the other costs associated with flying that passenger on an RJ. If mainline only paid direct operating costs it would have had over $400M profit last year. The true breakeven load factor for CMR is difficult to determine since no one can accurately state what the true RASM and true CASM is on a CMR CRJ.

It is interesting to note that you focus on the one item that I said was "uncertain" and ingnore the core concept completely.

Your focus on the "subsidy" idea is also erroneous, yet you stick to it regardless.

You lead me to believe that you, HeavySet and the General have no real interest in why the Company uses a particular aircraft on a given route and you are not really interested in the economics of the various operations.

What you want is to find a way to justify replacing the RJs with narrowbody aircraft, which in turn is motivated by self interest.

I don't have a problem with self-interest, it is a natural thing. What I do have a problem with is specious arguments that have no true basis in fact. You fly narrow body airplaines and you do not fly RJs. Therefore the Company is foolish (according to you) whenever it operates and RJ instead of a 737.

It seems to me that the company can and does operate its RJs efficiently and they are more than capable of competing with the LCC's whenever the available traffic is not adequate for 2 or more narrowbody aircraft on the same route (which is much of the time). At other times, the incresed frequency that the RJ can offer is yet another competitive advantage vs. the LCC.

When the traffic is there to support a 737 competing with the LCC the company uses it.

Maybe all of you mainline types would do well to accept the fact that the Company is not in business to provide you (or me) with jobs. It's in business to make money. What you do is losing money right now. In contrast what the company is doing with its RJs is making money right now and it doesn't matter whether they compete with LCC's, mainline operations or other RJs.

When that changes in your favor and you once again become the "money makers", mainline flying will increase and RJ flying will stagnate or decrease.

The way it stands, RJs fly where they make the most money for the company. Mainline aircraft fly where they make the most money or lose the least. I think the people that run the company (thank God that's not the pilots) have a much better handle on how that works.

 

[General Lee]

Surplus1,

We don't have any more servicable planes in the desert except MD-11s, and now all of the passengers are back. We parked 50 or so 727s and L1011s there that will never come back. We now have too many RJs and not enough mainline planes---and until we take pay cuts (mainline pilots)---we won't be ordering any new ones. So, in the mean time---our RJs will compete, and probably lose, against LCCs mainline planes---like DFW--DEN, DFW-PHX, etc.....But, it really isn't your fault or my fault here----it is our Marketing Dept's.

Bye Bye--General Lee

 

[On Your Six]

Why did AirTran discontinue its Air Whisky contract? Clearly, CRJs are not the panacea we all thought they would be. That's a fact. Plus, they are super uncomfortable - especially on flights exceeding one hour - most people would agree with that.

There are many routes out there that would support 100 seaters profitably - but DAL does not have them or a plan yet... Jet Blue understands the promise of the 100-seater and has bet heavily on it. People need to recognize that the LCC environmnet has changed everything - the economics of the CRJ/ERJ are not as favorable as they once were. Add to that the comfort factor and it is easy to see why AirTran made its decision - capture more revenue/profit using the 717s on the midsized routes and keep passengers comfortable. Why can't Delta hire the AirTran CEO - he and Neelman are geniuses....

 

[MedFlyer]

Why did AirTran discontinue its Air Whisky contract? Clearly, CRJs are not the panacea we all thought they would be. That's a fact. Plus, they are super uncomfortable - especially on flights exceeding one hour - most people would agree with that.

There are many routes out there that would support 100 seaters profitably - but DAL does not have them or a plan yet... Jet Blue understands the promise of the 100-seater and has bet heavily on it. People need to recognize that the LCC environmnet has changed everything - the economics of the CRJ/ERJ are not as favorable as they once were. Add to that the comfort factor and it is easy to see why AirTran made its decision - capture more revenue/profit using the 717s on the midsized routes and keep passengers comfortable. Why can't Delta hire the AirTran CEO - he and Neelman are geniuses....

The difference if that Neeleman and Leonard have an extremely low-cost mainline product, so they can afford to fly big planes on secondary routes. Neeleman and Leonard aren't geniuses, they just have dirt low costs. Also, the 100 seat LCC strategy is still unproven. JBLU has yet to start service and Airtran has struggled in many secondary markets. If you think Airtran is making lots of money in place like ICT, TLH, SAV, PNS,etc....think again. In the past two years, Airtran has burned through almost 4 million in subsidies to serve ICT and they still can't turn a consistent property. Keep in mind, the only competition Airtran has on the ATL-ICT route are DCI RJ's.

If DL mainline had a reasonable cost structure, they could probably have lots of 100 seaters. But right now, DL mainline is a bloated beast. Keep in mind that while the CASM of a 100 seater might be lower than the RJ, it will likely be higher than the MD88. If DL can't make money with the MD88's current cost structure, what makes you think they can make money flying a higher CASM 100 seater???

Neeleman and Leonard also benefit from having pilots that want growth and job security. All these RJ's never had to happen. The DL pilots could have prevented it with scope, but the DL pilots only thought of one thing...industry leading pay.

Read this part carefully: The DL pilots CHOSE to have things this way. They sacrificed future growth, so that they could have the best contract in the industry.

 

[surplus1]

Why did AirTran discontinue its Air Whisky contract? Clearly, CRJs are not the panacea we all thought they would be. That's a fact. Plus, they are super uncomfortable - especially on flights exceeding one hour - most people would agree with that.

I have never thought that RJs were a panacea for anything. That is no more than one additional play on words invented by the anti-RJ set. It's just another airplane that fits a niche in the overall market. There is nothing special about an RJ and there is also nothing special about a 737. Each has its place.

There are many routes out there that would support 100 seaters profitably - but DAL does not have them or a plan yet... Jet Blue understands the promise of the 100-seater and has bet heavily on it. People need to recognize that the LCC environmnet has changed everything - the economics of the CRJ/ERJ are not as favorable as they once were. Add to that the comfort factor and it is easy to see why AirTran made its decision - capture more revenue/profit using the 717s on the midsized routes and keep passengers comfortable. Why can't Delta hire the AirTran CEO - he and Neelman are geniuses....

Your confidence in the alleged genius of Leornard and Neelman should make you eager to seek employment at one of those carriers. Both are currently operating at a profit. Whether or not that will continue is left to be seen. As the competition increases from other LCC's they will ultimately be in the same boat that the legacy carriers now find themselves.

The truth is that neither you nor I have any real knowledge of why AirTran discontinued its contract with ARW. Likewise, JB's big order for the EMB-190 is unproven. We will not know how successful it will be until they begin to operate them in large quantities. Meanwhile you're just speculating about the unknown.

Remember this. Everytime an RJ takes 20 -30 pax away from AirTran, the Air Tran flight is in jeopardy of losing money. The same applies to SWA. JBlue is a little better off due to the amenities and the hype in it's niche markets. The "comfort level" may not be the same but it doesn't have to be. Everyone that flies on a 717 or a 737 or an A320 would probably like a 777 better, but that doesn't mean that the airline should operate 777's below the break even load factor, just because pilots prefer to fly them or passengers think bigger is better.. The same applies to the RJ vs the narrow body.

It's about making a profit or forcing the competition to operate at a loss. It is not about pilot preference. Passenger preference is very important, but obviously not enough to cause the RJs to fly around losing money.

Every buck an RJ makes (when it competes with and LCC) is a buck that the LCC doesn't make. It is also a buck that the legacy doesn't lose by trying to compete with a mainline 737 operated in the mainline infrastructure whose cost is not competitive.

When the costs of the legacy carriers can match the LCC's you stand a chance of competing with them. Until then, they win.

 

[surplus1]

Surplus1,

We don't have any more servicable planes in the desert except MD-11s, and now all of the passengers are back. We parked 50 or so 727s and L1011s there that will never come back. We now have too many RJs and not enough mainline planes---and until we take pay cuts (mainline pilots)---we won't be ordering any new ones. So, in the mean time---our RJs will compete, and probably lose, against LCCs mainline planes---like DFW--DEN, DFW-PHX, etc.....But, it really isn't your fault or my fault here----it is our Marketing Dept's.

General,

When the Company decides that it has too many RJs it will stop buying them and they will be sold or parked, just like the 727's, the MD-11's and the 737-800's that you sold and deferred.

Your RJs are competing and they're doing a pretty good job of it. They are not losing, no matter how much you wish it were so.

If you could buy 100 new airplanes with 100 seats, they too would lose money --- unless you can find a way to make them cost competitive. That means you would have to match the cost structure of the LCC's. You can't do that, even by reducing pilot pay. The entire infrastructure is unsuited to compete with LCC's.

Song may be able to do it on certain routes with the volume of traffic needed to make those 757's competitive. That also means you need about 80% full, every time. Cut your pay and you might get it down to 75%. That's still a tall order. It would still leave you having to put 150 people on every flight if you hope to compete with the LCC's.

 

[Ganja60Heavy]

Still some 737-200's available.....

...yup! I saw them in Arizona last week. Already Delta has slapped some new paint on 'em (or just white paint over where it used to say "Express") and.....tadaaaa! It's a 100-seat RJ.....except it practically LEAKS fuel, sets off car alarms at take-off, and carries 2 disgruntled pilots who used to fly -88s or -300's and are at the bottom of the now-truncated seniority list.

How are its operating costs compared with CRJ-700's at higher frequency?

 

[wms]

I believe that DAL sees the RJ as a benefit, or they would not have ordered 45 more and given 25 to ASA, if we end up with them.

I also believe they see the 100 seater as the next big thing at DAL seeing that they brought the 732s back. I think when they sign a deal with DALPA, there are going to be more 100 seaters.

I hope that DAL has a real plan. With the aircraft they have, they have the flexibility to meet any city pair with any type of service; from hub-and-spoke mainline to RJ feeds to RJ direct service to LCC and even mainline direct service, what ever that city pair will support. Hopefully DAL is light enough on its feet to move quickly.

But what ever happens the issues will be solved behind closed doors and through formal channels and all our opinions on a gossip board won't make a difference.