Regional Jet Economics - Mike Boyd

[StaySeated]

you guys are making the same mistake that boyd always does. he only looks at casm, as if it were the end all be all determination of profitability. if you take an rj and compare it to any narrowbody, by defenition it will appear to be less efficient in terms of casm. however, if you seperate the two and compare the rj casm to the rj rasm (not possible on fee for departure, cost plus, etc.)you will come out with a better ratio than most narrow bodies. That being said, I wish the d@mn things were never invented. It sure was easier when you built up a few thousand hours in a t-prop and then moved on to a narrowbody at a major. Most majors cut 15% capacity after 9/11, and that has more than been picked up by RJ's. That is 15% fewer jobs for anyone aspiring to move on to bigger and better things. Uh oh, better get back to the casm debate before the rjdc puts a bounty on my arse.

 

[NuGuy]

you guys are making the same mistake that boyd always does. he only looks at casm, as if it were the end all be all determination of profitability. if you take an rj and compare it to any narrowbody, by defenition it will appear to be less efficient in terms of casm. however, if you seperate the two and compare the rj casm to the rj rasm (not possible on fee for departure, cost plus, etc.)you will come out with a better ratio than most narrow bodies. That being said, I wish the d@mn things were never invented. It sure was easier when you built up a few thousand hours in a t-prop and then moved on to a narrowbody at a major. Most majors cut 15% capacity after 9/11, and that has more than been picked up by RJ's. That is 15% fewer jobs for anyone aspiring to move on to bigger and better things. Uh oh, better get back to the casm debate before the rjdc puts a bounty on my arse.

That may have been true pre-9/11, but the current fare structure does not allow for the premium that RJ RASM once enjoyed.

Today, given the extreme competition and fare structure, most regional operations today, whether they make money or not, are cash-negative to the mainline partner, and exist for two reasons:

1. To protect strategic markets

2. To club mainline pilots

If the accounting was pure on these operations (no hidden subsidies), the only places making any money would be the turboprop operators like Horizon, Mesaba and Piedmont.

Best,
Nu

 

[BoilerUP]

Looks like the FAA is trying to reign in the RJ with its mandatory schedule reductions at ORD. Maybe they see the RJ doing things it was never designed to do and have decided they'd rather deal with fewer narrowbodies than more regional jets.

 

[sweptback]

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.

The FAA doesn't care where airplanes fly as long as they follow the regs.

 

[FDJ2]

however, if you seperate the two and compare the rj casm to the rj rasm (not possible on fee for departure, cost plus, etc.)you will come out with a better ratio than most narrow bodies.

Not so fast, NWA did that and you might be interested to find out that RJ RASM/CASM is significantly less than the mainline. In NWA latest SEC filing RJs provided $217M in revenue and $256M in expenses for which yielded an operating margin of -17.9%. On the other hand, the NWA mainline margin was about -4%.

 

[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