Regionals Most Profitable

[TCAS]

The seven largest reporting regional airlines had the highest domestic operating margins ¯ an industry measure of profitability ¯ of any carrier groups during the third quarter of 2003, the Bureau of Transportation Statistics (BTS) of the U.S. Department of Transportation reported in a release of preliminary data.

Regional carriers reported a domestic operating profit of 15.4 percent for the third quarter, above the margin of 11.2 percent reported by seven selected low-cost air carriers and the 1.6 percent loss reported by seven selected network carriers.

(I guess this debunks many of the threads about the high cost of regionals versus the major carriers.)

http://www.bts.gov/press_releases/2003/bts029_03/html/bts029_03.html

 

[Guppiedriver]

The seven largest reporting regional airlines had the highest domestic operating margins ¯ an industry measure of profitability ¯ of any carrier groups during the third quarter of 2003, the Bureau of Transportation Statistics (BTS) of the U.S. Department of Transportation reported in a release of preliminary data.

Regional carriers reported a domestic operating profit of 15.4 percent for the third quarter, above the margin of 11.2 percent reported by seven selected low-cost air carriers and the 1.6 percent loss reported by seven selected network carriers.

(I guess this debunks many of the threads about the high cost of regionals versus the major carriers.)

http://www.bts.gov/press_releases/2003/bts029_03/html/bts029_03.html

No, it only points out the obvious. Most regionals operate through a fee-per-dearture agreement with the major that they serve. Therefore they are guaranteed a profit on all flights they operate.

The higher profit-per-passenger is amplified when the loads of the regional are light. Just the opposite of the major that they feed.

 

[Palerider957]

Good info.

This is something that every regional driver knows. I know that every time I look over my shoulder, my plane is full. I'm tired of being told that I have to take concessions, when we are making money hand-and-fist.

At least this gives us a little more leverage as we negotiate our new contract.

 

[Mr Hat]

Guppiedriver is right. For example at ExpressJet, we only really have one customer, Continental. They buy all our seats regardless of whether they are full or not. As long as those seats "go" they are paid for. "Regional" airlines is an old term that doesnt fit anymore, most anaylists are calling us "Small Jet Providers" because our main mission is to provide small jet capacity, not connect smaller communities with major hubs. We are fully integrated into the CAL system as another CAL fleet type. Someone may get on an ExpressJet E145 in Montreal, connect to another ExpressJet in EWR then fly to Freeport never actually seeing a real Continental airplane. However, we did not sell the ticket, we only provided the lift and we got paid regardless of how many people were on board (even though we are usually full).
Based on this kind of structure, if you're major airline customer is doing well, the SJP is doing well. If not then they may scale you back in order to lower capacity and cost. But regardless, no ammount of concessions is going to make a difference unless you are competing with another SJP for flying which is where the problem comes in. Everyone is trying to outbid eachother and slowly dragging pilot wages DOWN. The currect lowest price is Johnny O's Mesa.

 

[Caveman]

"No, it only points out the obvious. Most regionals operate through a fee-per-dearture agreement with the major that they serve. Therefore they are guaranteed a profit on all flights they operate. "

Yes and no. I believe all non-WO are fee for departure but most WO are not. CMR, for example isn't and has never been. The numbers you see for us at least, represent a bonafide profit.

 

[dogg]

I hear from friends at Horizon that they are hoping to place all of their RJ's with Frontier or similar type fee for departure deals because as a true stand alone airplane it is not profitable. That was not the case with the F-28 as the cost per unit was so low. I think that they are the only "regional" that is true a stand alone operation ie.. you can buy a ticket on Horizon from a Horizon res agent etc...

 

[General Lee]

Caveman,

Those profits at Comair have come to you from the reduction in Mainline flying. As the LCCs grow and expand their mid-sized mainline aircraft, you will see the majors taking back some of those profitable routes of yours---thus your profit making potential will lower. But, I am greatful that our Wo's and other DCI regionals have helped us out when we needed it---but it is now time to fight the LCCs with larger aircraft. There is no reason we should have 3 50 seat RJs a day between DFW and PHX, or DFW and DEN---each city having over 1-2 million people in population. That is ridiculous and something should be said to the Marketing department.....

Bye Bye--General Lee

 

[dkwid]

"I hear from friends at Horizon that they are hoping to place all of their RJ's with Frontier or similar type fee for departure deals because as a true stand alone airplane it is not profitable. That was not the case with the F-28 as the cost per unit was so low. I think that they are the only "regional" that is true a stand alone operation ie.. you can buy a ticket on Horizon from a Horizon res agent etc..."

That is not 100% correct. The RJ is by FAR more economical than the F28. As a matter of fact Horizon is now realizing their enormous cost savings with the F28 off the property. It is true Horizon likes the Frontier deal. Who would not....fee for departuer is a very stable means to earn money. It is NOT at all true Horizon wants all their RJ's their. Horizon has many very profitable RJ routes and fully intends to mantain them and ultimately find more. During the transition with frontier Horizon will be putting the more economical Dash8-400 on some less profitable RJ routes freeing up RJ's for Frontier. Long term we will see what happens with those routes and equipment.

 

[BluDevAv8r]

Yes and no. I believe all non-WO are fee for departure but most WO are not. CMR, for example isn't and has never been. The numbers you see for us at least, represent a bonafide profit.

That is not true. Even the WO carriers have internal agreements with the network carrier. Expenses and revenues must be allocated between subsidiaries and my guess is that it is set up in some sort of cost-plus situation, just like the contract carriers. The numbers that you see for Comair's profit is 100% not the "true" operating profit of the CRJ.

-Neal

 

[TCAS]

Most of this discussion has centered around how the profits were made while missing the bigger point that they are making a profit.

General Lee may be right that over time the mainline carriers will take back some of the flying. Or instead of three 50 seaters a day you may see six 50 seaters instead.

It will be interesting to see how this all plays out.

 

[Caveman]

BluDevAv8r,

I said I BELIEVE that most WO are not fee for departure. That may not be true for all WO's. I do know that CMR never has been a fee for departure arrangement.

General,

I disagree that our growth has been primarily at the cost of mainline flying. Some of it clearly has been. Some RJ growth has been simply because on select routes they are the better alternative. In other cases, as you point out, a desire for increased frequency has been the culprit. I agree with you that some routes would be better served by a larger a/c. Anything over two hours in the back of any RJ can be pretty taxing. In a perfect world the relative cost of operating different airframes would be fairly constant across a diverse fleet. Until the relative cost vs profit of operating an RJ is roughly equal to operating a 73 there will be conflict. Our cost/risk/profit equation has to change to be similar to mainlines or vice versa. How to make that happen, keep DAL Inc. profitable and keep the pilots reasonably satisfied is above my paygrade.

 

[FN FAL]

Those profits at Comair have come to you from the reduction in Mainline flying. As the LCCs grow and expand their mid-sized mainline aircraft, you will see the majors taking back some of those profitable routes of yours---thus your profit making potential will lower. But, I am greatful that our Wo's and other DCI regionals have helped us out when we needed it---but it is now time to fight the LCCs with larger aircraft. There is no reason we should have 3 50 seat RJs a day between DFW and PHX, or DFW and DEN---each city having over 1-2 million people in population. That is ridiculous and something should be said to the Marketing department.....

Over this coming decade, the economy is going to be better than it ever was. The cattle crowd is not going to want to ride in teeny tiny jets, and the CAPACITY of the aviation infrastructure will not have kept up.

We see it all the time with roads and other government facilities. The government cut corners during this downturn, cancelled a ship load of airport improvements and they really haven't enhanced their ATC system.

You're going to see the economy grow and then the regionals are going to expand. Eventually, the bigger planes are going to be phat again, forcing the regionals to downsize. You know why? Cause ATC and airport capacity is not going to be able to keep up...and fat Americans are going to want to ride in something bigger than a tin can.

You think all them jackasses driving Escalades, Hummers and Navigators, want to ride around in little jets?

They will forget the jungle jets just as quickly as they forgot the Merlin Metro, when the economy returns. ATC won't be able to bear the traffic jams, and FAT America will shun little jets.

 

[dogg]

dkwid, I misspoke on the cost issue. What I meant was not the operating costs but the many many millions that an RJ costs vs the very inexpensive leases on those old US Air F-28's. That is what my buddy was saying anyway.......

 

[BluDevAv8r]

BluDevAv8r,

I said I BELIEVE that most WO are not fee for departure. That may not be true for all WO's. I do know that CMR never has been a fee for departure arrangement.

Caveman,

Email someone from Comair's management in finance and ask them politely how the internal accounting and expense allocation is handled. What you will find is that in order to understand how Comair compares to the rest of the 50 seat jet industry, they need to have some sort of similar accounting metrics, even if it is a "virtual cost-plus" deal. Can you say with 100% confidence that Comair has never had an arrangement with Delta in this respect? While yes, the P&L is consolidated due to the fact that more than 40% of Comair is owned by Delta, Comair and Delta still need some way to comp out the performance of Comair versus the other SJP's. You can also call your MEC and speak to JC, Corey, or your attorney Bill Roberts.

-Neal

 

[Guppiedriver]

Most of this discussion has centered around how the profits were made while missing the bigger point that they are making a profit.

General Lee may be right that over time the mainline carriers will take back some of the flying. Or instead of three 50 seaters a day you may see six 50 seaters instead.

It will be interesting to see how this all plays out.

Actually no one here is missing your point. It's just that you have come to a conclusion without considering all of the facts. Read BluDevAv8r's posts, he explains it very clearly.

See FN FAL's post. The aviation infrastructure can not handle that kind of frequency. DCA is a prime example. Right now DCA is within 2% of the pre 9/11 daily t/o's and landings, yet capacity is down 18%. We are already seeing a shift from 50 seaters to 70 seaters to 90 seaters. Eventually we will see a shift back to mainline sized aircraft.

 

[wms]

Eventually we will see a shift back to mainline sized aircraft.

RJs served their purpose in preserving market share and equipment sizing, but the mainline aircraft have lower CASMs, and the faster consistently oversold RJ routes can go back to mainline the more profitable it will be for the airline. DAL has slowly started shifting some routes, or at least segments from ASA to mainline. Hopefully there are many more to come. The first airline to start putting larger, two-class aircraft on certain segments will have a jump on the competition. The average holiday traveler doesn't know the difference, but the seasoned travelers do and will migrate to the better service and the aircraft that will allow them to use the upgrades they've earned.

Mega-carriers now have the flexibility to customize service between city pairs. Some through the hub-and-spoke, some with direct service and some with LCC, depending on the frequencies and capacities a city pair can support. And this can be done with a variety of aircraft from RJs to wide-bodies. The question is how fast can the carrier analyze and respond to these markets.

 

[DrunkIrishman]

We should stop wasting time discussing what cities are "mainline" cities. The customer demand drives the seat requirements, not the marketing department. In case you haven't noticed, there are two carriers based in DEN. That makes it very difficult to compete with them compared to other markets. Furthermore, DEN is a very expensive airport to operate out of...ask Continental. I am not saying to roll over and die in these markets, but the airlines must put the demanded number of seats on those routes.

Hey Dukie (BluDevAv8r),

Insightful financial postings, but I disagree with some of your assessment. Who owns Comair? It makes no difference talking about allocation and such. The money goes to Delta and Delta determines what to do with the assets raised by Comair. For instance, Fred Buttrel, Randy Radamacher, and Skip Barnette are all employees of Delta Airlines instead of their respective positions. They are asset managers for Delta. However, you are right that there needs to be a similar accounting method to be able to compare to other operators. But this forces me to ask the question of why. It matters not if Comair is more or less profitable than any other carrier. It only matters if it is profitable to Delta, which is at Delta's complete control, unlike non-wholly-owned carriers. If Delta wanted to run Comairs rj's to cities that made no money, they could. Then we would talk about how they are not profitable.

Put the right equipment in the right market and your airline will do fine.

BTW, the 737-800 coach seats are the most cramped and uncomfortable seats I have ever sat in...except for the cockpit seats in the Brasilia.

 

[TCAS]

We are already seeing a shift from 50 seaters to 70 seaters to 90 seaters. Eventually we will see a shift back to mainline sized aircraft.

I agree! The 70-110 seat market is the next expanding market. The question remains is who will fly these aircraft? Will it be the mainline carriers who with a lower CASM then the regionals still can't earn a profit? Or will it be "regional" airlines that in spite of their higher CASMs can produce yields that generate a profit.

Ultimately management will decide what to buy, when to buy and who will crew them. All we can do is sit by and speculate.

 

[BluDevAv8r]

Insightful financial postings, but I disagree with some of your assessment. Who owns Comair? It makes no difference talking about allocation and such. The money goes to Delta and Delta determines what to do with the assets raised by Comair. For instance, Fred Buttrel, Randy Radamacher, and Skip Barnette are all employees of Delta Airlines instead of their respective positions. They are asset managers for Delta. However, you are right that there needs to be a similar accounting method to be able to compare to other operators. But this forces me to ask the question of why. It matters not if Comair is more or less profitable than any other carrier. It only matters if it is profitable to Delta, which is at Delta's complete control, unlike non-wholly-owned carriers. If Delta wanted to run Comairs rj's to cities that made no money, they could. Then we would talk about how they are not profitable.

DrunkIrishman,

Out of curiousity, what is your financial background? I disagree with what you posted above. For starters, Skip Barnette and Randy Rademacher are not employees of Delta. They work for a subsidiary of Delta. Fred Buttrell is in fact an employee of Delta I believe, since he oversees all of DCI.

While Delta does own Comair and ASA, they will still run those companies as separate companies, albeit they will still be "cost centers" to the company on the books and not true "profit centers" in the traditional sense. You said that it makes no difference about "allocation and such." Well that just isn't true. Allocation of expenses and revenues is incredibly important to a corporation, especially one with multiple subsidiaries because it needs to be able to accurately track the financial performance of each subsidiary, not only againt the mother company but also against the subsidiary's competitors.

You also said, "It matters not if Comair is more or less profitable than any other carrier. " That also isn't true. Why should Delta want to pay higher rates to an insourced piece of work when it get it for cheaper by outsourcing to a contract carrier? That is why it has Comair in the first place - because they will do the job cheaper than Delta will. In the razor thin margins of the airline world, every penny counts and I can guarantee you that Delta's financial managers watch Comair and ASA's performance under a microscope.

You also said, "If Delta wanted to run Comairs rj's to cities that made no money, they could." I can guarantee you that they are already flying RJ's to cities that are not profitable at this time. Why? Protection of the market. If Comair leaves a city altogether, that leaves the remaining competitors with less competition and thus stronger pricing power in that market, etc.

-Neal

 

[DrunkIrishman]

Blu-

My financial background includes a checkbook and a few credit cards. Anyhow, we actually agree on some things. I think we are confusing what each other is talking about on others. Obviously Delta needs to know where Comair stands financially. The point I am making to you is that Comair's routes and business are entirely dependant on Delta. For every city that Comair is flying empty to maintain market presence, there are probably four or five that are making money. The money that is made goes not to Comair, but to Delta. Do you agree or disagree? I do not deny your financial beliefs, but I believe you are ignoring some relevant issues. Talking about financial management must include the realization of where the money goes and Comair's lack of controlling that money. Personally, I don't totally agree that you should operate in a market just to compete with other carriers. Some cases it is completely justified, but not in others. I believe Gordon Bethune of your parent company Continental coined, "Fly to win" to emphasize this philosophy.

As far as who RR and SB work for, ask them. They will tell you exactly what I stated, which is what one of the told me. The only way for you to disprove them is to look at their paycheck.