The events of September 11, 2001 effected America’s
commercial airline industry as a whole. Mainline carriers
and regional carriers alike felt the shockwaves of 9/11,
and the aftershocks are continuing to be felt. Mainline
and regional carriers will travel on different roads to
recovery. It is my opinion that the regionals road will be
much smoother and more direct than that of the mainline
carriers. With passenger loads down, it only makes sense
to use regional airlines to service the shrinking markets.
Profitability is still achievable for the regional airlines
due to numerous factors. Although larger jets, such as
the B767, are extremely efficient when operated at full
capacity, their hourly operating costs are extremely high
compared to that of RJs and turbo-props. In addition, the
larger mainline carriers indirect costs of doing business
are much higher than that of the regionals; largely a
result of higher wages being paid to employees of a
mainline airline. To fully appreciate how, in the current
economy, the RJs and turbo-props can be more profitable for
a regional carrier than a full-size jet can be for a
mainline carrier, take into consideration the following
example.
Immediately following 9/11, Aloha Airlines was operating
737-200s on some of the less traveled routes. Loads were
approximately 30%. Aloha’s fixed cost of doing business
remained constant, however their revenue for these routes was
approximately 65% less than pre-September 11. Obviously,
you can not make money flying a 737-200 with 30 people in
the back. Despite numerous protests by Aloha’s pilots and
their Union, Aloha Airlines stopped flying the routes.
Instead, the routes went to Aloha’s sister Company Island
Air, which flies 37 seat Dash-8-100s. Aloha Airgroup, the
owner of both airlines, realized that the only way to make
money on this route was to reduce the cost of operating the
route proportionate to the decrease in revenue. This was
obtainable utilizing Island Air.
Island air was able to take the same route and make money
where Aloha could not. How? Well, to begin with, the
direct operating costs per hour of the Dash 8 is much lower
than that of the 737-200. This can be accredited to such
things as a lower fuel burn and lower paid pilots. Perhaps
more significant though, is the lower in-direct costs of
doing business. Island Air has less employees, lower
wages, lower amortization, less office space, less
aircraft, less maintenance equipment, less spare parts,
less hanger space, and less advertising costs. This all
adds up to a significantly lower daily operating cost.
Sure, they are not adequately equipped to deal effectively
with high loads and massive capacity. However, it all
boils down to carrier capacity vs. market capacity.
Operating at a 90% load rate is profitable; operating at
30% is not. If you have 60 people/hour who want to fly
between Kona/Hilo and Maui between 0600 to 1800 daily,
that’s 360 people per day. That number equates to an
approximate revenue potential of $36,000 per day. Aloha
Airline’s daily cost for performing this route exceeds
$36,000 per day; Island Air’s cost per day does not exceed
$36,000. Therefore, Island Air can profitably operate a
route that Aloha Airlines could not. Ever heard of the
expression “don’t send an eagle to do a sparrow’s job”?
It’s true.
The airline industry will continue to erode. The loads
will not only be lower; they will be spread out more than
before. People will begin traveling to and from smaller
airports, flying less miles, and looking for the most
convienent travel times. Commercial aviation is changing
dramatically. Regional carriers will be in a position to
take advantage of this situation by utilizing RJS and Turbo-Props. They WILL make a profit and they WILL grow.
Mainline carriers will continue to downsize, eliminate
routes, sub-contract, and struggle to keep their head above
water.
Just some Food for Thought
commercial airline industry as a whole. Mainline carriers
and regional carriers alike felt the shockwaves of 9/11,
and the aftershocks are continuing to be felt. Mainline
and regional carriers will travel on different roads to
recovery. It is my opinion that the regionals road will be
much smoother and more direct than that of the mainline
carriers. With passenger loads down, it only makes sense
to use regional airlines to service the shrinking markets.
Profitability is still achievable for the regional airlines
due to numerous factors. Although larger jets, such as
the B767, are extremely efficient when operated at full
capacity, their hourly operating costs are extremely high
compared to that of RJs and turbo-props. In addition, the
larger mainline carriers indirect costs of doing business
are much higher than that of the regionals; largely a
result of higher wages being paid to employees of a
mainline airline. To fully appreciate how, in the current
economy, the RJs and turbo-props can be more profitable for
a regional carrier than a full-size jet can be for a
mainline carrier, take into consideration the following
example.
Immediately following 9/11, Aloha Airlines was operating
737-200s on some of the less traveled routes. Loads were
approximately 30%. Aloha’s fixed cost of doing business
remained constant, however their revenue for these routes was
approximately 65% less than pre-September 11. Obviously,
you can not make money flying a 737-200 with 30 people in
the back. Despite numerous protests by Aloha’s pilots and
their Union, Aloha Airlines stopped flying the routes.
Instead, the routes went to Aloha’s sister Company Island
Air, which flies 37 seat Dash-8-100s. Aloha Airgroup, the
owner of both airlines, realized that the only way to make
money on this route was to reduce the cost of operating the
route proportionate to the decrease in revenue. This was
obtainable utilizing Island Air.
Island air was able to take the same route and make money
where Aloha could not. How? Well, to begin with, the
direct operating costs per hour of the Dash 8 is much lower
than that of the 737-200. This can be accredited to such
things as a lower fuel burn and lower paid pilots. Perhaps
more significant though, is the lower in-direct costs of
doing business. Island Air has less employees, lower
wages, lower amortization, less office space, less
aircraft, less maintenance equipment, less spare parts,
less hanger space, and less advertising costs. This all
adds up to a significantly lower daily operating cost.
Sure, they are not adequately equipped to deal effectively
with high loads and massive capacity. However, it all
boils down to carrier capacity vs. market capacity.
Operating at a 90% load rate is profitable; operating at
30% is not. If you have 60 people/hour who want to fly
between Kona/Hilo and Maui between 0600 to 1800 daily,
that’s 360 people per day. That number equates to an
approximate revenue potential of $36,000 per day. Aloha
Airline’s daily cost for performing this route exceeds
$36,000 per day; Island Air’s cost per day does not exceed
$36,000. Therefore, Island Air can profitably operate a
route that Aloha Airlines could not. Ever heard of the
expression “don’t send an eagle to do a sparrow’s job”?
It’s true.
The airline industry will continue to erode. The loads
will not only be lower; they will be spread out more than
before. People will begin traveling to and from smaller
airports, flying less miles, and looking for the most
convienent travel times. Commercial aviation is changing
dramatically. Regional carriers will be in a position to
take advantage of this situation by utilizing RJS and Turbo-Props. They WILL make a profit and they WILL grow.
Mainline carriers will continue to downsize, eliminate
routes, sub-contract, and struggle to keep their head above
water.
Just some Food for Thought
