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- Dec 21, 2001
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The latest Boyd report addresses issues of interest....
http://www.aviationplanning.com/
Regional Airlines - The Declining Importance
Continental is now going forward with its IPO for Continental Express. Nothing short of brilliant. But not for the reasons most Wall Street types think.
As we noted right after the Comair strike last year, (Go There) over the next decade the future value and role of small (<51 seat) jets will decline within the US air transportation system. ("Heresy! Anathema! Falsehoods!" - the inbred aviation analyst community will shriek. "We all know that regional jets and regional airlines are the wave of the future.") Regardless of the opinions of these dwellers of aviation's intellectual mushroom gardens, the fact is that this trend is already working. Orders for micro jets (under 50 seats) are done. Big orders for 50-seaters are just about done, give or take a buy from US Airways and United. These rosy forecasts for hundreds of 50-seat jets being sold annually into the next two decades are based on faulty understanding of airline industry dynamics. (Remember, as recently as three or four years ago, some of the same forecasts confidently predicted sales of turboprops well into the next decade, too.)
Spinning off wholly-owned regional partners is a smart move with no real downside. In the case of Continental Express, its real value is as part of the Continental system, so there's little chance it could branch off into other airline ventures - there just isn't room. On the other hand, these entities have enormous value right now and for the immediate future, so the buyers of the IPO can make out well. The real challenge will come in the last years of this decade when commuter-cabin aircraft (which is what 50 seat and small jets are) start to have less marketing appeal. In the meantime, it's gangbuster time.
Two entities to watch are Mesa and Skywest, which are essentially independent small-jet service vendors to larger airlines. Since there will always be a role of some kind for <51 seat jets within mega-carrier systems, and since major carries will likely become increasingly less willing to take the risk of owning them in-house, both Mesa and Skywest - with a diverse base of client major airlines - will be big players in the years to come. Skywest, to be blunt, is not just one of the nation's best run airlines, but one of the nation's best-run companies. They will be long-term players.
But aside from that, one thing will become clear as soon as it appears in Wall Street's rearview mirror: the days of "growth" for what we call "regional airlines" are coming to a close. Not now, and not in the next year or so. But by roughly 2005 - 2006, the situation will be different.
http://www.aviationplanning.com/
Regional Airlines - The Declining Importance
Continental is now going forward with its IPO for Continental Express. Nothing short of brilliant. But not for the reasons most Wall Street types think.
As we noted right after the Comair strike last year, (Go There) over the next decade the future value and role of small (<51 seat) jets will decline within the US air transportation system. ("Heresy! Anathema! Falsehoods!" - the inbred aviation analyst community will shriek. "We all know that regional jets and regional airlines are the wave of the future.") Regardless of the opinions of these dwellers of aviation's intellectual mushroom gardens, the fact is that this trend is already working. Orders for micro jets (under 50 seats) are done. Big orders for 50-seaters are just about done, give or take a buy from US Airways and United. These rosy forecasts for hundreds of 50-seat jets being sold annually into the next two decades are based on faulty understanding of airline industry dynamics. (Remember, as recently as three or four years ago, some of the same forecasts confidently predicted sales of turboprops well into the next decade, too.)
Spinning off wholly-owned regional partners is a smart move with no real downside. In the case of Continental Express, its real value is as part of the Continental system, so there's little chance it could branch off into other airline ventures - there just isn't room. On the other hand, these entities have enormous value right now and for the immediate future, so the buyers of the IPO can make out well. The real challenge will come in the last years of this decade when commuter-cabin aircraft (which is what 50 seat and small jets are) start to have less marketing appeal. In the meantime, it's gangbuster time.
Two entities to watch are Mesa and Skywest, which are essentially independent small-jet service vendors to larger airlines. Since there will always be a role of some kind for <51 seat jets within mega-carrier systems, and since major carries will likely become increasingly less willing to take the risk of owning them in-house, both Mesa and Skywest - with a diverse base of client major airlines - will be big players in the years to come. Skywest, to be blunt, is not just one of the nation's best run airlines, but one of the nation's best-run companies. They will be long-term players.
But aside from that, one thing will become clear as soon as it appears in Wall Street's rearview mirror: the days of "growth" for what we call "regional airlines" are coming to a close. Not now, and not in the next year or so. But by roughly 2005 - 2006, the situation will be different.