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The RJ Glut is here

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Well-known member
Aug 9, 2003
[FONT=Tahoma, Verdana, Lucida]Part 1: The Boyd Group Advantage[/FONT]

Aviation Perspectives & Insights
Available Nowhere Else

[FONT=Tahoma, Verdan, Lucida]Hot Flash[/FONT][FONT=Tahoma, Verdan, Lucida] - October 3, 2005[/FONT]
[FONT=Tahoma, Verdan, Lucida]
[FONT=Tahoma, Verdan, Lucida]New Airports:USA Forecast Flash:[/FONT][FONT=Tahoma, Verdan, Lucida] More I-Air Traffic Issues[/FONT][FONT=Tahoma, Verdan, Lucida]
[FONT=Tahoma, Verdana, Lucida]The RJ Glut... [/FONT][FONT=Tahoma, Verdana, Lucida]
Shaky Revenue Streams At Regional Airlines...
Now That It's Obvious, It's Safe To Forecast It

The "consensus." What "everybody knows." Myths not to be questioned.
[FONT=Tahoma, Verdana, Lucida]Among these: the glorious future of RJs and the entities that operate them. Passengers love them. They make bundles of cash for their operators. Airports need to snap to and build lots of expensive, RJ-specific infrastructure. The RJ is the future. RJ operators are the model for the future airline industry.[/FONT]

[FONT=Tahoma, Verdana, Lucida]Think again, all. The future just arrived. And it's got some ugly baggage. Note to airports: re-think those RJ-related expenditures.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Sacred Mysteries Not To Be Questioned. Two of the core tenets of today's ambient thinking in aviation have been a) that "regional" jets are the wave of the future, and b) the entities that operate them, which are generally still referred to by the misnomer "regional airlines," are the future profit stars of the airline business.[/FONT]

http://www.aviationplanning.com/images/forecast1032.JPG[FONT=Tahoma, Verdana, Lucida]It's been chanted over and over from all sides of the aviation cognoscenti. RJs are the growth aircraft, and regional airlines can make a profit where legacies can't. To disagree with this (which, as we'll note, our forecasts have done consistently, based on facts, not consensus) is grounds for snickering from the lightweights and perhaps a burning at the stake for heresy. [/FONT][FONT=Tahoma, Verdana, Lucida]Oops! A couple things just happened that already has these veneer analysts doing a pirouette that would make a ballerina blush. [/FONT]

[FONT=Tahoma, Verdana, Lucida]The Glut Is Now Obvious. Plan On The Herd Reacting Accordingly[/FONT][FONT=Tahoma, Verdana, Lucida]. First, it seems that a sizable number of RJs - "tomorrow's airplane" - are heading for today's desert. Plan on seeing a change in tune from the same consultants who have been chanting what they just read about RJs in some aviation periodical, not to mention some that have touted (or, worse, were paid to tout) the glories of the regional jet. [/FONT]
http://www.aviationplanning.com/images/forecast103.JPG[FONT=Tahoma, Verdana, Lucida]Second, the parrot cognoscenti have just discovered that the supposed ironclad profitability of "regional airlines" is based not on consumer and marketplace factors, but on the rates that the airlines to which they lease airplanes are willing to pay. [/FONT]

[FONT=Tahoma, Verdana, Lucida]And that revenue stream is starting to dry up, not to mention becoming vulnerable. The Northwest bankruptcy, for example, precluded significant pre-petition payments to Mesaba and Pinnacle, putting both in some financial jeopardy. Surprise! Gee, what a discovery. These "regional airlines" really are neither "regional" nor are they "airlines." They're vendors of a product that has a declining demand curve.[/FONT]
[FONT=Tahoma, Verdana, Lucida]But, according to some financial stock peddlers, these "regionals" are examples of how airlines should operate. One analyst not too long ago put out a glowing recommendation on Pinnacle, noting that it had a great growth future because it could easily partner with other major airlines. [/FONT][FONT=Tahoma, Verdana, Lucida]Clueless and ignorant information. Yet there are people who probably invested based on this nitwit advice.[/FONT]

[FONT=Tahoma, Verdana, Lucida]News Flash: After It Happens, It's Too Late To Prepare For It. [/FONT][FONT=Tahoma, Verdan, Lucida]There's a difference between a forecast, on one hand, and a mere recognition of what's already taken place, on the other. The first gives people a view of the future, so they can make informed decisions on how to prepare. The second is a discussion of history.[/FONT]

[FONT=Tahoma, Verdan, Lucida]Too bad most consultants confuse the two. A forecast is an educated projection of something that isn't yet obvious. Once something's taken place, guys, it's a little late to "predict" it or the outcomes that may be expected. An in-depth insight into the obvious, however postured, is of little planning value.[/FONT]

[FONT=Tahoma, Verdan, Lucida]But it's always safer not to "forecast" anything until after it happens. That's why most other consultants don't. Of course not. To do otherwise could leave one open to being accused of arguing with the "consensus thinking." That would make one have to defend his position. [/FONT]
[FONT=Tahoma, Verdan, Lucida]So, here's generally what we'll be hearing from this point forward as a "forecast" by a lot of aviation analysts:[/FONT]

[FONT=Tahoma, Verdan, Lucida]"...One key thing to keep in mind is that the market cycle for small jets in the 32-50 seat categories... has peaked..."[/FONT]
[FONT=Tahoma, Verdan, Lucida]That'll be the general gist, now that new orders for CRJs and ERJs have gone south.[/FONT]​
[FONT=Tahoma, Verdan, Lucida]But that statement isn't just going to be made. It was made - almost three an a half years ago - May 23, 2002, Hot Flash. it was based on The Boyd Group's annual fleet forecast at the time. It went on, [/FONT]
[FONT=Tahoma, Verdan, Lucida]"...Ignore forecasts that predict huge new numbers of these airliners. It will still take some time for most other analysts to notice it in the rearview mirror, but the day of big orders for commuter-cabin 50 seat jets is over. Done. Finished. There's a couple hundred more (maybe) coming on line in the US, and then that's it. Then the slow decline in their applications will begin. Airports might want to review any terminal planning that entails investments in jetways and other facilities for "regional jets" that cannot also easily accommodate larger aircraft."[/FONT]
[FONT=Tahoma, Verdan, Lucida]RJs Being Parked. Regional Airlines In Trouble. Our Clients Were Prepared. Naturally, this statement back in 2002 was heresy. Other consultants were busy providing sunshine forecasts predicting demand for RJs in the thousands. But our forecast clients - including those heavily invested in RJ production - heard it straight, whether it agreed with the "consensus" or not. Remember, "consensus thinking" is a contradiction in terms.[/FONT]
[FONT=Tahoma, Verdan, Lucida]Gee, guess what's happened since then. Our fleet forecasts - which are sought after by aircraft and powerplant manufacturers - clearly and accurately predicted the flattening of the demand curve for RJs.[/FONT]
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[FONT=Tahoma, Verdan, Lucida]Part 2[/FONT]

[FONT=Tahoma, Verdan, Lucida]Okay to Predict, Now That It's Happened. [/FONT][FONT=Tahoma, Verdan, Lucida]Today, other consultants and analysts see the trend in their rearview mirrors, making RJ-related travails quite safe to "predict." This past week, it started - the shift toward the chant that "everybody knows" RJs and "regional airlines" are facing a difficult future, with a number of media stories in which various consultants have now "predicted" a glut of "regional jets". [/FONT]

[FONT=Tahoma, Verdan, Lucida]And they are making absolutely brilliant prognostications, especially coming after Northwest has advised two of its "regional airline" partners that as many as 50 of these contraptions are planned to be no longer needed... Truly insightful, particularly after months of speculation thathttp://www.aviationplanning.com/images/rearview4.JPG Independence Air could collapse, leaving 50+ CRJs sitting idle... Exceptional forecasting prowess, making this bold prediction months after Air Wisconsin put $125 million into US Airways, in part to find a home for the 60 or so RJs that were coming out of the United system... [/FONT]
[FONT=Tahoma, Verdan, Lucida]Rearview mirror forecasting at its finest. [/FONT]

[FONT=Tahoma, Verdan, Lucida]Listen! They're Chanting Something New![/FONT][FONT=Tahoma, Verdan, Lucida] Watch for the new mantras.[/FONT]

[FONT=Tahoma, Verdan, Lucida]Mantra One will be a 180 from that of just a few weeks ago: that "regional jets" have significant marketplace challenges, and new orders will be tough in the future. (In their rearview mirror: three years of near-zip orders.) [/FONT]

[FONT=Tahoma, Verdan, Lucida]Mantra Two: "Regional airlines" will be feeling the pinch of legacy bankruptcies, and a shake out is coming. (In their rearview mirror: The desperate game of musical RJs, as Mesa, Air Wisconsin, and others scramble to place their RJs.)[/FONT]

[FONT=Tahoma, Verdan, Lucida]Variation on Mantra Two, likely from consultants paid by alphabet groups to tout the jive-time consumer wonders of RJs: "The new Embraer 70-110 seat E-Jets are proof positive that regional jet demand is alive and well." This despite the fact that these E-Jets are no more comparable to CRJs and ERJs than a grade school Pop Warner football team is to the Dallas Cowboys. E-Jets will sell like hotcakes because they are new-generation mainline aircraft (regardless who's in the cockpit) with mission applications competitive with 737-600s and A-318s. [/FONT]
[FONT=Tahoma, Verdan, Lucida]None of this is to imply that "RJs" or their operators are going to disappear. But the shake-out has already begun. When the dust settles, what some still call the "regional airline industry" will be very different.[/FONT]

[FONT=Tahoma, Verdan, Lucida]Clear Your Calendar October 16-18, And Get Real Forecasts.[/FONT][FONT=Tahoma, Verdan, Lucida] We'd not immodestly also mention that the attendees at our Annual Forecast Conferences also find these Johnny-Come-Lately grand predictions old news. [/FONT]
[FONT=Tahoma, Verdan, Lucida]They got this insight over four years ago at our Annual Forecast Conference. Furthermore, they knew about the future demand for new-generation E-Jets in the 70-110 seat category, something that's just now being "forecast" by the usual see-it-and-say it corners of the aviation analyst and media crowds. [/FONT]
[FONT=Tahoma, Verdan, Lucida]This year, we're looking at several emerging areas in the realm of aircraft demand. [/FONT]
  • [FONT=Tahoma, Verdan, Lucida]We'll be covering the issue of very large jets, like the A-380, which from most indications points to being a very large embarrassment for our friends in Europe. [/FONT]​
  • [FONT=Tahoma, Verdan, Lucida]And very light jets, which have a very strong future, although not in some of the grandiose applications some are planning. [/FONT]​
  • [FONT=Tahoma, Verdan, Lucida]The effects of higher fuel prices on small and mid-size air service. At $2+ per gallon for jet-A, plus new FAA-mandated passenger weights, those 19-seaters are becoming flying deficit producers. There are alternatives, both currently and in the long term. We'll be discussing these.[/FONT]​
[FONT=Tahoma, Verdan, Lucida]Our Airport Traffic Forecast session will illuminate trends that others will almost certainly notice next year. Or the year after. [/FONT]​
[FONT=Tahoma, Verdan, Lucida]Don't wait to read about the future until after it happens. Join your colleagues in Savannah.[/FONT]
[FONT=Tahoma, Verdan, Lucida]This year's conference is the best-attended yet, and hotel space is getting tight, but if you have a problem in this regard, give us a call.[/FONT]
[FONT=Tahoma, Verdan, Lucida]Click here to register on-line.[/FONT]
[FONT=Tahoma, Verdana, Lucida](c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved[/FONT]
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its more to do with labor costs than RJs themselves. Some regionals are parking their planes, some are growing. Seems to all equal out with a trend toward growth.

I know you must be worried about us, but fortunately we can count on your MEC and ALPA to screw up your scope so bad that we just end up getting bigger airplanes. I know the non-ALPA CHQ pilots are grateful for the E170's they are replacing your 737's with. Now that ASA is no longer "in the family" maybe we can get some love too.

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