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Air Transport
U.S. Regional Carriers Vie for New Business
Aviation Week & Space Technology
11/27/2006, page 64
Lori Ranson, Washington
U.S. regional carriers wade through uncertainty as they compete for new business from majors
Printed headline: Waiting for the Chips To Fall
Sweeping changes could be in store for the U.S. regional industry as those carriers anxiously await the outcome of months-long bidding battles to capture business from at least four airlines altering their regional networks. US Airways' proposal to merge with Delta Air Lines adds another layer of uncertainty to the regional industry's state of flux.
The latest round of business up for grabs could result in majors severing long-standing ties with some of their regional partners. Through their respective bankruptcies, in order to gain more favorable rates, Delta and Northwest are asking carriers to rebid for practically all of their regional flying. Midwest has created a new opportunity for 50-seat jet operations, while Frontier says its network needs more 70-seat jets.
Executives at US Airways say the management team needs to discuss network strategies with its regional partners and potential new ones. But they also highlight the fact that a cut in 50-seat regional jets would account for a portion of the overall 10% capacity reduction attached to the proposed merger with Delta.
SkyWest's existing business with Delta is somewhat shielded from that uncertainty. The carrier has affirmed its 15-year deal with Delta through the bankruptcy court, but Republic Airways Holdings and Mesa don't have the same protection. Raymond James analysts note that Delta was looking to firm up those deals this month, but "with a pending merger proposal on the table, Delta's creditors may not approve any effort to enter into new long-term contracts until this proposal is resolved."
US Airways' move also makes the future of Delta's wholly owned subsidiary Comair more ambiguous. The Raymond James analysts say Comair's business could be substantially curtailed or shut down if the airlines merge. Comair is trying to win concessions from its pilots, but negotiations haven't proved fruitful. In a hearing set for this week, a bankruptcy judge is to rule on Comair's request to impose concessions on the pilot group. If the judge rules against the carrier, Comair faces an $8-million rise in its pilot cost Jan. 1 as a result of concessions that its pilots agreed to last year before Delta filed for bankruptcy. Comair management asked for those compromises to gain up to 35 new aircraft in 2005.
Through its restructuring, Northwest is creating a subsidiary, Compass, to fly 36 76-seat Embraer 175s. The carrier also plans to award operations of 36 CRJ900s to a yet-to-be-determined Airlink partner and is evaluating bids from carriers to fly additional regional jets. At one point, Northwest was asking for bids for up to 126 jets, but the airline is not commenting on the number of jets involved in its request for proposal (RFP) process.
SkyWest and Mesa top the list as the likely candidates to fly Northwest's 30 76-seat CRJ900s, note Raymond James analysts, since those airlines already operate Bombardier's largest CRJ model. Northwest's sole CRJ operator, Pinnacle, has been in contract negotiations with pilots since the agreement's April 2005 amendable date. Discussions with pilots are ongoing as Pinnacle holds talks with Northwest about the future of its air services agreement with the carrier. CEO Phil Trenary says Pinnacle is ready to compete for the CRJ900 business.
Northwest partner Mesaba, which has been in Chapter 11 for more than a year, is waiting for its labor groups to approve concessionary deals reached earlier this month to preserve its Saab 340 operations for Northwest. The airline also closed a deal this month with Marathon Structured Finance Fund for $24 million in debtor-in-possession financing. Earlier this year, Mesaba's management claimed the company lost out on a bid to fly turboprops from Continental's Cleveland and Houston hubs after other airlines offered lower rates.
CommutAir, based in Plattsburgh, N.Y., plans to start operating 37-seat Bombardier Q200s as Continental Connection from the major carrier's Cleveland hub in January. CommutAir is leasing 16 of the Q200s from Horizon Air. Earlier this year, Continental also asked airlines to bid on operations of 24 large turboprops, but has yet to make its selection. A few weeks ago, the carrier said it was still evaluating its turboprop possibilities.
Frontrunners for Frontier's new business--up to 20 aircraft with 70-76 seats--are SkyWest and Republic, according to Raymond James analysts. Mesa operated five 50-seat CRJ200s for Frontier from its Denver hub from early 2002 to late 2003. Horizon Air recently opted not to bid on the Frontier operations, and will transition the nine CRJ700s it flies for the carrier out of Denver back into its own fleet.
ExpressJet and Air Wisconsin appear to be in the lead to fly 15-25 50-seat aircraft for Midwest Airlines, according to Raymond James analysts. Midwest might use those regional jets to explore markets not serviceable by the 30-seat Fairchild Dornier 328JETS flown by its Skyway Airlines subsidiary. Midwest executives have said the carrier received more bids for the new operations than the carrier originally asked for.
Analysts at The Benchmark Company point out that ExpressJet could be in a position to win some new business that is up for grabs, "but we think they are a higher-cost operation." ExpressJet is in the midst of trying to place 69 50-seat ERJ 145s coming offline from Continental in December. ExpressJet plans to operate 10 of them with its new subsidiary, ExpressJet Corporate Aviation, by May 2007.
Discussions with other potential partners are still underway, but CEO Jim Ream recently said, "We don't feel we're that far away from concluding those conversations." ExpressJet is also building the systems necessary to support some branded, point-to-point flying for which it could start selling tickets in February.
There are some differences between the latest round of bidding and past negotiations, according to a regional airline executive. Contract durations are shorter, which is a challenge since adding 40-50 aircraft can be a significant upfront investment. Some major carriers are also bringing in third-party consultants, probably as a result of time demands on their internal staff, the executive notes.
In some instances, carriers seeking bids are also asking for a bit more historical operational information, says the executive, such as a regional carrier's on-time performance at specific locations, historical completion factors or ways to make certain locations more efficient.
As the latest proposed consolidation among U.S. major airlines plays out, analysts at JP Morgan believe that a reduction in hubs would imperil the airlines that operate from them.
"Like the aftermath of 9/11," say JP Morgan analysts, "regionals are likely to be summoned to yet another bake-off, a game of musical chairs where someone may be left standing."
U.S. Regional Carriers Vie for New Business
Aviation Week & Space Technology
11/27/2006, page 64
Lori Ranson, Washington
U.S. regional carriers wade through uncertainty as they compete for new business from majors
Printed headline: Waiting for the Chips To Fall
Sweeping changes could be in store for the U.S. regional industry as those carriers anxiously await the outcome of months-long bidding battles to capture business from at least four airlines altering their regional networks. US Airways' proposal to merge with Delta Air Lines adds another layer of uncertainty to the regional industry's state of flux.
The latest round of business up for grabs could result in majors severing long-standing ties with some of their regional partners. Through their respective bankruptcies, in order to gain more favorable rates, Delta and Northwest are asking carriers to rebid for practically all of their regional flying. Midwest has created a new opportunity for 50-seat jet operations, while Frontier says its network needs more 70-seat jets.
Executives at US Airways say the management team needs to discuss network strategies with its regional partners and potential new ones. But they also highlight the fact that a cut in 50-seat regional jets would account for a portion of the overall 10% capacity reduction attached to the proposed merger with Delta.
SkyWest's existing business with Delta is somewhat shielded from that uncertainty. The carrier has affirmed its 15-year deal with Delta through the bankruptcy court, but Republic Airways Holdings and Mesa don't have the same protection. Raymond James analysts note that Delta was looking to firm up those deals this month, but "with a pending merger proposal on the table, Delta's creditors may not approve any effort to enter into new long-term contracts until this proposal is resolved."
US Airways' move also makes the future of Delta's wholly owned subsidiary Comair more ambiguous. The Raymond James analysts say Comair's business could be substantially curtailed or shut down if the airlines merge. Comair is trying to win concessions from its pilots, but negotiations haven't proved fruitful. In a hearing set for this week, a bankruptcy judge is to rule on Comair's request to impose concessions on the pilot group. If the judge rules against the carrier, Comair faces an $8-million rise in its pilot cost Jan. 1 as a result of concessions that its pilots agreed to last year before Delta filed for bankruptcy. Comair management asked for those compromises to gain up to 35 new aircraft in 2005.
Through its restructuring, Northwest is creating a subsidiary, Compass, to fly 36 76-seat Embraer 175s. The carrier also plans to award operations of 36 CRJ900s to a yet-to-be-determined Airlink partner and is evaluating bids from carriers to fly additional regional jets. At one point, Northwest was asking for bids for up to 126 jets, but the airline is not commenting on the number of jets involved in its request for proposal (RFP) process.
SkyWest and Mesa top the list as the likely candidates to fly Northwest's 30 76-seat CRJ900s, note Raymond James analysts, since those airlines already operate Bombardier's largest CRJ model. Northwest's sole CRJ operator, Pinnacle, has been in contract negotiations with pilots since the agreement's April 2005 amendable date. Discussions with pilots are ongoing as Pinnacle holds talks with Northwest about the future of its air services agreement with the carrier. CEO Phil Trenary says Pinnacle is ready to compete for the CRJ900 business.
Northwest partner Mesaba, which has been in Chapter 11 for more than a year, is waiting for its labor groups to approve concessionary deals reached earlier this month to preserve its Saab 340 operations for Northwest. The airline also closed a deal this month with Marathon Structured Finance Fund for $24 million in debtor-in-possession financing. Earlier this year, Mesaba's management claimed the company lost out on a bid to fly turboprops from Continental's Cleveland and Houston hubs after other airlines offered lower rates.
CommutAir, based in Plattsburgh, N.Y., plans to start operating 37-seat Bombardier Q200s as Continental Connection from the major carrier's Cleveland hub in January. CommutAir is leasing 16 of the Q200s from Horizon Air. Earlier this year, Continental also asked airlines to bid on operations of 24 large turboprops, but has yet to make its selection. A few weeks ago, the carrier said it was still evaluating its turboprop possibilities.
Frontrunners for Frontier's new business--up to 20 aircraft with 70-76 seats--are SkyWest and Republic, according to Raymond James analysts. Mesa operated five 50-seat CRJ200s for Frontier from its Denver hub from early 2002 to late 2003. Horizon Air recently opted not to bid on the Frontier operations, and will transition the nine CRJ700s it flies for the carrier out of Denver back into its own fleet.
ExpressJet and Air Wisconsin appear to be in the lead to fly 15-25 50-seat aircraft for Midwest Airlines, according to Raymond James analysts. Midwest might use those regional jets to explore markets not serviceable by the 30-seat Fairchild Dornier 328JETS flown by its Skyway Airlines subsidiary. Midwest executives have said the carrier received more bids for the new operations than the carrier originally asked for.
Analysts at The Benchmark Company point out that ExpressJet could be in a position to win some new business that is up for grabs, "but we think they are a higher-cost operation." ExpressJet is in the midst of trying to place 69 50-seat ERJ 145s coming offline from Continental in December. ExpressJet plans to operate 10 of them with its new subsidiary, ExpressJet Corporate Aviation, by May 2007.
Discussions with other potential partners are still underway, but CEO Jim Ream recently said, "We don't feel we're that far away from concluding those conversations." ExpressJet is also building the systems necessary to support some branded, point-to-point flying for which it could start selling tickets in February.
There are some differences between the latest round of bidding and past negotiations, according to a regional airline executive. Contract durations are shorter, which is a challenge since adding 40-50 aircraft can be a significant upfront investment. Some major carriers are also bringing in third-party consultants, probably as a result of time demands on their internal staff, the executive notes.
In some instances, carriers seeking bids are also asking for a bit more historical operational information, says the executive, such as a regional carrier's on-time performance at specific locations, historical completion factors or ways to make certain locations more efficient.
As the latest proposed consolidation among U.S. major airlines plays out, analysts at JP Morgan believe that a reduction in hubs would imperil the airlines that operate from them.
"Like the aftermath of 9/11," say JP Morgan analysts, "regionals are likely to be summoned to yet another bake-off, a game of musical chairs where someone may be left standing."
