Pilot124
170 Driver
- Joined
- Feb 5, 2004
- Posts
- 397
Two Words
$100 Oil
It's Re-Engineer-The-Business Time...
On An Emergency Basis
Sector One: Small Lift Providers
Say Good-Bye To A Lot of Regional Jets, Real Soon.
Fuel Pass-Throughs Will Pass Them Directly To The Desert
It should be back-to-the-drawing-board time for small lift providers, what some still call "regional airlines." Maybe time for a period of sheer panic, too. The issue: 50-seat and smaller RJs are being economically marginalized by skyrocketing fuel costs.
Major carriers will be looking to quickly cull out dozens of RJs in the coming months. And hundreds more in the next five years, with no replacement for this lift - or many of the markets they operate - in sight.
Most SLP agreements provide for fuel costs to be a pure pass-through to the major carrier, and that means the majors are eating a lot of red ink. A lot of RJ mission applications that once provided adequate revenue generation are now net drains on major airline systems. They cannot but move quickly to restructure (read: reduce) the fleets of RJs they're leasing in.
Faster Retirements Than Predicted. The Boyd Group's Global Fleet Demand Forecasts were the first to predict the decline in demand for new RJs, and also to predict that the number in operation represented a glut. That was as far back as 1999, when other consultants were still forecasting just the opposite from the comfort of their rearview mirrors, and the warmth of being within "the consensus.".
As attendees at our Annual Aviation Forecast Conference last October learned, retirements of CRJs and ERJs would result in global RJ fleets declining by over 1,200 units over the next ten years.
Now, with oil hovering at $100 a barrel, that forecast has been revised. The retirement projections are for over 1,700 RJs to come out of fleets for the same ten year period, with the rate front-loaded in the 2008 - 2013 period, representing approximately 835 RJs taken out of service in the US alone.
The net-new figure represents larger CRJs (mostly -900s) coming into SLP fleets to replace 50-seat -200s. But even here, there isn't a whole lot of demand going forward. There are no new-generation <70 seaters on the horizon to replace the current fleet of 50-seat and smaller RJs. That means new fleet mixes.
It also means fundamentally-revised airline route systems.
Note: The Boyd Group categorizes "regional jets" as CRJ and ERJ airliners, based on cabin ergonomics. It is inaccurate to define "regional jets" by seat capacity, otherwise airliners such as the F-100, the DC-9, the F-28, and even the 737-200/500 could be defined as "regional jets." Therefore, the Embraer E-Jet platform, which represents per-passenger cabin dimensions that are equal to and even better than 737s, is not considered a "regional jet" aircraft. That's because the market niche that aircraft was designed for was to fill the mainline airliner gap left open by Boeing and Airbus.
Late Night Oil Burning In The Planning Department. As we speak, planning departments at comprehensive network carriers are in full metal jacket status, working to moderate the level of financial drain smaller RJs are inflicting on their systems.
Legal departments are working, too, reviewing current service agreements with SLPs. Most contracts are relatively long-term - to 2013 or beyond. The problem is that there is no way that the current number of these RJs can be supported until then with jet-A heading to $3 a gallon and up. Culling the herd in is the cards.
Many agreements contain an early-out provision for the CNC, where a six-month notice can be given. In most cases, however, these notice dates don't become effective until late 2008 or 2009, and majors cannot afford to wait that long to cut RJ lift. So that means doing some deals with current SLPs. A cash payment in exchange for an early-out. Renegotiating the agreement with a financial incentive for the SLP to shift to larger CRJs or even into E-Jets, depending on the status of scope clauses at the CNC.
Wholly-Owned SLPs Could Be Going Away? Maybe - just maybe - if the financial hit becomes too onerous, some wholly-owned SLP subsidiaries could be shuttered. This is not a drill - we are talking financial bleeding here. With fuel costs going up, the economy (maybe) softening, and the specter of labor needing and demanding increases, such an action is not out of the question.
Small Lift Providers To Watch. Clearly, 50-seaters are in the economic cross-hairs. And any jet airliner smaller than that is just marking time 'til the grim-reaper comes to take it to the Budweiser plant. So the question arises regarding how the SLP sector will survive.
The hard reality is that the SLP sector will be shrinking markedly over the next three years. Hard fact: there are more 50-seat jets than can be economically flown. Hard fact: that means cutbacks in the number of operators.
SLPs must move to hasten their fleet migration into larger CRJs or, better, into the Embraer E-Jet platform. But that means bigger units of capacity, higher sector costs, and, ergo, fewer markets where such aircraft can operate compared to what 50-seaters could do before the price of jet-A headed toward the Moon.
The first option - larger CRJs - will provide better per-seat economics for the CNC customer, and for CRJ-200 operators, a relatively painless shift. But it's still an RJ, and with more seats and higher sector costs, it won't do much for the communities that are in line to see loss of service as the 50-seat cost bar goes up and CNCs cut flights.
A Potential Winner In The Wings. The SLP to watch is Republic. It has dumped its 37-seat ERJs, and has adjusted its fleet to the point where over half of its inventory is now out of RJs and into E-Jets. And, regardless of the trendy babble to the contrary, small mainline airliners such as these are the ones that have the long-term future, not RJs. Republic also has a wide stable of CNC customers, giving it enormous depth of revenue flows - not to mention some insulation from doom if the dragons of Wall Street drag a couple of CNCs into the merger pit. Without question, Republic is the best postured SLP to not only survive the upcoming RJ-Fleet-Valentine's Day Massacre, but to actually prosper.
http://www.aviationplanning.com/Predictions2008.htm
$100 Oil
It's Re-Engineer-The-Business Time...
On An Emergency Basis
Sector One: Small Lift Providers
Say Good-Bye To A Lot of Regional Jets, Real Soon.
Fuel Pass-Throughs Will Pass Them Directly To The Desert
It should be back-to-the-drawing-board time for small lift providers, what some still call "regional airlines." Maybe time for a period of sheer panic, too. The issue: 50-seat and smaller RJs are being economically marginalized by skyrocketing fuel costs.
Major carriers will be looking to quickly cull out dozens of RJs in the coming months. And hundreds more in the next five years, with no replacement for this lift - or many of the markets they operate - in sight.
Most SLP agreements provide for fuel costs to be a pure pass-through to the major carrier, and that means the majors are eating a lot of red ink. A lot of RJ mission applications that once provided adequate revenue generation are now net drains on major airline systems. They cannot but move quickly to restructure (read: reduce) the fleets of RJs they're leasing in.
Faster Retirements Than Predicted. The Boyd Group's Global Fleet Demand Forecasts were the first to predict the decline in demand for new RJs, and also to predict that the number in operation represented a glut. That was as far back as 1999, when other consultants were still forecasting just the opposite from the comfort of their rearview mirrors, and the warmth of being within "the consensus.".
As attendees at our Annual Aviation Forecast Conference last October learned, retirements of CRJs and ERJs would result in global RJ fleets declining by over 1,200 units over the next ten years.
Now, with oil hovering at $100 a barrel, that forecast has been revised. The retirement projections are for over 1,700 RJs to come out of fleets for the same ten year period, with the rate front-loaded in the 2008 - 2013 period, representing approximately 835 RJs taken out of service in the US alone.
The net-new figure represents larger CRJs (mostly -900s) coming into SLP fleets to replace 50-seat -200s. But even here, there isn't a whole lot of demand going forward. There are no new-generation <70 seaters on the horizon to replace the current fleet of 50-seat and smaller RJs. That means new fleet mixes.
It also means fundamentally-revised airline route systems.
Note: The Boyd Group categorizes "regional jets" as CRJ and ERJ airliners, based on cabin ergonomics. It is inaccurate to define "regional jets" by seat capacity, otherwise airliners such as the F-100, the DC-9, the F-28, and even the 737-200/500 could be defined as "regional jets." Therefore, the Embraer E-Jet platform, which represents per-passenger cabin dimensions that are equal to and even better than 737s, is not considered a "regional jet" aircraft. That's because the market niche that aircraft was designed for was to fill the mainline airliner gap left open by Boeing and Airbus.
Late Night Oil Burning In The Planning Department. As we speak, planning departments at comprehensive network carriers are in full metal jacket status, working to moderate the level of financial drain smaller RJs are inflicting on their systems.
Legal departments are working, too, reviewing current service agreements with SLPs. Most contracts are relatively long-term - to 2013 or beyond. The problem is that there is no way that the current number of these RJs can be supported until then with jet-A heading to $3 a gallon and up. Culling the herd in is the cards.
Many agreements contain an early-out provision for the CNC, where a six-month notice can be given. In most cases, however, these notice dates don't become effective until late 2008 or 2009, and majors cannot afford to wait that long to cut RJ lift. So that means doing some deals with current SLPs. A cash payment in exchange for an early-out. Renegotiating the agreement with a financial incentive for the SLP to shift to larger CRJs or even into E-Jets, depending on the status of scope clauses at the CNC.
Wholly-Owned SLPs Could Be Going Away? Maybe - just maybe - if the financial hit becomes too onerous, some wholly-owned SLP subsidiaries could be shuttered. This is not a drill - we are talking financial bleeding here. With fuel costs going up, the economy (maybe) softening, and the specter of labor needing and demanding increases, such an action is not out of the question.
Small Lift Providers To Watch. Clearly, 50-seaters are in the economic cross-hairs. And any jet airliner smaller than that is just marking time 'til the grim-reaper comes to take it to the Budweiser plant. So the question arises regarding how the SLP sector will survive.
The hard reality is that the SLP sector will be shrinking markedly over the next three years. Hard fact: there are more 50-seat jets than can be economically flown. Hard fact: that means cutbacks in the number of operators.
SLPs must move to hasten their fleet migration into larger CRJs or, better, into the Embraer E-Jet platform. But that means bigger units of capacity, higher sector costs, and, ergo, fewer markets where such aircraft can operate compared to what 50-seaters could do before the price of jet-A headed toward the Moon.
The first option - larger CRJs - will provide better per-seat economics for the CNC customer, and for CRJ-200 operators, a relatively painless shift. But it's still an RJ, and with more seats and higher sector costs, it won't do much for the communities that are in line to see loss of service as the 50-seat cost bar goes up and CNCs cut flights.
A Potential Winner In The Wings. The SLP to watch is Republic. It has dumped its 37-seat ERJs, and has adjusted its fleet to the point where over half of its inventory is now out of RJs and into E-Jets. And, regardless of the trendy babble to the contrary, small mainline airliners such as these are the ones that have the long-term future, not RJs. Republic also has a wide stable of CNC customers, giving it enormous depth of revenue flows - not to mention some insulation from doom if the dragons of Wall Street drag a couple of CNCs into the merger pit. Without question, Republic is the best postured SLP to not only survive the upcoming RJ-Fleet-Valentine's Day Massacre, but to actually prosper.
http://www.aviationplanning.com/Predictions2008.htm
