Posted on: Sunday, June 6, 2004
Regional carriers reshaping air travel
By Bill Theobald
Indianapolis Star
SAO JOSE DOS CAMPOS, Brazil — Like the turbulence that rocks planes during a summer storm, a revolution is sweeping through the airline industry that could be as important as the switch from propellers to jets.
It is being driven by so-called regional airlines, which provide most of the short-trip domestic flights in the United States using smaller regional jets.
The regional airlines are growing rapidly by contracting with the established major airlines. But as they grow, many of the companies they serve — from United Airlines to US Airways and Delta Air Lines — are facing stormy conditions and the possibility or reality of bankruptcy and downsizing.
"They are all going to have to be reinvented," Elliott Seiden, an aviation consultant based in Arlington, Va., said of the major airlines.
At stake in this revolution are:
• Thousands of jobs at airlines and airports across the country.
• The future of the current hub-and-spoke system, which could be replaced by more direct or point-to-point flights.
• Ticket prices and consumer choice of airlines and flights. Enhanced competition is keeping prices low in the United States, but some say the industry is likely to see consolidation, since major airlines can't continue to lose money by the hundreds of millions and survive.
The airline industry always has been volatile and competitive, but "this airline crisis is different from the past crises," Mauricio Botelho, president of regional jet maker Embraer, told a small group of journalists who toured the Embraer facilities in Brazil recently. "Most were part of the economic cycle. I think today what we are seeing is a change in the scenario."
A total of 587.3 million passengers flew on U.S. aircraft in 2003, 2.2 percent more than the year before, according to a report released in March by the Federal Aviation Administration. But the contrast is clear: Regional and commuter airplanes carried almost 19 percent more passengers, while major carriers flying big jets saw passenger counts increase about 1 percent.
By 2015, the FAA predicts that more than two in 10 of all passengers will fly on a regional or commuter plane, compared with slightly more than one in 10 of all U.S. passengers five years ago.
Financially, the same trends are emerging.
"It (the regional jet) has been more of a transfigurative event than the introduction of the jet engine to replace turboprops," said Republic Airways Holdings Chief Executive Officer Bryan K. Bedford.
The first regional jet was introduced into the United States in 1993 by the Canadian company Bombardier. It was a 50-seat model.
Embraer, formerly a Brazilian government-owned aircraft business, got into the market a few years later with the Embraer 145, and versions of the two planes control most of the regional jet market.
All told, 70 percent of regional aircraft are now jets, said Deborah C. McElroy, president of the Regional Airline Association.
Regionals act as contractors for the major airlines, providing them with the shorter flights that are not cost-effective for them to fly with 150-seat 737s or other large aircraft.
The regional jet got a further boost, as did Embraer, when JetBlue, the fast-growing discount airline, ordered 100 of the Embraer 190 model. JetBlue and other discounters — from ATA to Southwest — are stealing customers from United and other majors, and forcing them to cut costs and even create their own discount subsidiaries.
Seiden is uncertain what the regional jet phenomenon will ultimately mean to the industry.
"I think the book is still out," Seiden said. "There is going to be a role for regional jets no matter what, but I don't know how much, and you won't know until the (major carriers) settle into equilibrium."
