How Changing Airline Demands Will Transform Regional Jet Utility

Now that Midwest Airlines and ExpressJet have made new commitments with regional jets which differ from traditional hub-small market routes, other airlines may have to be more creative with how they deploy their regional jets (or those of the regional lift providers they contract with). Airlines have been cutting regional jets from their fleets, specifically 50-seat and below jets, in an effort to cut costs. 70-seat regional jets, however, are still popular with airlines because they have better economics than 50-seaters, and it's unlikely many will be redeployed in the next couple years. Many of the 50-seat and below regional jets which remain will be used to fly traditional hub-small market routes which are still profitable, even with high fuel prices. However, some of the jets may also be used to start new point-to-point routes, similar to what ExpressJet is doing. Regional jets are well-suited for a couple of applications which will become more important to revenue-conscious airlines in the coming years.

First, regional jets offer a good way to deliver small amounts of capacity to in order to facilitate connections at focus cities. For example, Delta is building their Los Angeles operations, and has been adding an increasing number of flights to Latin America. And while Delta has a sizable operation in Los Angeles, and nonstop flights from LAX to many cities, particularly on the East Coast, Delta has stayed away from competing with the three big boys on the West Coast routes, Alaska, United, and Southwest. But Delta announced new regional jet service to begin June 7 from Seattle and Portland to Los Angeles. The new service will be operated by the former Delta subsidiary ASA (now part of SkyWest Airlines). Both flights depart early in the morning and return in the evening, timed perfectly for connections. Why did Delta add these flights on a regional jet which is far more inefficient to operate than a 737 which Alaska, United, and Southwest all operate? Primarily in order to facilitate connections at LAX for Latin America flights. Delta recognizes that in order to be successful on any route, it needs to maximize the amount of potential traffic that can utilize it. And while LAX has a lot of origin and destination traffic which will help sell tickets, O+D traffic alone won't fill planes. But LAX is a poor connection location, particularly on Delta's route network, since most of Delta's services from LAX are to the East Coast. With Delta's large Atlanta hub, passengers on the East Coast can easily connect to most of the same Latin American destinations they serve from Los Angeles nonstop from Atlanta. These passengers don't need to travel to Los Angeles. And so as a result, Delta needed to find ways to get passengers onto their LAX-Latin America flights, and connections to the Pacific Northwest made perfect sense. Delta isn't trying to compete for market share with Alaska, United, and Southwest on the Seattle/Portland-LAX route, that would be lunacy with a 50-seat regional jet. Delta is simply using some regional jets which would otherwise sit empty on the ground to expand their route network and to gain market share on routes to Latin America. The regional jet flights themselves may not be profitable, but Delta should make money because most of those passengers who travel from Seattle or Portland will continue on to Latin America, enabling Delta to charge a higher fare and make a profit overall. Finding niche applications for regional jets can be tough, but Delta's idea to use the aircraft to add capacity between large markets in order to facilitate connections should work well, provided there is sufficient demand for travel to Latin America, especially during the upcoming hurricane season.

Secondly, regional jets can also be used for starting point-to-point service, in the spirit of ExpressJet, to build up service from various markets. The excellent characteristic about regional jets is that they can be used to quickly build up service in a market to gain market share, and can be used to operate nonstop flights to many different cities, although its costly to do so, especially when competing against an airline using mainline aircraft. For example, in a city such as Omaha, regional jets could be used effectively by a lift provider contracting with a major airline to add service to a variety of cities unserved by mainline carriers. Service from Omaha to cities such as Seattle, Portland, San Jose, Austin, Raleigh-Durham, Indianapolis, and Richmond could enable an airline such as Northwest to build market share in Omaha without using precious mainline aircraft. Granted, Northwest would probably sell tickets at a premium to other airlines offering connecting service, but it would offer loyal customers more options for point-to-point service. And since those who are most likely to need nonstop service are business travelers, who already pay a premium for tickets, it could be a win-win situation, provided routes are carefully selected, and flights are timed to the needs of business travelers. This kind of service wouldn't facilitate many connections, it would simply offer nonstop service where none currently exists. Actually, Northwest has tried something similar to this in Milwaukee and Indianapolis, with mixed results. Both of those cities lacked nonstop service to many major business markets, and Northwest filled some of the gaps with mainline aircraft (mainly 100-seat DC-9 planes), and other gaps with 50-seat regional jets. Northwest has continued some of the routes, but had to cancel some as well. Unfortunately, Northwest tried to do to much in both markets. Northwest has had to pull most of its point-to-point flights out of Milwaukee because Midwest Airlines offered competing service with a better product than Northwest at a competitive price. Consequently, Midwest was able to dominate many of the point-to-point markets Northwest entered. Northwest's Indianapolis operations have been more successful, and the airline has retained many of its point-to-point flights from that city. If Northwest or any other airline wants to use regional jets to build market share, they need to do it in a location which is relatively free of competition on nonstop routes, and which offers the traffic levels to sustain point-to-point flights to multiple destinations. There are markets out there which fit this description. Omaha is only one example; Colorado Springs, Lexington, and Buffalo are all examples of markets which could benefit from the introduction of regional jet point-to-point service.

These are only two examples of how airlines can try to redeploy 50-seat and below regional jets. If airlines can find the right niches for these planes, then they will find a new life, because while their economics may be poor, there are still markets and routes where a regional jet is required and where that level of capacity isn't a competitive disadvantage (as many airlines with bloated regional jet fleets are now finding), but rather a competitive advantage. Airlines may find that because regional jets enable them to closely tailor capacity to market demands and to grow focus cities and other markets slowly, they will become assets. But, airlines must ensure that the routes they do start will be able to sustain themselves with higher fares, so airlines won't have to have sell seats at fire sale prices like Independence Air, an expedient way to failure. Airlines that fail to find ways to effectively redeploy their regional jets will find them increasingly costly and burdensome.

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