Aloha Airlines Bids "Aloha" After 60+ Years

Aloha Airlines will suspend its passenger operations tomorrow after 60+ years of service to Hawaii. The airline has been hemorrhaging cash, and declared bankruptcy a week or so ago. Sadly, Aloha failed to find a buyer for its passenger operations, and as a result, that part of the business will likely be liquidated. The reason for Aloha's demise has been the disgusting predatory practices of Mesa's go! carrier, a new airline set up in 2006 to compete in the Hawaiian interisland market. Mesa Air Group, a regional jet contractor that provides jets for several large legacy carriers, was a potential investor in Hawaiian Airlines when that company went bankrupt a few years ago. Hawaiian accused Mesa of using documents they were provided as potential investors to gain data about the Hawaiian interisland market that Mesa used in starting go!. Hawaiian filed an $80 million lawsuit against Mesa, which they won, but Mesa appealed soon after, creating an unresolved legal saga.

Aloha, more reliant on interisland traffic than Hawaiian Airlines (which offers more extensive mainland and international service), could simply not compete when go! undercut fares on interisland routes and forced Aloha and Hawaiian to match them. It has been estimated that Hawaiian and Aloha lost $65 million between them due to these practices, while go! has lost at least $20 million thus far. The end of Aloha will only mean higher prices for Hawaiian consumers in the long run, as well as fewer connections to key mainland airports that relied on Aloha's flights for connections to Hawaii. These airports, such as Orange County and Sacramento, will be left without connections to the islands. Aloha filled a niche that is unlikely to be filled by other carriers anytime soon, because few other carriers operate point-to-point service between the US and Hawaii, and legacy carriers that funnel Hawaii traffic through hubs could have reluctance to divert some of that traffic though secondary locations, as it would be less efficient than the current setup. Moreover, given that Hawaii flights are long with relatively low yields, in an era of high fuel costs, airlines aren't eager to add new Hawaii service these days. While it's the inevitable nature of any business, especially the airline business, to see companies die out, it's tragic when they fail because of the unsustainable, anticompetitive practices of competitors. Farewell Aloha!

Possible 2008 Merger: Northwest and US Airways

From a fleet and route perspective, a merger between Northwest and US Airways could be a big winner. But from other perspectives, and more specifically, a labor perspective, it could be a major problem. However, if the merger were successful, it would create a company that would offer forceful competition in key domestic and international markets to a potentially merged Delta/United. For more information on the current merger frenzy that's sweeping the industry, see this post.

One of the largest potential problems that analysts foresaw in the US Airways/America West merger that occurred a couple years ago was that it was the unification of two carriers which had very strong route networks on opposite ends of the country, but there would be no central hub to join the two ends of the barbell, so to speak. Given the fact that the new carrier would not have many larger, more cost-effective aircraft for transporting flyers long distances, it raised the possibility of two-connection travel for many flyers, which, given all the potential problems of delays as well as the extra time it requires, could dissuade many travelers. While this hasn't proved to be as big a problem as I or other industry-watchers suspected, with rising fuel prices, operating transcontinental flights has become rather expensive, especially with A320-size aircraft which have higher available seat mile costs than 757s or 767s. Having a central hub, particularly one that can draw from traffic bases both East and West for international service, will be critical to the success of a national carrier, and that's what Northwest brings to US Airways in a potential merger.

And while the combined carrier would retain probably two central US hubs, if a merger were to occur, Memphis as a hub for Northwest would almost certainly be dumped, though the combined carrier might retain a focus city operation in the city to capitalize on business traffic. However, Northwest's exit from many markets from Memphis could open the door for a low-cost carrier, such as Southwest to enter the market. Or perhaps, if Northwest makes a major withdrawal, Frontier will make another attempt to set up a focus city in Memphis, though the company denies that it is planning any expansions of point-to-point services outside of Denver.

The combined carrier, with six remaining hubs in Philadelphia, Charlotte, Detroit, Minneapolis, Las Vegas, and Phoenix, will likely keep all those cities as hubs. However, to simplify operations, some hubs could focus more on mainline traffic to destinations that can support narrowbody mainline aircraft, while other hubs may focus more on bringing in a variety of connecting traffic, including regional jets and mainline planes (both narrowbody and widebody). By doing this, the airline is still able to maintain strong market positions in all six cities, but it makes the company's operations more efficient by simplifying where regional jets and international aircraft are needed (and thus the related crew scheduling and maintenance functions associated with the different aircraft types).

Phoenix, Detroit, and Charlotte will all likely remain hubs where regional jets, narrowbody aircraft, and widebody aircraft have a large presence. Phoenix is a fast-growing business center, and offering regional jet service from the city helps US Airways draw traffic to its expanding array of international flights from the city. As Phoenix grows, the combined carrier will want to offer increased international service, and so it will need a large supporting base of regional and mainline services to support that service. Given Northwest's massive infrastructure investments in Detroit, with its practically new terminal and assorted facilities, that city will need to remain an all-aircraft hub. Moreover, since Detroit is very close to the Northeast, where US Airways currently has a strong presence with regional aircraft, it can take over some of the regional jet flights that currently make their way into Philly. Charlotte will also need to remain an all-aircraft hub for the combined carrier because of its proximity to the South (no other hub in the network, save for Northwest's Memphis, which will likely get eliminated in a merger, can serve many small Southern cities, and only one other hub operated by any carrier in the South (Delta in Atlanta) has the range of regional jet flights that US Airways at Charlotte offers.

While Las Vegas, Minneapolis, and Philadelphia could lose some of their regional jet flights, and a select few mainline flights, the core of these operations will not be affected. None of these cities will lose all their regional jet service, and I doubt any will receive even a sizable cut in mainline service. Minneapolis and Philadelphia generate high yields for their respective hub operators, and airlines focused on increasing revenue will want to keep these with a considerable amount of service. Las Vegas is an important market for volume and market share reasons. Even though yields are lower to and from Vegas, it can absorb a lot of excess capacity in these carriers' fleets, and even though it's not the most profitable way to use that capacity, it does get utilized and make some money.

The carrier, like all of the consolidated legacy carriers, will need to have a large emphasis on international routes. And it's likely that Northwest gateway cities along the West Coast will maintain their service to Tokyo. Moreover, many large markets also have nonstop Northwest service to Amsterdam, which will also likely be maintained. US Airways, meanwhile, will likely continue with expansion plans from its Phoenix hub, even if it merges with Northwest, and will add additional flights to Latin America and Asia. Even though some hub flights could get realigned, most international flights in the two carriers' networks will not get shifted. There will be some small adjustments, but most of the hubs, even if they lose some of their regional service, will likely maintain many of their international flights because they offer convenience to business travelers.

This also speaks to the question of alliances. Northwest is part of the SkyTeam alliance, while US Airways is part of Star Alliance. It appears that if the two carriers merged, they would probably join SkyTeam. The main reason for this is the very close marketing and codeshare alliance between Northwest and KLM, two large SkyTeam members. Through this partnership, Northwest passengers gain terrific connectivity to destinations across Europe through KLM's Amsterdam hub, allowing customers to reach destinations they couldn't easily reach with other carriers. Northwest and KLM have received antitrust exemptions on certain transatlantic routes through their partnership, and both seem eager to continue the deal, which has resulted in higher yields due to less competition. If Northwest were to discontinue its SkyTeam membership, it could be very difficult for Northwest to continue its KLM alliance, and instead KLM could choose to partner with one of Northwest's competitors, such as Delta or Continental, both of which are also part of SkyTeam. Since Air France, which is under the same corporate umbrella as KLM, is a major Delta partner, a Northwest/US Airways deal could threaten these precious alliances, and force Air France/KLM to choose whether to maintain close relationships with either Delta or Northwest. Even if the combined Northwest/US Airways were to remain a member of SkyTeam, it could lose the close affiliation it has with KLM and only have the looser frequent flyer affiliations that SkyTeam affords. But, those affiliations are still important, and probably better than those offered by Star Alliance.

Another advantageous asset for the combined company are US Airways' slots at LaGuardia and Washington National. Having slots at these airports will allow the combined carrier to offer a greater frequency of flights than other carriers to critical business destinations, and better serve high-yield travelers. With higher fares imminent, especially for business travelers, this will bode very well for the carrier.

Fleetwise, the big focus with all mergers, and this one is no exception, is about removing regional jets (particularly 50-seaters and below) from aircraft fleets, as well as older, less fuel-efficient mainline aircraft. Like I've mentioned before, Northwest's DC-9s will probably see some sort of accelerated retirement in a cost-cutting deal, but given the size of Northwest's DC-9 fleet, that clearly won't happen for at least several years. Regional jet flying, from Mesaba, Mesa, and other contractors could be reduced. On the chopping block are some of Northwest's CRJ-200s, as well as some of the contracted flying done for US Airways. Turboprops will probably be kept in most cases, since they're more fuel efficient, though turboprop (and especially 19-seater flying) could be reduced by some regional partners, who often operate these flights at a higher risk than their regional jet contracted flying. The reductions in this kind of service will likely depend on what sorts of hub route realignments take place.

Northwest may continue to take delivery of its 787 planes, even though it means the combined carrier could have unnecessary redundancies. In the depth's of US Airways' financial hell several years ago, the carrier received a $250 million loan from Airbus, in exchange for the company agreeing to purchase new A330 and A350 (the competitor to Boeing's 787) aircraft. When the combined carrier receives delivery of these planes, they could become a burden because the two fleets overlap and will generate extra costs. However, depending on Airbus's delivery timetable for the A350, this could be seen as an advantage. While many US carriers wait several years to receive their 787s from Boeing (even more so given the recent production delay announced by Boeing yesterday), which has tightened its production capacity to minimize cost, a Northwest/US Airways combined company could be receiving aircraft from two streams, increasing its ability to provide international service quickly at a lower cost and get a jump on the competition. While this advantage may be short-lived, it could be significant, depending on when the company receives these aircraft, when its competitors receive their planes, and what happens to oil prices in the coming years.

The one major area of difficulty that this merger has is what will be done about the labor situations at both carriers. Employees at both Northwest and US Airways have just cause to be angry at their management due to past failings, and unfortunately, a merger will lead to additional job cuts. What cannot be done, however, is treat employees in such a manner that hurts them more than what is inevitable. For instance, after the US Airways/America West merger, many US Air pilots were very upset by the way the two seniority systems at the companies were integrated, partly due to the questionable decision of an arbitrator. It left the pilots angry, and a similar incident cannot happen again if this merger occurs. Management at both companies need to ensure that the two sets of employees reach amicable conclusions.

But more importantly, they need to do a better job of showing that job cuts are necessary and will not be for temporary financial gain. Job cuts need to be justified, and management needs to make sure that they recognize the importance of providing solid customer service as well as supporting the bottom line. When US Airways had a major fiasco a couple years ago with an inability to process bags at Philadelphia due to a staff shortage, the airline quickly added several hundred additional staff. Those kinds of things can't happen, especially when customers are so irate at the service they're receiving and employees are worried about job security. Quick spurts of hiring and firing need to be smoothed out to give greater consistency and predictability to customers and employees.

Fortunately, if this merger is proposed, it will likely encounter far fewer regulatory hurdles than other potential deals. US Airways and Northwest are both smaller carriers than Delta, making the merger more palatable to regulators. A merger would give the combined carrier a market share not much larger than the current largest carrier, American, instead of a potential Delta/Northwest deal which could make the combined carrier substantially larger than any unmerged competitor. If Congress plans to put up hurdles to merger deals, then a Northwest/US Airways deal may be one of the few deals that can be approved. The merger would offer tremendous benefits particularly for US Airways, which is at risk of losing out in the current merger frenzy, since it's the smallest of the legacy carriers, by linking it to a carrier which can cover the service gaps it has in the Midwest, as well as internationally. Meanwhile, Northwest would get a carrier with a lot of capacity in attractive markets, particularly on the East Coast, as well as additional aircraft to help the company grow. While this deal is less talked-about than a potential Delta/Northwest deal, it would probably be a better matchup for both Northwest and US Airways than a Delta/Northwest deal, but whether it will ever get proposed, given the increasingly advanced state of Delta/Northwest merger talks, is up in the air.

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More About Intra-California Competition

Why are so many airlines entering the intra-California market?

There are a few reasons, but the first is that the intra-California market is growing. California is one of the nation's fastest growing states, and the population is expected to balloon in the next several decades. While this population increase may be unsustainable and incredibly damaging for the long-term health of Californian society, it means big bucks for airlines. As the population increases, the demand for intra-state air travel will increase, and it's much easier for an airline that is established with significant market share on a route to expand to meet increasing demand than for an airline with little or no market share to meet that demand. Also, with the improvements made to San Francisco International to make it more cost-competitive with other area facilities, and along with the new competition being brought by Virgin America, other low-cost airlines are taking more of an interest in intra-state air travel. Also, LCCs that have to find places for new planes would rather expand on the West Coast where fares are higher than on the East Coast, where competition is even fiercer and yields are lower. But the final reason intra-state air travel is becoming increasingly attractive for airlines is because their revenues have suffered recently. Airlines can make more money on short hops than on transcon flights, since the airline can charge higher rates per mile flown for a short flight than for a long one (due to fixed costs airlines incur regardless of the length of the flight, such as landing fees, baggage handling costs, and the cost of using gate and check-in agents.) But, airlines can fly more short-haul flights with a single aircraft than long-haul flights, and efficient aircraft utilization is an easy way to increase revenues. Even though airlines have fixed costs, when many of those costs have been trimmed, then airlines are fighting for revenue, and the revenue equation is better for shorter flights where airlines can fly more flights in a given amount of time with the same plane.

How will airlines compete in this market?

What airlines will be competing on in the intra-California market are three things. The first is price. Flying up and down the state, even on a low-fare carrier, can get expensive, and customers want to minimize the cost of their travel. That will mean that a fare war of epic proportions may occur if or when JetBlue and Virgin America expand services. I wouldn't be surprised to routinely see $29 fares to the other end of the state during this fare war. It's also likely to be a prolonged fare war since there aren't any weak competitors in this market. This means that a fare war will give Californians some great bargains for many months, but it will also hurt the financial health of the airlines.

The second is convenience. This is both in terms of flight schedule as well as airport location. Low-cost airlines need to ensure that they offer enough flights to accommodate business travelers, who typically want flights very early or very late so they can work a full day. As a result, airlines like Alaska and Southwest, which are already established in many intra-California markets and offer a convenient menu of flight times, will have an advantage over other LCCs like JetBlue or Virgin America, which may only offer one or two flights at a time a business traveler would find suitable instead of four or five. Airlines will also have to win the convenience war with the airports they serve. Now that San Francisco is becoming more popular with LCCs, low-cost carriers will be a more viable alternative for business travelers to the legacies American and United from the San Francisco area. It will be the job of LCCs to ensure that they offer flights to a sufficient number of destinations on either end of the state. This is true especially in Southern California. Right now, the Ontario Airport is most ripe for expansion of service, though it's likely that LCCs will increase service at all the commercial airports in the region (excluding Palmdale, which will need a little more time before it can be attractive to LCCs.) Travelers heading to or from the LA Basin want to avoid driving as much as possible given the horrific state of traffic in the region. As a result, many travelers, leisure and business alike, will be willing to pay a bit more for service to a more convenient airport. That doesn't always mean LAX; Burbank, Orange County, Long Beach, and Ontario all offer convenience to a segment of intra-state travelers, and LCCs will need to cater to all of them if they want to win the revenue and market share battles.

Finally, as passengers expect more from LCCs, onboard amenities won't be the battleground, but frequent flyer amenities will. Airlines will try to fill seats, and especially try to lure business travelers, by offering bonus miles (or credits) for frequent travelers. Southwest requires eight round-trips for a free ticket. I suspect that if competition gets heated, Southwest will give customers 1.5 or 2 times the normal credits, giving them a free flight after six or even four round trips. JetBlue will need to improve its frequent flyer program the most. Right now, customers have to fly 12.5 round-trips within California to be eligible for a free ticket. That must change if JetBlue wants to lure business travelers. TV is a nice thing to have, but it's much better to have more free flights. Similarly, Virgin America will need to ensure that its frequent flyer program is competitive with its in-state rivals. American and United will certainly retaliate against LCCs, offering similar promotions to retain their hold on business travelers, and if they seriously retaliate, a frequent flyer promotion could be very effective. Business travelers would rather stay loyal to their current carrier than move to another, and if American and United offer the right promotions, those business travelers won't be going anywhere. If the competition gets really heated, then frequent flyer miles will be another major battleground (in addition to fares and convenience) on which airlines fight for customers.

As competition increases on California intra-state routes, airlines will fight harder than ever for passengers, and in six months to a year is when the results will finally start to show. When they do, there will likely be clear winners and losers. Southwest and United are the two airlines best positioned to succeed, and JetBlue, Delta, and Virgin America, are taking the most risks. But given that this is California, anything can happen, and after the first stage of this battle is over, Southwest and United may be in much worse competitive shape than when it began.

See the post JetBlue Considers Bolstering Intra-California Service for more information on the topic.

JetBlue Considers Bolstering Intra-California Service

In light of recent announcements that competition may be heating up on intra-California routes, JetBlue CEO David Neeleman announced at the company's annual shareholder meeting today that JetBlue is considering adding additional flights on routes within California. While Frontier has announced its intention to withdraw from the San Francisco-Los Angeles market, Delta announced additional flights from its Los Angeles focus city today to Oakland, Sacramento, San Francisco, and San Jose. The new Delta flights will be operated with regional jets by a feeder carrier, ExpressJet. Moreover, Virgin America is also set to enter the intra-state market within a few months with new flights between San Francisco and Los Angeles as well as San Diego. Southwest, Alaska, American, and United are also major players in the intra-California market.

As the competition in California heats up, JetBlue is making a choice whether to size up its operations or whether to withdraw from the intra-state market. In a competitive environment like this, customers must know which airlines carry passengers within the state. Even though JetBlue is a well-known brand, many Californians don't know that JetBlue currently offers intra-state service. With increasing numbers of flights on more and more airlines, passengers are increasingly less likely to choose JetBlue unless the airline offers more flights and attempts to grab a larger slice of the market. JetBlue currently flies between Long Beach and Oakland as well as Sacramento. JetBlue is considering starting intra-California flights between other airports, and will need to do so in order to survive in the competitive market. JetBlue has an advantage over some of its competitors, since its Embraer 190s, which might be used if the airline expands in California, enable the carrier to offer greater frequencies on many routes, making JetBlue more attractive to time-sensitive travelers. But if JetBlue can't expand on routes within California, it needs to withdraw from the intra-state market entirely, because otherwise JetBlue will end up like Frontier, with a solid brand, but with little awareness among customers that it flies intra-state.

But this convenience must be carefully thought out. JetBlue is also entertaining the possibility of starting intra-state flights at Los Angeles International. While this would help JetBlue attract some business travelers, it would also put JetBlue into direct competition with Southwest, which is something JetBlue has tried to avoid during its expansion. Southwest already has a very large operation at LAX, and it might be difficult for JetBlue to gain a foothold at the airport. Competition, combined with the difficulties some airlines have had with the airport authority about significantly higher terminal rental costs, may keep JetBlue away from LAX, at least for now.

However, if JetBlue does expand intra-California service, the airline will inevitably face competition from Southwest, due to Southwest's massive presence in the state. JetBlue can compete with Southwest, since JetBlue offers more amenities and comparable fares, but given the convenience Southwest offers customers (flights on many intra-California routes are often every hour), and the fact that on a one hour flight, amenities aren't too important, customers may stick with the established carrier. It's not just JetBlue that will have trouble breaking into the intra-California market, Virgin America, even with its amenities and flashy brand, will have difficulty attracting customers.

As a result, JetBlue will have its hands full if it decides to expand into more intra-California routes. However, the rewards for success will be lasting, since the market has a lot of long-term potential. JetBlue needs to be careful if it expands in California, but the airline has the potential for success if it exploits its strengths (like its Embraer 190s), and minimizes its weaknesses (like its frequent flyer program, which needs to be improved to be made more attractive to business travelers). There is no reason why Southwest should dominate the low-fare market in California, and JetBlue may exploit the opportunity it has to change that.

See the post More About Intra-California Competition for more information about this topic.

Delta Exits Bankruptcy and Rebrands: Can the Airline Now Compete Freely?

Delta Air Lines formally exited bankruptcy today, ending its protection from creditors. But the airline exits bankruptcy when the industry is still experiencing difficulties, particularly with regard to fares that are still too low and potential overcapacity with two new competitors coming on line this year. Delta's restructuring has focused on reducing costs, and the company has done a fair job of that. Delta will continue to face uncertainty in several areas, but particularly with regard to its hubs. Right now, much of Delta's profits are being made with customers flying to or from a hub, and that will inevitably change in the future, given the expansion of low-cost carriers in this country. As a result, Delta will need to focus more on connecting traffic, especially to higher-margin international destinations for a greater share of its profits.

One of Delta's largest profit centers is in Cincinnati, where according to the Department of Transportation, the airport has the highest average fares of any major airport in the country other than Anchorage (which for geographical reasons is likely to have very high fares). Cincinnati even has higher average fares than Honolulu! And while Delta has a virtual monopoly in Cincinnati, that probably won't last. I suspect that in the next couple years an LCC, most likely AirTran or Frontier, will add service to Cincinnati (although Southwest and JetBlue are reasonable possibilities as well), and Delta will try to drive its new competitor out of town, a tactic that has worked in the past and may work in the future.

However, if an LCC can maintain an adequate foothold in Cincinnati, especially one that offers connections to many business centers across the country, then fares in that market will decrease, and the massive profits Delta is making in the city will decline sharply, which could spell more bad news for employees at Delta's regional subsidiary Comair, who have already had a tough time accepting significant pay cuts during Delta's bankruptcy. It's important to note that since Comair operates an all-regional jet fleet, its costs have skyrocketed in the past few years, since regional jets are more fuel-hungry than larger planes, and as a result, its competitiveness has decreased. Pay cuts, which have damaged employee morale, were necessary to help stabilize the company (though it's debatable whether Comair management made cuts that were too steep). Since Comair does much of Delta's flying in Cincinnati, an LCC could force employees at the subsidiary to sacrifice even more, and Delta's network at the hub may shift, since additional regional jets may get trimmed from the network in order to reduce Delta's costs. Those changes may be necessary soon if low-cost competition enters Cincinnati, and in any case will eventually be within 5-10 years in order to modernize Delta's hub there and lower its costs. These changes could make Delta's overall transformation strategy more difficult, especially if yields from Cincinnati decrease substantially.

Delta's other two hubs in Atlanta and Salt Lake City may also face changes, but not nearly as many as Cincinnati will. Atlanta and Salt Lake both have low-cost competition, and Delta has adapted nicely to the competitive climate in both markets. Both Delta and AirTran are struggling to figure out how to add capacity in an East Coast market which is oversaturated by low-cost competition. As a result, Atlanta will see mainly a boost with international flights in the next few years. The number of domestic services may increase, especially if Delta increases frequencies on routes where larger 767 aircraft are being replaced with smaller 757 or 737-800 aircraft, but the amount of capacity will not change substantially. AirTran will likely focus on building domestic operations in focus cities outside of Atlanta (as I will discuss in a post to be added within a day or two), while Delta will concentrate on adding service from Atlanta to a growing number of destinations, particularly in Latin America and the Caribbean, Europe and the Middle East, and depending on the DOT's decision in 2008 concerning China route authorities, Delta could add additional service to Asia to complement China flights.

Salt Lake City is a bit harder to analyze, because the West will become increasingly important for Delta, as the airline tries to target additional traffic to Latin America as well as in the growing Southwestern United States. Salt Lake City will be an important connection point for Delta destinations in the West, but its importance in the Delta network could diminish if Delta cuts regional services to many smaller cities due to high costs. Right now, Delta doesn't seem to be heading that direction, in fact, the airline seems to be using its massive regional jet fleet (much of which is service Delta contracts to SkyWest Airlines in Salt Lake City) to serve a growing list of destinations, including Yakima, WA and Salem, OR. However, much of Delta's future depends on the viability of regional jets as a cost-effective means for transporting passengers. If fuel costs skyrocket, then Delta's transformation plan could get derailed, and the effects in Salt Lake City and Cincinnati would be disastrous. Let's hope Gulf War III doesn't start anytime soon.

However, the future importance of Salt Lake City could also depend on how Delta's expansion in Los Angeles goes. Delta seems to be using its reoriented international focus to turn its Los Angeles focus city into a small hub, adding to the list of cities it serves from Los Angeles in both the US and Mexico, partly through a new regional jet contract with ExpressJet Airlines for ten regional jets to serve cities on both sides of the border. Delta plans on offering convenient connections between major cities in the US and destinations in Mexico. If Delta's Mexico flights don't attract sufficient yields and loads, then the entire Los Angeles operation could be downsized, and the importance of Salt Lake City could grow. However, if the Mexico operations in Los Angeles succeed, then Delta could place a renewed focus on Los Angeles, adding flights from the city to other key markets in South America, the Caribbean, and possibly Asia.

Delta's focus cities in Washington DC, New York, and Boston will continue to be important for the airline in the near future. This is especially true in New York, where Delta has a sizable presence at JFK with transcon and a growing menu of international flights as well as at LaGuardia with a profitable mix of flights popular with high-yield business travelers. Boston and New York will continue to receive point-to-point flights from major US cities in the near future, even though Delta has reduced its presence somewhat in Boston due to low-cost competition. Business travelers are very important for Delta from all three markets, and will be courted even more aggressively as Delta continues to improve its amenities and services on shuttle, transcon, and international flights. Moreover, the Delta Shuttle operation is still a very profitable enterprise, even with new competition from JetBlue, and it will continue to be profitable unless demand from business travelers slows significantly. There is no reason to believe that Delta will want to realign capacity at its hubs and engineer a pullback from its lucrative business markets in these three cities. As a result, Delta's focus city operations from the three major East Coast business centers will continue for the time being.

As part of the announcement today, Delta announced an agreement with Pinnacle to fly 16 CRJ-900 aircraft in a 76-seat two-class configuration to help feed Delta's operations. This should enable Delta to add frequencies on routes to select midsize markets while still being able to cater to their premium class customers. But in addition to this minor announcement, Delta plans other announcements throughout the week, as it celebrates its emergence from bankruptcy. These announcements may include a major new aircraft order. Delta has dozens and dozens of older 767 variants that need replacement in the next ten years, and the airline has been rumored to be considering the 787. It's entirely possible that Delta and Boeing have negotiated an agreement for new aircraft, and are waiting to announce it until after Delta's formal emergence from bankruptcy protection for legal reasons. A Delta 787 order is a rumor, but one that makes perfect sense given Delta's need to transform into a more cost-effective carrier with an international focus. Within the few years, Delta plans on transitioning from using many of its widebody aircraft from routes within the lower 48 to international routes, where they are needed more. Delta is launching service to more and more international destinations, and has been strained to use 767s on some longer routes, such as to Lagos where the aircraft needed to be retrofitted with special crew rests. Delta needs aircraft other than 777s (of which Delta may order more as well) for its longest international routes, and since some variants of the 787 can fly farther than comparable 767s, it may make the plane even more attractive to Delta as a partner for 777s on very long routes. It's also possible that Delta will order additional short-haul aircraft, most likely Boeing 737-800s, which Delta will need as it upgrades frequencies on domestic routes when additional 767s are replaced. However, Delta may wait until Boeing or Airbus release a new 737/A320 variant before making a large purchase. Even though this is pure speculation, given the opportunity Delta has right now, a major widebody aircraft order makes sense. 

But what Delta needs even more than new aircraft is a new way to target travelers through amenities and services. Delta is upgrading its amenities on transcon and international flights, but it's still not enough if Delta wants to compete with international carriers. Delta needs to invest more in upgrading its amenities in all classes of travel. One key service that Delta needs to improve is its frequent flyer program, SkyMiles. Even though the program partners with Northwest and Continental, offering its members hundreds of ways to earn or spend miles, it is still considered by many business travelers to be one of the more mediocre frequent flyer programs in the US. Delta, and all airlines for that matter, need to make a renewed effort to increase award availability for its business travelers. Because planes are fuller than ever, airlines have trimmed the number of seats that can be redeemed with the lowest number of frequent flyer miles. Delta needs to ensure that its most frequent flyers are given preferences when searching for available award seats, but Delta also must enable those who fly less frequently to still have a realistic shot at redeeming miles. With rising ticket prices, frequent flyer miles are becoming a more important source of tickets for travelers and a more important component in a traveler's decision when choosing an airline. Because of this, Delta must do what it can to maximize availability without sacrificing revenues. If Delta doesn't take the lead on this issue, then it will hurt the airline's reputation with business travelers, which will only diminish the airline's yields and the overall effectiveness of its transformation plan.

Another service Delta plans to offer is carbon offsetting, a first for a US carrier. This is a brilliant move by Delta that I believe will serve them well in courting many younger, more environmentally aware travelers, who typically flock to low-cost carriers. Carbon offsetting is gaining popularity in Europe (though not necessarily respect, as the Guardian discusses here), and it's an important service that airlines will be expected to offer their customers within the next five years. By getting a jump on the competition in this area, Delta is preparing for a long-term trend in the industry of environmental awareness and action. Delta appears to be approaching this issue, and the other pressing issues facing the company with a long-term focus, which is exactly the kind of thinking that will keep Delta out of bankruptcy long into the future. Even though Delta will continue to encounter difficulties from all sorts of pressing issues facing the airline, now that Delta has had an opportunity to restructure, the company seems to be better prepared for the challenges it will face in the future.

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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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Is Midwest’s 50-Seat Plan Really Aimed to Stabilize the Airline?

Midwest Airlines launched new flights today on 50-seat regional jets, operated by SkyWest Airlines. Midwest decided to launch the new service supposedly in response to demands from customers for new and expanded service from Milwaukee. However, Midwest's launch of 50-seater service comes at a time when no other American airline wants to even contemplate new 50-seat regional jet service; the planes are simply too inefficient for their needs. However, Midwest is an airline that is not only expanding, it's also one that's in the midst of a turnaround to profitability, and the company has demonstrated that it can turn itself around, as Midwest reported profits of $5.4 million last year. The 50-seat regional jets will supplement (but not replace) regional aircraft already flying for Midwest, making some routes cheaper to operate, since a 50-seat aircraft is cheaper to operate per passenger than the 19- or 32-seat aircraft which are currently flying for Midwest. However, regional jet flying, especially on 50-seat and below aircraft, seems to be a threat to any airline's profitability, even with trimmed costs. Midwest is one of the few US carriers that can command a price premium for its services, and its new regional jet service will offer convenience to business travelers who now won't have to connect to fly between certain markets. However, even with that price premium, regional jet flying is still a very risky, low-yield business, and Midwest is gambling that regional flying isn't dead. They may be right, and the shift in how airlines view regional jets may help Midwest. More and more regional jets are being placed on routes, not to small markets, but between intermediate and large markets which lack significant or any nonstop service. ExpressJet is testing whether this model will work, and whether business travelers are willing to pay a premium to fly nonstop. Midwest seems to be doing the same thing too, after all, Midwest's first routes with the jets will be service to large markets. Midwest's 50-seat planes will fly first from Milwaukee to Columbus, Ohio, as well as supplement existing service between Milwaukee and Minneapolis/St. Paul as well as Philadelphia. With the recent rise in airfares, this makes perfect sense, as regional jets are a convenient and flexible, albeit expensive, way for airlines to add capacity in small doses. This way, Midwest can slowly gain market share on routes to and from Milwaukee and become a more significant airline in the Midwest and East Coast.

However, there may be ulterior motives to Midwest's recent regional jet expansion. The expansion may be geared in part to stave off a takeover bid from AirTran Airways. Even though activity surrounding AirTran's takeover bid has died down in recent weeks, AirTran is trying to keep the bid very much alive, even if the takeover takes years to accomplish. AirTran has been mum about what exactly it would do with Midwest's regional operations if it were to take over the airline, however, it's likely that AirTran would eliminate certain, more costly, parts of Midwest which deviate from AirTran's core business model. Midwest's baked-onboard chocolate chip cookies may stay, but some of Midwest's regional routes and some of their older aircraft will likely be eliminated. But by adding new service that Milwaukee travelers will use, even if it's not very profitable service, Midwest can attempt to diversify itself enough such that AirTran will either lose interest in Midwest, because the compatible synergies between the two companies will not be sufficient to necessitate a takeover, or, if AirTran is still interested in a takeover, it will be more difficult for them to eliminate elements of Midwest they don't find suitable. It remains to be seen whether Midwest's 50-seater service will succeed, but Midwest's definition of a successful regional jet operation may be very different from ExpressJet's. For Midwest, successful service won't necessarily make money, but it will likely delay AirTran's takeover efforts.

Midwest's 50-seat regional jet operation raises some important questions about the future of third-party regional jet contractors, including SkyWest and Mesa, and whether their planes may have new missions, now that higher fares and growing demand from business travelers for nonstop service may necessitate expanded 50-seat regional jet service from some airlines. This industry is facing consolidation, and it's possible that further consolidation could ensue if Delta spins off its regional subsidiary Comair, whose fleet is primarily composed of 50-seat jets, before Delta's April 30 date to exit Chapter 11 bankruptcy protection. But I plan to discuss more about this next week, so stay tuned.

There are two interesting articles related to this post, one article about AirTran's plans to nominate three candidates for Midwest's Board of Directors at their upcoming annual meeting in order to gain influence over Midwest's business decisions, and another article about AirTran's attempts to purchase a strip club near the Milwaukee Airport from Midwest. (I lack the creativity to write a funny April Fools article on Airline Bulletin, but these writers do a good job).

ExpressJet Announces New Service Under an Independent Banner

Yesterday, ExpressJet announced that they plan on commencing service under an independent banner to cities in the West, Midwest, and Southeast that lack sufficient point-to-point service. This is something I believed would happen for a long time now, because ExpressJet can't commit all of the 69 regional jets they released from Continental to corporate charters, the business that 15 of these jets are currently dedicated to. While ExpressJet hasn't released details of new routes, they did announce that the 50-seat ERJ-145 regional jets would be equipped with XM Satellite Radio and the new airline would offer advanced seat assignment as well as complementary snacks and meals on longer flights. Customers can start booking tickets on ExpressJet's Web site starting February 1. I predict that many of these jets will be allocated to markets that need nonstop point-to-point service to cities on either coast. For example, Omaha, Nebraska is a large enough market to be a Southwest city, but they lack nonstop service to some important markets. Omaha, like many smaller or midsize cities in the middle of the country only has service to hubs and lacks nonstop service to many large cities on the coasts which are popular destinations. For example, Omaha lacks nonstop service to Seattle/Tacoma, San Francisco (or nearby Oakland or San Jose), Los Angeles, San Diego, Miami/Ft. Lauderdale, Orlando, Tampa, and Boston. Customers who want to access those cities must connect through a hub. If ExpressJet's new airline opened service to Omaha, they would certainly face stiff fare competition from Southwest and others in the city. The regional jets that ExpressJet operates are more expensive than 737s to operate per passenger, so ExpressJet will need to charge more than other airlines in order to profit from point-to-point service. ExpressJet seems to understand that reality, and is creating a premium product on their small aircraft with entertainment, assigned seats, and free food, amenities that top what most carriers offer these days. Business travelers and others who want to save time would be willing to pay a reasonable fare premium for nonstop service to major business cities. However, ExpressJet's new airline isn't going to offer point-to-point service to every unserved market because many leisure markets can't sustain airlines that charge fare premiums. Boston or Los Angeles are more likely candidates for new service than Orlando. However, ExpressJet may also try to start point-to-point service between markets that have enough traffic to sustain a nonstop flight, but don't have much low-fare competition. Omaha may not be an ideal market for ExpressJet's new carrier to start service in because it's large enough to have significant low-fare competition which could be too more competition than a small airline can handle, however, it is attractive if ExpressJet can tap into a pool of customers who will pay more to fly nonstop. If ExpressJet can do that successfully in Omaha, they will make a lot of money there.

There is one market that ExpressJet's new airline will eventually serve that has been craving for any new service whatsoever for years and years. Wichita has tried to lure new carriers to the city, offering incentives to low-cost carriers such as AirTran to commence new service to the city. However, ExpressJet's new airline could serve major markets on both coasts nonstop from Wichita. Wichita lacks nonstop service to some major business markets, including New York, Washington DC, and Los Angeles. ExpressJet could fill this void in Wichita's service, provided that there exists a sizable contingent of travelers in Wichita and elsewhere who are willing to pay a small premium for nonstop service. Omaha and Wichita aren't the only markets that could support nonstop ExpressJet service. Other potential markets that are the right size and in the right location for ExpressJet's new service include Oklahoma City, Tulsa, Colorado Springs, Huntsville, Mobile, El Paso, Des Moines, Lexington, and others. Currently, ExpressJet is hiring station managers in some of these cities as well as others like Boise, Fresno, Bakersfield, Monterey, Jacksonville, New Orleans, Spokane, and Tuscon. Look at ExpressJet's recruitment Web site for an idea of where the company is hiring people. Many of the jobs listed on the recruitment site are in cities the company already serves with their Continental lift contract, but many of the cities are new, including some of those listed above, suggesting those are markets that ExpressJet's new airline will expand to. ExpressJet's focus may not be larger business markets, or these markets listed above may simply be focus cities like Omaha or Wichita that ExpressJet will expand from to larger cities. ExpressJet will not be able to serve cities on the West Coast from focus cities in the East, or cities on the East Coast from focus cities in the West due to range restrictions with their regional jets, but ExpressJet will still be able to fill a much needed void in service from their focus cities, even if they can't serve all the major unserved point-to-point markets from a given focus city.

ExpressJet is taking a very bold step with their new service. Like Atlantic Coast Airlines, the former parent of the now defunct Independence Air, ExpressJet has seen that there is a shakeout coming in the regional lift business. ExpressJet, with their higher-than-average lift rates charged to carriers such as Continental, was one of the first major victims of this new reality. But instead of diminishing the size of their business by returning their subleased jets to Continental, they decided to continue leasing the 69 jets that would no longer be under the Continental capacity purchase arrangement at higher rates. This is a very bold step, and must be commended by the company's shareholders. Unlike Atlantic Coast, however, ExpressJet isn't betting the farm on one new venture, most of their jets are still flying for Continental at profitable rates, and ExpressJet has also started a corporate charter business that has been successful thus far. ExpressJet is trying to diversify itself in order to survive a shakeout in the regional lift business, just like Atlantic Coast tried to. But, we can only hope that ExpressJet has learned from the mistakes of Independence Air. Independence Air tried to be a low-fare airline with high-cost aircraft, a sure way to lose money quickly. ExpressJet needs to charge higher fares because they operate aircraft more costly to operate, so they must justify to customers that they should be paying higher fares with upscale amenities and point-to-point service. ExpressJet should be able to succeed but if and only if it can charge a fare premium. ExpressJet's new carrier will not be a low-fare airline, it simply can't be if it wants to make money, which means that ExpressJet will need to choose its markets carefully. A market like Omaha may be too big with too much low-fare competition, but a market like nearby Lincoln may lack sufficient business travelers. There is a fine balance in what markets will be appropriate for the new carrier, but if it finds successful markets, then the new airline could develop customer loyalty in small markets and make plenty of money. ExpressJet has experience working with one of America's most business-friendly airlines, Continental, and has experience offering excellent service and amenities to passengers. This experience will be valuable for ExpressJet's new carrier in implementing their product successfully. ExpressJet's new carrier should be looked upon by other regional lift providers, because it's an experience that they could learn from, should they ever need to diversify their businesses and redeploy a sizable portion of their fleets.

Northwest Formally Announces Mesaba Buyout

Today, MAIR holdings, the parent company of Mesaba Airlines, formally announced that it would sell Mesaba to Northwest Airlines in a deal that should benefit both companies. Northwest will get a loyal partner with turboprop aircraft that are in demand in many of Northwest's smaller cities, while MAIR will be able to exit bankruptcy by focusing on its more profitable Big Sky operation. This agreement also signals a shift in Northwest's feeder service that is integral to the airline. Perhaps more than any other carrier, feeder service for Northwest is of particular importance to the airline as a whole, since Northwest dominates in a region, the Midwest, with dozens of small markets that can be profitable if Northwest's regional lift providers serve them efficiently and link them to a larger Northwest hub. Ironically, Northwest has contracts with very few regional lift providers. Northwest contracts with Mesaba for flights with nearly 60 34-seat turboprops, a couple 50-seat regional jets, and up until recently several 69-seat Avro RJ-85 regional jets. Northwest also contracts with another provider, Pinnacle Airlines, for flights with nearly 125 CRJ-200 50-seat regional jets. Northwest plans on developing a new subsidiary, Compass Airlines that will fly larger Embraer 175 regional jets for Northwest. A yet-to-be-determined third-party operator will also fly Bombardier CRJ-900 regional jets for Compass. While Northwest has few regional partners, they play a very important role in the airline's future. Northwest wants to have more control over what that future will be because Northwest's regional operations are so vital to the airline as a whole. This will mean that some companies could get marginalized. Up until the acquisition of Mesaba, that looked to be the target. However, Northwest's other third-party partner, Pinnacle, could become less important in Northwest's future as Northwest tries to sort out where it needs precious lift and at what rate it can pay for it.

Pinnacle also senses that they could be in trouble. Northwest is Pinnacle's only customer for lift, so Pinnacle's holding company felt like it needed to diversify the company in case Northwest decides to implement operational cuts. Pinnacle recently purchased Colgan Air for $20 million; Colgan will operate as a separate subsidiary of Pinnacle. Colgan's fleet of Saab-340 turboprops are efficient and fast for short flights, and hence are in demand by major airlines. Colgan currently contracts with United, Continental, and US Airways. Pinnacle has a large fleet of CRJ-200 50-seat regional jets, the bread and butter of regional lift providers, which are becoming increasingly expensive to operate, and airlines like Northwest are trying to find cheaper sources of lift. 50-seat regional jets will still have a role to play in the coming years as fuel prices increase, but it will be a far smaller one than what they have now. Northwest, in their infinite wisdom, has more 50-seat regional jets on order, but these will be operated by Northwest's Mesaba subsidiary, not Pinnacle. However, Northwest also has larger Embraer 175 and CRJ-900 regional jets on order that will provide better economics for Northwest's regional operations. Not only are regional jet economics and a changing corporate landscape at Northwest hurting Pinnacle's future, but the downsizing of Northwest's Memphis hub will also hurt Pinnacle. Pinnacle is based in Memphis, and most of their flights are to and from the city. While Northwest will certainly keep a sizable operation in Memphis in at least the next few years, it will likely involve cutting flights. If Memphis is less significant as a hub, then feeder flights formerly bound for Memphis will instead likely fly to Detroit or Minneapolis where passengers have better connection opportunities. Those new flights, particularly if they are flown on 50-seat regional jets, and not on 76-seat regional jets under the Compass Brand, could be flown with Mesaba's new 50-seat regional jets. All these factors could lead to Pinnacle's role in Northwest's regional operations being diminished in the coming years as Mesaba and Compass pick up some of Pinnacle's routes.

As Northwest consolidates and focuses some of its regional operations, more airlines will also to do the same. The best example of this are on flights shorter than an hour long. For years, as the popularity of regional jets has grown, airlines have used regional jets on any short flights to or from hubs. These flights are an integral part of the airline's network. But regional jets are woefully inefficient for such flights, since it takes the aircraft an enormous amount of fuel to take off, and on such short flights, that fuel consumption can't be fully repaid without disproportional fare increases since the flight is so short. But turboprops, while slower and louder, are more fuel-efficient and work well for airlines on such short flights. Companies like Skywest and Colgan that have large fleets of turboprops have found plenty of customers who need the lift. This means that some airlines have had to dump long-standing regional lift providers on short routes to make way for new providers that will fly turboprops. Continental ended its contracts with ExpressJet on some short flights from Houston, only to replace that service with turboprop service from Skywest, and eventually Colgan Air. In the future, more short flights will be operated by turboprops as prop technology improves, and fuel prices climb.

Meanwhile, more airlines will be shifting regional service to 70+-seat regional jets. This has meant that some airlines are switching and consolidating regional lift providers on some routes to midsize cities. It also means that many providers of service on smaller regional jets will continue to fight to the teeth. In the next five years, airlines will likely end contracts for regional lift providers that could result in dozens or hundreds of 37, 40, 44,or 50-seat regional jets being scrapped. The jets are simply too inefficient for these airlines' purposes. It will also mean that many communities that currently have 50-seat service could get simply a reduction in daily flights, replacement flights on smaller turboprop aircraft, or no service at all. The bar has been set much higher for communities to obtain air service. Airlines will be looking to consolidate regional lift providers in hopes of obtaining more leverage over them in the effort to secure the best rates. Airlines like United could drop some of their smaller providers in favor of larger providers such as Skywest or Mesa. Legacy carriers might also consider starting their own regional subsidiaries, like Northwest has done with Compass. However, Northwest's Compass is not an ideal solution by any means. Compass will only be able to fly jets configured up to 76 seats to avoid having to pay pilots mainline wages, which will mean the aircraft will be configured in less dense configurations than is ideal for regional flights with several rows of first class seats. Inefficient configurations could potentially lead to lost revenue for Northwest. Because Northwest has so many cities in its network that can be served efficiently by 76-seat jets, Compass makes more sense, but it would be more cost-effective for most carriers to avoid new subsidiaries, at least for the time being because it would lead to too many hassles with pilot unions. However, the formation of Compass could mean that Northwest is interested in bypassing private lift providers in favor of in-house regional subsidiaries. Northwest's regional network is changing, and their regional lift providers are changing along with it. However, many regional lift providers need to be prepared, particularly those with large fleets of 50-seat regional jets, because not only are airlines like Northwest reevaluating their regional lift providers, they are reevaluating whether they want to go through an intermediary to offer regional flights. If legacy carriers figure out a deal with pilots unions, more subsidiaries like Compass could become common as a way to manage the rising costs of providing regional service.

Will a Shakeout Occur With Second Tier Regional Lift Providers?

Regional lift providers, companies such as Skywest, Mesa, and Republic, have been squeezed lately as airlines try to keep costs low. 50-seat aircraft, which make up the bread and butter of most regional lift fleets are inefficient and costly for regional lift providers to operate and airlines to pay for. Airlines aren't willing to pay the enormous costs of keeping fleets of these aircraft in the air like they were five or ten years ago. Because of this, airlines that contract with regional lift providers are becoming more and more selective, and regional lift providers that can't compete in a cost-effective manner could quickly evaporate. Companies like ExpressJet and Pinnacle that used to have one client (Continental and Northwest, respectively) are finding that they must branch out, since the airlines they contract for don't need all that lift. As legacy airlines become increasingly more selective in using regional lift providers, only the strong will survive. Skywest, Mesa, and Republic will all survive the impending shakeout, because they are larger companies and have strong financials. Because they are larger, they can also offer better rates since economics of scale allow them to save on maintenance, crew training, labor, and administration costs. Each one has found its niche, and has loyal airline partners. Mesa offers the best rates but shaky reliability. Skywest offers some of the highest-quality service and reliability in the regional lift industry, however, their rates are often higher than Mesa's. Republic offers a nice variety of aircraft, and competitive rates, so airlines can easily customize capacity to their needs cheaply.

But there are other companies in this business that may not survive too long. Air Wisconsin is one example. Air Wisconsin offers excellent service and reliability but has very high rates for regional flying. United dropped Air Wisconsin as a regional lift provider a couple years ago in a bid to cut costs. Air Wisconsin banked on the resurgence of US Airways, and their investment has payed off, allowing the company to survive at least for now. Air Wisconsin operates 70 50-seat CRJ-200 regional jets for US Airways, and has ground handling contracts with United and Northwest. While Air Wisconsin has found success, at least for now, it's doubtful that the company will continue to grow substantially. The company only operates 50-seat regional jets, which is the type airlines are desperate to shed, and they still have relatively high contract rates. Air Wisconsin was hoping to get a contract from Midwest Airlines, which wanted to start flying to certain cities with regional jets. Midwest Airlines offers "the best care in the air" and with Air Wisconsin's high service standards and Wisconsin roots (Air Wisconsin is based in Appleton and Midwest Airlines is based in Milwaukee), many observers expected that Air Wisconsin was a shoe-in for the contract. But unfortunately for Air Wisconsin, Midwest Airlines announced on Thursday that Skywest, another high-quality provider, would receive the contract. That was a devastating blow to the company, and significantly damages its future growth prospects. While Air Wisconsin may survive in the coming years, it will almost entirely be due to their contract with US Airways; the company just won't grow with competitors that are better positioned. If US Airways decides to reevaluate its contract with Air Wisconsin in any way, the company will be hurt, and could be destroyed if US Airways terminates its regional lift contract.

Another example of a company that might succumb to competitive pressures is Trans States Airlines. Trans States has contracts to operate 50-seat regional jets, as well as some older turboprops. The company that owns Trans States Airlines, Trans States Holdings, also owns a subsidiary, that might survive a shakeout, GoJet Airlines, which operates 70-seat regional jets for United. GoJet was formed initially to skirt union rules at Trans States and save money, but pilots at GoJet have since tried to unionize. Trans States Airlines contracts with American, United, and US Airways. But, some of the contracts the company has are for flying turboprops that are practically worthless. These are older, 30-seat J41 turboprops that are simply too old and inefficient to be flown much longer. When those turboprops end their useful lives, American and US Airways are unlikely to renew their contract with Trans States without new turboprops and instead may try to contract with Skywest, which has 30-seat Embraer 120 turboprops. They may instead decide to just end service to some of these markets which aren't key to their overall networks. Trans States has done well, expanding its business, and offering reasonable rates. However, the aircraft the company offers, and the regions they do business in, overlap Republic quite well. Both companies operate primarily in the Midwest and the East Coast. And unfortunately for Trans States, Republic is a larger provider, and is expanding rapidly. Republic has been a success story in the past few years, as the company has been selected to fly 70-seat Embraer E-Jets for Delta, United, and US Airways. This has positioned the company for success in the long-term, as other companies, including Trans States have been slower to catch onto the 70-seat fever. Trans States, or at least parts of the company, may be purchased by Republic if Republic wants to expand since both companies operate sizable fleets of Embraer ERJ-145 aircraft and operate in overlapping regions. It's hard to see how Trans States will survive beyond the next 3-5 years, unless they receive a significant new contract and modernize their fleet with larger, more fuel efficient aircraft.

One other casualty of a shakeout in regional lift providers could be more consolidation. Deals such as the Skywest acquisition of one of Delta's regional lift subsidiaries, Atlantic Southeast Airlines (ASA), could become more common, as smaller companies sell out to the big three. A Republic/Trans States buyout is possible, with GoJets remaining an independent company. But another takeover could happen that would help transform a bankrupt Delta Air Lines. In addition to Atlantic Southeast, Delta has another regional subsidiary, Comair, that Delta might consider selling to another regional lift provider, much the same way Delta sold ASA to Skywest. A takeover of Comair would allow the buyer, likely Skywest or Mesa, to gain a large contract, and a lot of regional jets at a dirt cheap price. Republic could take Comair over, but Republic operates primarily Embraer jets while Comair operates Bombardier jets which doesn't help lower maintenance costs. But, a takeover of Comair might also lead to labor problems at the buyer, since Comair is currently experiencing labor difficulties, particularly with its pilots. Pilots at other providers might be sympathetic to their cause and cause labor action that could significantly damage Comair's owners. While that could pose problems, the acquisition of Comair could bring enormous benefits to the buyer, and help the buyer lower costs and eliminate inefficient aircraft. A Comair buyout would also allow either Skywest or Mesa to expand Eastward, since most of Comair's operations are out of Cincinnati, and expand Skywest's or Mesa's respective economies of scale, offering even lower rates to their customers.

Some smaller providers don't seem imminently threatened by a shakeout, however. Companies like Colgan Air, which used to have a sole customer, US Airways, now has two additional clients, United and Continental. Colgan, and other smaller regional lift providers that own turboprops have seen a resurgence in business, as airlines are flocking to turboprops as a cheaper alternative to regional jets for very short flights. While turboprops aren't useful for flights longer than an hour or so, they allow airlines to offer frequent service between a hub and a smaller city without flying an expensive, larger regional jet for the short journey. Mesaba, which operates a large fleet of the same type of turboprops Colgan operates, Saab 340s, seems to be in a buyout process with Northwest, allowing Northwest to cut costs for regional flying while keeping an important partner intact as a subsidiary. A regional lift provider shakeout will likely occur in the next few years, and regional lift providers that don't have strong, steady contracts, at competitive rates won't be able to stay in business much longer. Regional flying isn't dying; look at the investments being made by Horizon or Frontier's new subsidiary, Lynx in new aircraft. What is dying is the days of jet-only regional fleets. With fuel prices soaring, airlines are taking another look at turboprops and larger regional jets that can carry passengers more efficiently. Airlines will also be looking to squeeze regional lift providers for any additional rate cuts, as they try to trim costs. Many of those rate cuts can only come when regional lift providers get bigger, and when they have the ability to save money on maintenance, crew training, labor, and administration costs by enlarging, they will have a better chance of surviving. Regional lift providers that don't adapt and evolve to this changing scenario won't last long.

Should Northwest Consider a Merger?

According to some recent reports, including this article by The Pioneer Press, the answer is yes. And there are many reasons why Northwest would make a good acquisition target, especially with US Airways (if the US Airways/Delta merger doesn't go through) or even United. However, the possibility of a Northwest merger with United is far less likely for antitrust reasons as both airlines have large market shares in Asia, and particularly China. Neither airline would want regulators to force them to give up what could potentially be their most lucrative routes. But, US Airways on the other hand is a very attractive merger target for Northwest. US Airways now has healthy financials, unlike Northwest, and US Airways's route network fits perfectly with Northwest's, making this merger nearly as attractive as the Midwest/AirTran deal.

US Airways has hubs on both coasts, but lacks a central hub in the Midwest, where Northwest's U.S. hubs are concentrated. Remember that part of the worry with the America West/US Airways merger was that the new airline would have a "barbell network", with extensive service on both coasts, but lacking in the Midwest and Rockies. A Northwest merger would solve that problem. The biggest problem with the two airlines' route networks is the number of hubs in both. If a merger occurred, the airline might consolidate hubs. It's less efficient to have hubs in two cities relatively close to each other, and both airlines already have that problem in their respective networks. Northwest has two close hubs in Minneapolis/St. Paul and Detroit while US Airways has two close hubs in Phoenix and Las Vegas. If a merger occurred, some hubs would likely be closed. Between them, the two airlines operate seven hubs in the United States in addition to Northwest's hub in Tokyo. It's probable that at least three hubs would close down and become focus cities if a merger occurred.

I would guess that Northwest's hub in Memphis, where Northwest's regional lift providers Pinnacle and Mesaba do most of the flying for Northwest, would be the first to go. Memphis is Northwest's smallest U.S. hub, and has struggled with traffic issues for a long time. Memphis is a bad, bad location for a hub, because it lacks a strong base of origin and destination (O&D) traffic, and is in a relatively poor location geographically. O&D traffic refers to the number of passengers that use Northwest to fly to its Memphis hub but who aren't connecting but rather departing or arriving in Memphis. Because Memphis is a relatively small city, the number of flights it gets is very disproportional to the number of passengers who actually are traveling to/from Memphis. Cities like Phoenix or Detroit have larger populations and are better locations for a hub, provided they are in a reasonable geographic location. If Northwest's Memphis hub closed, the merged carrier would probably realign its regional operations. Pinnacle, one of Northwest's two regional lift providers contracts exclusively with Northwest, and their hub is in Memphis. Unless Pinnacle can demonstrate to the merged carrier that it is a valuable supplier, they may have to liquidate. Consequently, a Northwest merger could be opposed by many of Northwest's regional lift provider employees. But, Memphis wouldn't be the only hub to go in a US Airways/Northwest merger. The next likely hub to go would be Minneapolis/St. Paul. Since the hub is located near Northwest's larger hub in Detroit, Minneapolis makes no sense as a location for a hub from a geographic perspective. But moreover, Minneapolis receives far too many flights given its O&D needs. A merged carrier will need a Midwestern hub, and Detroit is a prime location, with Northwest's new terminal and a larger O&D base. Northwest has committed to Minneapolis for too long, and they need to realign their flight schedules in the city to better reflect traffic levels. Minneapolis is simply a duplicate hub that would be too expensive to operate for the merged carrier.

It's important to remember that any hub will receive a disproportionate amount of flights, otherwise, it wouldn't be a hub, since some passengers won't be departing or arriving the hub city. But it makes no sense for an airline to put a hub in a city that will receive few O&D customers, since they help pump up load factors, and airlines can typically charge O&D passengers more since the hub carrier has muscled out low-cost carriers that lower fares. For example, AirTran is currently the only low-fare carrier in Memphis. Minneapolis/St. Paul only has AirTran, Frontier, and Sun Country. Northwest can charge a lot in those markets, and they will make great focus cities, but they don't make sense as hubs.

But now the question becomes which US Airways hub gets eliminated if there are to be four in the merged carrier's domestic network. US Airways operates hubs in four prime cities, Las Vegas, Phoenix, Philadelphia, and Charlotte, and if a merged carrier decides to dismantle a hub operation in a city, there will almost certainly be a smaller, but substantial focus city operation. At first glance, the most logical choice for which hub should be dismantled is Charlotte. The smallest O&D market of the four by far, the city is also relatively out of the way geographically. However, that's where the criticisms stop. There are numerous reasons why it would be foolish for US Airways to dismantle the Charlotte hub. First, the South is one of America's fastest-growing aviation markets, and if Northwest's Memphis hub is dismantled like it should be, then Charlotte needs to remain intact as the Southern hub for the merged carrier. Second, Charlotte itself is a prime business market, and US Airways is able to charge a premium to the business travelers, who travel to/from Charlotte. Charlotte is America's number two city in terms of banking operations, after New York City, so there is a lot of business traffic that goes to and from Charlotte. Third, Charlotte still supports a large network of US Airways regional flights. Even though US Airways has trimmed the size of its regional operation, it's still very sizable compared to other carriers' regional operations, and the Charlotte hub enables US Airways to profitably compete with Delta on flights to and from smaller cities. Charlotte could become a focus city, with the merged carrier dismantling most of its regional and international flights and leaving only point-to-point service from Charlotte to major business and vacation destinations. However, if that were to occur, it would allow Southwest to come in and compete directly with the merged carrier on the routes it still operated. The merged carrier would quickly lose market share to Southwest, and would be relegated a much smaller role in Charlotte. So is there another US Airways hub city that could become a focus city?

The answer is yes, and that city is Las Vegas. Las Vegas has traditionally been a very low-yield market, with low-fare carriers of all stripes hankering to compete in a leisure market with seemingly endless growth potential. With US Airways having reduced their costs considerably, they can compete head-to-head against Southwest and other discounters. A focus city at Las Vegas wouldn't reconstitute a drastic change in their schedule, it would only mean that US Airways dump what little regional service operates from the airport, and perhaps the little international service to Mexico that exists there as well. US Airways concentrates most of their West Coast regional services and international fights from its Phoenix hub. By reducing non-mainline flights at Las Vegas, the airline would concentrate those resources in a larger, and more profitable O&D market, Phoenix, and save Las Vegas for primarily low-yield O&D passengers.

But hubs aren't the only areas where Northwest and US Airways would be great partners. Northwest provides service to few cities in Europe from its Detroit hub and instead offers connections to cities throughout Europe from KLM's Amsterdam hub. Northwest has a code-sharing agreement with KLM that allows both airlines to offer effective connections to North America and Europe without Northwest having to serve too many cities in Europe and vice versa. US Airways also offers limited European service, but offers a broader array of destinations than Northwest. US Airways also has some flights to Central America while Northwest has extremely limited service to the region. US Airways doesn't have any service to Asia, while Northwest offers an extensive Asia network. Internationally Northwest and US Airways don't fit each other as well as other airlines, since if a merger occurred, Europe and Asia would receive plenty of flights, while Latin America would suffer. Every legacy carrier, except perhaps Delta, has a stronger position in terms of market share and routes in Latin America right now, than a merged US Airways/Northwest would have without any new routes. Domestically, both airlines offer limited point-to-point service, the exceptions being for US Airways flights from focus cities on the East Coast such as Boston, New York LaGuardia, and Washington National, and so if the hubs make sense fiscally and geographically, and Las Vegas, Minneapolis/St. Paul, and Memphis are cut as hubs, but left as focus cities, the combined carrier would have a very strong network domestically and internationally.

Fleetwise, this merger also makes a lot of sense. Both carriers are primarily Airbus carriers, and both operate A320 and A330-series aircraft. There are also some Boeing planes in both fleets, however. Both carriers operate the Boeing 757, so integrating those fleets (aside from some of Northwest's older 757s which have different emergency exit, and thus seating configurations) shouldn't be a problem. US Airways also operates ten older 767-200s, and dozens of older 737-300s and 737-400s. Northwest operates none of these models. Northwest operates the Boeing 747, an aircraft type that the old America West used to own in the 1980s, but has since rid itself of. Integrating these fleets shouldn't be much of a problem. The merged carrier could create a uniform seating configuration on all A320 and A330-series aircraft, and on most Boeing 757 planes. Current seating configurations could be kept on planes that only one carrier currently operates. Planes wouldn't also change their current routes much. If a merger occurred, Northwest's 747s would likely continue to operate Asia-Pacific flights, while US Airways's 767-200s could continue to be operated on Atlantic routes. If capacity cuts occurred, some of the older 737-300s or -400s would likely be taken out of service, helping the merged carrier save on maintenance costs for the older aircraft.

However, like many mergers, this one may encounter problems from labor. Northwest has already strained labor relations immensely, by forcing union mechanics to strike and bringing in scabs to replace them. Northwest also replaced all airport employees in non-hub airports with contract employees, and as a bankrupt carrier, Northwest has slashed employee wages significantly. Northwest pilots and flight attendants may be rightly worried about any proposed merger, but sadly, Northwest may be unable to thrive in the next decade if it doesn't make its route network and costs more competitive. These two labor groups should try to work with Northwest management to find an agreement by which the airline can merge, and the new company will keep seniority, pay, and benefits intact, because if they don't, pilots and flight attendants may decide to strike. It appears that while this merger won't happen right away, since US Airways still needs to figure out whether it will merge with Delta, it makes far more sense than the US Airways/Delta merger for the companies involved in terms of synergies of routes and fleets. What a Northwest/US Airways merger can't do, that a Delta/US Airways merger can do, however, is have the power to raise fares significantly, since Northwest and US Airways dominate different regions, while a Delta/US Airways merger would create a very powerful carrier on the East Coast that could hike ticket prices significantly to certain cities. But the US Airways/Northwest merger would allow both carriers to cut costs and to strengthen their respective networks, something both carriers need even more badly right now than the ability to raise fares.

Can Regional Lift Providers Become Independent Airlines?

As many airlines are finding new regional jet routes prohibitively expensive, many regional lift providers are seeing their flying contracts cut or rebid in an effort to cut costs. Many airlines are renegotiating lift contracts, and often the lowest bidder with the worst service (in most cases Mesa) gets the contract. Providers with excellent service and reliability but higher costs like ExpressJet are being squeezed as airlines such as Continental are turning to cheaper sources of lift. Providers in the middle such as Skywest or Republic are doing well, though those two companies will thrive for two different reasons. Skywest has had longstanding contracts with Delta and United and has been able to offer reliable service at a reasonable cost, something both those airlines demand. Also Skywest is particularly locked into Delta, after buying Delta subsidiary ASA. Republic is growing very quickly and will thrive because it has established relationships with several carriers and offers reliable service with different aircraft types (ranging from 37 to over 70 seats) to meet clients' needs. But companies that are getting squeezed such as ExpressJet, Mesaba, or even Pinnacle (which plans to renegotiate some of its contracts with Northwest that could result in less contract flying for Pinnacle) have few outlets to place those regional jets. The Frontier announcement to fly up to 20 regional jets to support Frontier's burgeoning hub in Denver is a big exception. Even with oil prices coming down, regional jets are still very unattractive planes to fly. So what can companies that are getting squeezed do? Many regional lift providers want to start independent airlines, a la Independence Air, which was formed after Atlantic Coast Airlines realized that a shakeout was coming in the regional lift market and that they needed to change their business model to accommodate that. Independence Air failed because the Independence business model was the wrong way to go about finding new opportunities for regional jets, but at least they made the effort. ExpressJet made the bold move to continue to lease regional jets from Continental at higher lease rates even after they are pulled from contract flying for Continental. ExpressJet hasn't told investors what they plan to do with those jets, and time is running short. ExpressJet may start their own airline, but has given no hints as to what that may be. Mesaba may liquidate in three months if that operation can't turn itself around quickly, and their planes will likely end up in the desert. Pinnacle may also operate some routes independently, though it remains to be seen if they really want to fly that direction. Can regional lift providers create successful airlines?

Recent history tells us no, that in fact the two most recent attempts at independent airlines resulted in abysmal failures. Independence Air had a bad business model, built on artificially low fares and overservice to many markets that were too small to handle the sudden jump in traffic. That experiment took longer to fail than I thought it would, but it succumbed to its balance sheet full of red ink. Another example is Mesa's attempt at setting up an semi-independent (still a subsidiary of Mesa Air Group) Hawaiian airline that would fly interisland routes. That operation, known as Go!, is losing money and is reporting low load factors, even over the hot summer months. Unfortunately, 50-seat regional jets just don't have good economics with $19 or $39 fares compared to 717 or 737 aircraft that are used by Hawaiian and Aloha, respectively, on interisland routes. Hawaiian and Aloha can easily match Go!'s fares. But I think that in both cases, these operations were built on bad business models. Hawaii didn't need another airline and White Plains didn't need three flights a day to Washington D.C. But, that doesn't mean that companies such as ExpressJet or Pinnacle can't find successful markets to fly their planes. I see two ways these companies can fly their regional jets, and I think both of them can make money, although they will not be easy.

One way regional lift providers could create a successful airline is like how Allegiant does it. Regional lift providers could continue to serve many of the small cities that they serve, but instead of serving leisure markets like Orlando or Las Vegas, that airline could serve business markets such as New York City, Boston, Chicago, San Francisco, Los Angeles, and Seattle/Tacoma. Like Allegiant, an independent airline could serve a given route a few times a week, not a few times a day, and most of these markets could support weekly service to major cities. However, unlike the leisure crowd that flies Allegiant, many business travelers who fly to the above markets need the option to fly daily. That could be a problem for any potential carrier. But, conversely, offering point-to-point service between markets that don't currently have nonstop service could be attractive, as nonstop service would shave hours off the travel time when connecting at a hub. Smaller airports that have been begging for new service could welcome an independent carrier to provide point-to-point service to different cities, even if it's only a few times a week in a small regional jet. The new service could be a boon to Wichita, Greenville/Spartanburg, Fort Collins, Waco, Abilene, Des Moines, Lansing, or dozens of other small markets that could use service. Allegiant's flights are nice for airports, but they aren't a way for airports to grow more prosperous. A few flights a week to the same vacation destination doesn't help an airport's goal of attracting passengers who will fly from the airport on a regular basis, not once or twice a year. The way an airport gets regular flyers is by trying to get business travelers, and you can't get business travelers unless there are businesses that need people to travel, and most businesses avoid locating themselves away from frequent flights. Adding flights to major business cities helps expand the attractiveness of a certain location to a business. That's why airports in smaller cities are so desperate to get service. Many of the markets listed above could use service to business cities in order for their regions and airports to prosper. An independent airline that uses regional jets could get a very attractive package from an airport, and, if marketed correctly, plenty of passengers who are tired of connecting, or driving to a larger city to fly.

But for an independent airline to succeed, the destinations are just as important as the origins. The markets listed above (New York City, Boston, Chicago, San Francisco, Los Angeles, and Seattle/Tacoma) were chosen because they support a lot of traffic, but with the exception of Chicago, those that are hubs don't offer considerable service to smaller markets in the Rockies, the Midwest, or the South. Independence Air and Go! failed (and will fail) respectively, partly due to the intense competition on the routes they served. 50-seat regional jets just can't be expected to compete head-on with a JetBlue A320 or Hawaiian 717, it doesn't make economic sense. But in most of the origin cities, the only competition an independent regional jet carrier would face are airlines that fly regional jets to their hubs. Allegiant has faced surprisingly little competition, pulling out of Oklahoma City after many months because of the nonstop competition from Southwest Airlines, but in other markets, the only head-to-head competition Allegiant faced was from Northwest Airlines, which "brilliantly" decided many months ago to send A319s from North and South Dakota to Las Vegas a few times a week in a misguided attempt to compete with Allegiant. Only now are the flights being pulled after the airline realized that they aren't too profitable. Head-to-head competition is the one thing that could destroy a regional jet carrier, but if an independent regional jet airline selects its markets well, such that they are large enough to support a few weekly flights or a daily regional jet flight, but are too small to support flights with larger aircraft. That's why it's important for this airline to fly to cities that don't currently have nonstop service to the larger market. Other destination cities are possible from the ones listed above, cities such as Miami, Washington D.C., Portland (Oregon), or Philadelphia. But the cities that are chosen will most likely be near the coasts, as most airlines choose to fly regional jets to the closest hubs, which are usually in nearby cities such as Dallas, Denver, St. Louis, Salt Lake City, Detroit, or Cincinnati. The big business markets, the ones people typically need to connect to, are on the coasts. Regional jets are capable of flying to the coasts from the Midwest, but longer, three or four hours will fully utilize the endurance of the small 50-seat aircraft, as well as the passengers inside.

Before I end, I want to touch on another model. A regional lift provider may decide that serving smaller markets isn't the best idea. But there are markets that are a step up in size from a Greenville/Spartanburg or Peoria that could support daily flights to many cities that are unserved nonstop from that airport. Like in the earlier model, cities in the Midwest, Rockies, or South would be prime targets, because of the number of underserved markets, and because of the technical limitations of regional jets, which can't fly nonstop across the United States, but can fly nonstop between cities in the center of the country and the coasts. Also, the time saved by flying nonstop needs to be worth the likely added cost. Markets such as Omaha, Oklahoma City, Tulsa, Austin, Colorado Springs, Indianapolis, Milwaukee, or El Paso are all possible candidates for service. These markets are larger, but could easily support daily flights to the destination cities above, even though many lack nonstop service to them. In fact, airlines that have larger 70-seat regional jets might also find opportunities for daily service from these markets. An independent regional jet airline that set up shop in one of these larger markets might face more competition from established carriers that offer connecting service to a major destination. An independent regional jet airline would need to offer daily flights in these larger cities to provide a convenient alternative to established carriers. But if a new airline could demonstrate that it could support daily flights with marginally higher fares between midsized markets and larger markets on the coast, then that airline could gradually move into smaller markets as long as it is economically and technically feasible.

A new independent regional jet airline would face many challenges. But if planned correctly, it could be a major success for the regional lift provider that provided the initial aircraft. Besides possible competition, one of the challenges not mentioned earlier is keeping passengers happy. 50-seat regional jets are extremely cramped planes, and most passengers can withstand them for an hour or two, which is how long most airlines use regional jets. But if a new independent regional jet airline began to use regional jets on longer routes, it will need to find a way to keep passengers happy. Independence Air tried to do that with top-of-the-line service, and the lone flight attendant onboard needs to be active in ensuring passenger comfort. But a new airline would also need to offer something more inflight to keep passengers happy and make them forget how small the plane really is. Innovative snacks like JetBlue has are one way to do it, but even inflight entertainment needs to be considered. Almost all regional jets are not equipped with inflight entertainment due to the high costs and the relatively short flights the aircraft are used on, but if portable entertainment such as digEplayers were used, that might make the flight go much faster. In addition, the two examples of regional jet airlines (Independence Air and Go!) both promised to be "low-fare" airlines. But an airline can't be a low-fare airline without being a low-cost airline so you can pass the cost savings onto consumers, and airlines that use regional jets simply aren't low-cost. A new independent regional jet airline needs to admit this. Fares will likely be higher than if a passenger were to connect to their destination on another airline. But are the two, three, or four hours saved by flying nonstop worth the nominal $10, $20, or $30 extra an airline would need to charge to cover its expenses? For most passengers, particularly business travelers, an extra $10, $20, or $30 is well worth it. Plus, if a new independent regional jet airline could charge extra for tickets, it could easily charge a few dol