**CHAPTER IV**

**REGIONALS/COMMUTERS**

For purposes of the Federal Aviation Administration (FAA) forecasts, air
carriers that are included as part of the regional/commuter airline
industry meet two criteria. First, a regional/commuter carrier flies a
majority of their available seat miles (ASMs) using aircraft having 70
seats or less. Secondly, the service provided by these carriers is
primarily regularly scheduled passenger service.

During 2002, 79 regional/commuter airlines met this definition and
reported traffic statistics to the Department of Transportation (DOT) on
either Form 41 (10 carriers)[^1] or Form 298C (69 carriers). However,
starting in October 2002, all Part 121 regional/commuter airlines
(carriers operating aircraft with over 10 seats) reported traffic on a
monthly basis using Form 41. Part 135 airlines (carriers operating
aircraft with 10 or less seats) will continue to report their traffic
quarterly using Form 298-C.

**REVIEW OF 2002**[^2]

The regional/commuter industry's results for 2002 reflect the strong
impact that the terrorist attacks of September 11^th^ had on the
operations of the large air carriers. While the large air carriers have
suffered two years of negative growth in traffic since the attacks, the
regionals/commuters have continued to post gains in both capacity and
traffic. History has shown that the regional/commuter industry endures
periods of uncertainty better than the large air carriers. During the
oil embargo of 1973, the recession in 1990, and the Gulf War in 1991,
the regional/commuter industry has consistently outperformed the larger
air carriers.

To survive downturns in the demand for aviation services, large air
carriers cut capacity to reduce costs. Code-sharing agreements (or
equity ownership of one partner in another) allow large air carriers to
get feeder traffic from the regionals/commuters on routes that cannot
support the use of larger aircraft. Traditionally, regionals have
responded to large carrier cuts in capacity by matching aircraft size to
market demand. Past periods of reduced demand saw regionals primarily
taking over thin, short-haul markets. During 2002, however, regionals
not only took over short-haul routes, but medium- to longer-haul routes
as well. This is occurring due to range and speed of the ever-increasing
number of 50- to 70-seat regional jets that are entering the fleet.

FINANCIAL RESULTS

For the 12 months ended March 2002, the regional/commuter industry
posted an operating loss of \$346.6 million. This compares to an
operating profit of \$384.0 million for the same period 12 months
earlier. The majority of the losses occurred from July through December
of 2001. Operating losses during these 6 months totaled \$356.2 million.
During FY 2001, operating losses for the industry totaled
\$282.6 million.

The first quarter of calendar year 2002 showed a return to profitability
for the industry. Operating profits during this quarter were
\$72.5 million. Preliminary data indicates that the second and third
quarters of FY 2002 could be profitable as well.

![](media/image1.wmf){width="3.2493055555555554in"
height="2.2944444444444443in"}

Operating revenues for the 12-months ended March 2002 were \$8.6
million, a 3.0 percent drop from the previous year. Operating expenses
during the same period were

\$8.9 million, an increase of 5.5 percent from the previous 12-month
period.

Nominal yield for the industry during the 12-month period ending March
2002 was 29.42 cents. This is a decline of 10.2 percent from a yield of
32.77 cents during the 12-month period ending March 2001.

######## SCHEDULED CAPACITY

######## AND TRAFFIC

During 2002, system available seat miles (ASMs) increased 16.6 percent
to 50.2 billion, while RPMs rose 21.9 percent to 30.8 billion. This
resulted in the system load factor increasing by 2.6 points to
61.3 percent. System regional/commuter passengers were 90.7 million in
2002, 8.5 percent over 2001 levels. Regional/commuter carriers accounted
for 14.5 percent of total commercial enplanements in 2002, up from
12.2 percent in 2001, and 8.6 percent in 1991.

## Domestic Capacity and Traffic

The domestic regional/commuter database includes activity for all U.S.
regional/commuters operating in the 48 contiguous states, Alaska,
Hawaii, Puerto Rico, and the U.S. Virgin Islands. It also includes
transborder traffic into Canada.

Available Seat Miles

In 2002, domestic scheduled U.S. regional/commuter ASMs were up
17.7 percent. This compares to an increase of 7.9 percent during 2001.
During the period 1991-2001, domestic ASMs have increased at an average
annual rate of 9.9 percent.

![](media/image2.wmf){width="3.2493055555555554in" height="2.29375in"}

The large increase in domestic ASMs during 2002 occurred for several
reasons. First, the level of ASMs posted for 2001 was lower than
expected due to a weakened economy, the 3-month long Comair strike, and
the shutdown of the aviation system for 3 days after the terrorist
attacks. The events that dampened capacity in 2001, combined with the
transfer of routes from network carriers to regionals during 2002,
resulted in ASMs posting an above average increase for the year.

Revenue Passenger Miles

Domestic RPMs increased 23.1 percent in 2002, totaling just over
29.8 billion. This gain is much higher than the average annual growth
rate of 12.4 percent for the 10-year period from FY 1991-2001. The large
growth in RPMs results from the same factors as ASM growth, but is also
partially due to the number of larger (50-70 seat) regional jet aircraft
that are entering the fleet and the longer-haul routes that are being
served by these aircraft.

The higher growth in RPMs relative to ASMs (23.1 percent vs.
17.7 percent) increased the domestic load factor 2.7 points to
61.3 percent in 2002. Over the 10-year period from 1991-2001, the
regional/commuter carriers' load factor increased at an average annual
rate of 1.2 percentage points per year, going from 46.7 percent in 1991
to 58.6 percent in 2001.

![](media/image3.wmf){width="3.2493055555555554in" height="2.29375in"}

Passenger Enplanements

From 1991-2001, domestic enplanements increased at an average annual
rate of 7.1 percent. Domestic enplanements totaled almost 88 million in
2002, up 9.4 percent over 2001. Regional/commuter carriers accounted for
15.3 percent of total domestic enplanements in 2002.

![](media/image4.wmf){width="3.2493055555555554in" height="2.29375in"}

The slower growth in passengers relative to RPMs in 2002 (9.4 versus
23.1 percent) is due largely to the fact that the average passenger trip
length increased 37.6 miles. This, in part, reflects the longer stage
length of the routes being transferred from the larger code-sharing
partners.

International Capacity and Traffic

The international regional/commuter database includes activity between
the United States or its territories, and the Caribbean and Mexico.

Available Seat Miles

Regional/commuter international capacity accounts for only 3.0 percent
of the total capacity flown by these carriers in 2002. For the year,
scheduled international ASMs were down 9.5 percent. The drop during 2002
resulted in part from capacity cutbacks by American Eagle and Executive
in the Caribbean. The cuts were due, in part, to scope clauses that
limit the amount of flying that can be flown on the American code. In
November 2002, American Eagle announced the sale of Executive Airlines.
As a result of the sale, Official Airline Guide (OAG) schedules indicate
that capacity in this region will return to 2001 levels in 2003. In
2001, American Eagle and Executive accounted for 60 percent of the ASMs
flown internationally.

![](media/image5.wmf){width="3.2493055555555554in" height="2.29375in"}

Revenue Passenger Miles

International RPMs for 2002 were down 6.9 percent to 932.3 million. This
compares to an average annual growth rate from 1991 to 2001 of
16.7 percent. During the same period the load factor increased
1.7 points to 60.8 percent.

Actual data for the 1st half of 2002 indicates that 30 percent of the
international RPMs flown by regionals/commuters are to Mexico with the
remaining 70 percent flown to the Caribbean. Year-over-year percentage
change for the same 6-month period shows that RPMs flown to Mexico were
down 14.5 percent, while RPMs flown to the Caribbean were down
9.8 percent.

![](media/image6.wmf){width="3.2493055555555554in" height="2.29375in"}

Passenger Enplanements

International enplanements totaled 2.7 million in 2002, down
13.7 percent from the previous year. The average annual growth rate in
international regional/commuter passengers for the period 1991-2001 is
10.9 percent.

![](media/image7.wmf){width="3.2493055555555554in" height="2.29375in"}

**THE**

**EVOLUTION OF A**

**"NEW REGIONAL"**

**INDUSTRY**

The fundamental character of the regional/ commuter industry has changed
significantly since the mid-1980s. These changes include the relative
size and sophistication of airline operations, the carriers involved
(especially the dominant industry operators), the aircraft fleet mix,
and the industry's relationship with the large commercial air carriers
in the national air transportation system.

Three distinct, but interrelated, trends have provided the basis for the
changing character and composition of the industry since the mid-1980s.
They are (1) industry consolidation/in-tegration; (2) industry
concentration; and (3) the advent of the regional/commuter "jet age."

####### CONSOLIDATION 

####### AND INTEGRATION

The number of regional/commuter airlines has declined by over two-thirds
since 1981, from 250 to only 79 carriers in 2002, 7 less carriers than
there were in 2001. The large decline in the number of carriers is the
result of several factors. First, the dramatic growth in the number of
code-sharing agreements with the major air carriers (see Table IV-1 for
a current listing of code-sharing agreements) has made it difficult for
carriers without such agreements to effectively compete. Secondly, the
air carrier acquisitions of or purchases of equity interest in their
regional/commuter code-sharing partners have led to a reduction in the
number of independent operators. Finally, it is believed that the
expense required for some regional/commuter carriers to comply with the
"one level of safety" commuter rule pushed some of the regional/commuter
carriers out of business.

CONCENTRATION

As the regional carriers go through the phase of consolidation, the size
of the dominant industry carriers continues to increase. In 1981, the
top 5 regional/commuter carriers accounted for only 20 percent of the
passengers flown. By 1991, this percentage increased to 30 percent. In
2002, the top 5 carriers were responsible for flying over 46 percent of
the passengers.

Today a large number of regionals are owned, totally or in part, by
their larger code-sharing partners, and still others are owned by other
regionals. In 2002, 10 regionals were owned totally or in part by 8 of
the larger commercial air carriers. Three others were owned by three
other regionals. However, in 2002 there were three significant spin-offs
of regional subsidiaries by their major owner---Pinnacle (Northwest),
Executive (American), and Express Jet (Continental).

A better picture of the present composition of the regional/commuter
airline industry is presented in Table IV-3. This table, which lists the
top 20 corporate structures and their percentage share of 2002 industry
enplanements, more accurately reflects the level of industry
consolidation and integration with the larger air carriers. In 2002, the
top 5 corporate groups accounted for 57.9 percent of industry
enplanements, the top 10 for 88.3 percent, and the top 20 for
98.1 percent.

########   {#section .unnumbered}

########   {#section-1 .unnumbered}

########   {#section-2 .unnumbered}

######## ![](media/image8.wmf)  {#section-3 .unnumbered}

######## ![](media/image9.wmf) {#section-4 .unnumbered}

######## 

######## THE REGIONAL/COMMUTER JET AGE

######## 

The introduction of the regional jet into the dynamics of the demand for
air transportation services has significantly expanded the role and
market presence of the regional/commuter industry. The phenomenal
customer acceptance of the regional jet, coupled with the success
operating carriers have experienced in markets where the aircraft is
deployed, positions its operators to move beyond the current boundaries
of traditional regional/commuter markets. The regional jets' range and
speed has opened up new opportunities, allowing regional/ commuter
carriers to serve longer-haul markets and to by-pass congested hub
airports by providing point-to-point service.

In last year's forecast document, the FAA analyzed 11 years (1991-2001)
of schedules from the OAG to assess the growing impact of regional jets
on the industry. This analysis has been updated to include data for
2002.

## Fleet Composition

In 1991, three regional/commuter air carriers operated a total of 20
jets, accounting for one percent of the total fleet and 4.0 percent of
seats offered for sale. It was not until 1997 that the introduction of
the regional jets started to accelerate, increasing by over 100 aircraft
annually (194 aircraft in 2002) over the next 5 years.

![](media/image10.wmf){width="3.2493055555555554in" height="2.29375in"}

## Activity and Operational Measures

The number of scheduled regional/commuter jet departures in the 48
contiguous states has grown from just under 9,100 in 1991 to over
1.8 million in 2002. In 2002, jet departures by regionals/commuters
accounted for 45.8 percent of the industry departures, up from just
0.2 percent in 1991. In 2002 alone, jet departures increased
42.2 percent, from 1.3 million in 2001 to 1.8 million in 2002.

![](media/image11.wmf){width="3.2493055555555554in"
height="2.578472222222222in"}

While jet aircraft accounted for 45.8 percent of regional/commuter
departures, they accounted for 57.2 percent of regional/commuter seats
in 2002. Seat capacity provided by commuter jet aircraft increased
47.0 percent from 2002, for an additional 29.0 million seats.

![](media/image12.wmf){width="3.245833333333333in"
height="2.5722222222222224in"}

Jet aircraft have also penetrated the transborder markets. In 1992, less
than 1.0 percent of all regional/commuter flights between the United
States and Canada were flown with jet aircraft. In 2002, jets flew
almost 51 percent of regional/ commuter flights between the two
countries. These 52,800 flights provided 2.6 million seats, over
60 percent of regional/commuter seat capacity between the United States
and Canada. Since 2001, jet flights and seats in this market increased
14.2 and 16.6 percent, respectively.

![](media/image13.wmf){width="3.245833333333333in"
height="2.5722222222222224in"}

The newest international market for regional/commuter aircraft departing
from the United States is Mexico. In 2002, only 5 years after the
introduction of jet service, regional/commuter carriers flew over
7,000 jet flights between Mexico and the United States, 57.7 percent of
all regional/commuter flights in these markets. In addition, during 2002
jet seat capacity increased by almost 37,000 seats. By year end,
70.5 percent of regional/commuter seat capacity between the United
States and Mexico was flown by jet aircraft.

![](media/image14.wmf){width="3.245833333333333in"
height="2.5722222222222224in"}

With their higher cruise speed and longer range capabilities, the ASMs
flown by jet aircraft are also increasing rapidly, from just 0.9 percent
of total industry ASMs flown in 1991 to 74.3 percent in 2002. Between
year-end 2001 and 2002, the ASMs flown by jet aircraft increased
46.0 percent, compared to an increase of 26.8 percent between 2000 and
2001.

![](media/image15.wmf){width="3.2493055555555554in"
height="2.578472222222222in"}

The growth in ASMs flown is indicative of the fact that regional jets
are being operated on routes significantly longer, on average, than
traditional regional/commuter routes. Since 1994, following the
introduction of the 50-seat regional jet, the average stage length flown
by regional jets has generally exceeded 400 miles. By comparison, the
average stage length for all other regional/commuter aircraft departing
from the U.S. has remained at around 200 miles.

![](media/image16.wmf){width="3.248611111111111in" height="2.43125in"}

### Markets/Routes Served

Regional jets provide the flying public with significantly more travel
options to choose from in making their travel plans. With the addition
of the Bombardier, Embraer, and Fairchild-Dornier regional jets,
regional jets are serving more small- and medium-sized hubs.
Consequently, the number of airports and city-pairs benefiting from jet
service are at an all-time high.

The number of U.S. airports receiving regional/commuter jet service
increased from a total of only six in 1991 to 218 in 2002. During 2002,
the number of U.S. airports receiving regional jet service increased by
14 airports. In 1991, only 1.1 percent of the airports served by
regional/commuter aircraft had jet service. In 2002, 48.2 percent of all
airports served by regionals/commuters received jet service. At present,
only two states\--Hawaii and Alaska\--do not have regional jet service.

![](media/image17.wmf){width="3.2493055555555554in"
height="2.578472222222222in"}

The number of airports in Canada and Mexico served by regional jets did
not change from 2001. In 2002, regional/commuter jet aircraft flew to
nine Canadian airports from the United States, up from just two airports
in 1992. In Mexico, there are 17 airports with regional/commuter
service; up from only one airport in 1998.

The number of city-pairs originating from airports in the U.S. has also
increased significantly. Regional/commuter city-pairs with jet service
grew from 10 in 1991 to 1,943 in 2002. In 2002 alone, an additional 157
city-pairs received regional/commuter jet service, raising the
percentage of regional/commuter city-pairs with jet service to over
56.7 percent.

![](media/image18.wmf){width="3.2493055555555554in"
height="2.578472222222222in"}

Of the 1,943 city-pairs served by regional jets in

2002, 73 were flown in international transborder service. Between the
United States and Canada, jets served 55 of 97 regional/commuter
city-pairs. Between the U.S. and Mexico, 18 of the 27 regional/commuter
city-pairs received jet service.

###### Top 10

######  Regional/Commuter Airports

The top ranked airport in 2002 with respect to regional jet departures
was Cincinnati/Northern Kentucky International (CVG). Scheduled jet
departures at CVG totaled 138,779 in 2002, 95.7 percent of all
regional/commuter departures (jet and turboprop) and 66.6 percent of all
commercial departures (air carrier and regional/commuter) at the
airport.

Chicago O'Hare International (ORD), the top ranked regional jet airport
in 2001 (as a result of the Comair strike), ranked second to CVG in
2002, with a total of 118,530 jet departures. Dallas/Fort Worth
(70,530), Atlanta Hartsfield (70,060), and Cleveland-Hopkins (63,494)
round out the list of the top five airports with scheduled jet service
from regional/commuter carriers. Dallas/Fort Worth went from
37,643 scheduled regional jet departures in 2001 to 70,530 departures in
2002, moving up from its ranking of ninth in 2001.

Regional jet departures at the top 10 ranked regional/commuter airports
accounted for 73.7 percent of total regional/commuter departures and
28.4 percent of total commercial departures at these 10 airports. In the
48 contiguous states, commuter jet departures rose from 32.0 to
45.8 percent of all regional/ commuter departures, and from 11.6 percent
to 19.0 percent of all commercial departures during 2002.

**TABLE IV-4**

![](media/image19.wmf){width="6.996527777777778in"
height="5.095138888888889in"}

###### Industry Impact

The past several years have witnessed the rapid development of routes
utilizing regional jets, much to the increasing satisfaction of most of
the travelling public. However, even with the high traffic growth being
experienced by the industry, there is erosion of the number of
city-pairs receiving non-stop regional/commuter service. The reduction
of city-pairs is most apparent in the shorter-haul markets, as
regional/commuter carriers move toward a fleet composed of greater
numbers of jet aircraft.

In 1995, an initiative was started to bring all air carriers operating
aircraft with a capacity between 10 and 30 seats under the same
operating rules as those carriers with large aircraft. The initiative
called for "one level of safety" and placed stringent safety standards
on regional/commuter carriers. The additional costs required to meet the
safety standards made smaller aircraft uneconomical to operate. In March
of 1997, the initiative became law and is now known as the commuter
rule. Since the end of 1994, the number of city-pairs served by
regional/commuter aircraft has declined from a high of 3,795 to a low of
3,199 at the end of 1998. Most of the city-pairs dropped served
shorter-haul markets.

At present, there are 3,427 city-pairs being flown in the 48 contiguous
states, 231 less than flown in 2001. Since 420 of the 3,427 city-pairs
are new, there was actually a decline of 652 city-pairs receiving
non-stop regional/commuter service. Of the 652 city-pairs that lost
nonstop service, 74 had access to non-stop service by large air
carriers. The remaining city-pairs lost non-stop regional/commuter
service altogether.

Of the 420 new city-pairs receiving nonstop regional/commuter service in
2002, 120 previously had service at some point prior to 2001. Out of the
remaining 300 pairs, 165 were served solely by air carriers during 2001,
while the remaining 135 were new markets---meaning that they did not
receive non-stop service from regional/commuters or large air carriers
during 2001.

The OAG illustrates the impact of the changing mix of the
regional/commuter aircraft fleet on shorter-haul routes. From 2000
through 2002 regional/commuter departures from the 48 contiguous states,
saw an increase in the routes flown over 1,000 miles, and a decrease in
the routes flown less than 300 miles.

In 2000, only 20 city-pairs measured distances greater than 1,000 miles.
By 2001, this number had increased to 31, with another 23 pairs added in
2002. The longest distance flown was 1,325 miles between Oklahoma City
and Newark. It is anticipated that as more of the larger regional jets
and turboprops enter the fleet, stage lengths will continue to rise.

During the same period city-pairs measuring less than 300 miles
declined. Shorter-haul routes accounted for 2,165 city-pairs in 2000;
2,092 in 2001; and 1,794 in 2002. Overall, this is a reduction of 371
short-haul city-pairs since the end of 2000, or an average annual
decrease of 186 city-pairs losing non-stop regional/ commuter service.
The results are more dramatic when analyzing the 11-year period between
1991 and 2002. The average annual decrease in city pairs during this
time was 166, for an overall reduction of 1,272 short-haul city pairs,
or a 41.5 percent decrease since 1991.

In 1994, one year prior to the "one level of safety" initiative, 3,795
city-pairs were flown. Eighty-two percent of these pairs measured
distances of less than 300 miles. At the end of 1997, the year the
commuter rule was enacted, shorter-haul city-pairs were only 77 percent
of the city-pairs flown. By the end of 2002, only 52 percent of the
city-pairs being flown by regional/commuters were less than 300 miles.

##### RISKS AND

##### UNCERTAINTIES

##### 

The air carrier industry is currently undergoing major changes, perhaps
unlike any other period during the history of commercial passenger
service, including deregulation. Changes include the rising share of
traffic flown by low-fare carriers and regional/commuters, and the
filing for bankruptcy by US Airways and United Airlines. It remains to
be seen what impacts these events will have on the industry.

As the regional/commuter industry moves forward, it is confronted with
old issues as well as new. Maintaining cost structure, operating within
the confines of scope clauses, and managing airspace and airport
congestion continue to be concerns. Pushed to the forefront in 2002 was
the effect of security requirements on users of regional/commuter air
service.

The ability of regional carriers to maintain their cost structure is
fundamental to their appeal to large air carriers. The goal of network
carriers is to gain feed from the regionals while providing a seamless
service to customers. Network carriers provide this seamless service
through outsourcing and code-sharing. The cost environment that the
regionals operate in further advances arrangements that are beneficial
to both the regionals/commuters and the network carriers.

Scope clauses continue to limit the ability of regional airlines to
optimally match the right-sized aircraft to market demand. These clauses
define routes and services that mainline airlines may subcontract to the
regionals. Scope clauses can place limits on the size and number of
aircraft operated by regional airlines, and/or the number of ASMs flown
by the regional.

While the terrorist attacks of September 11^th^ have temporarily
sidelined the issue of congestion, it is expected to reappear as demand
returns to pre-September 11^th^ levels. As demand returns, some aviation
professionals are concerned that the increasing number of regional jets
operating in the U.S. will contribute to airport and airspace
congestion. Unlike turboprop aircraft that operate most efficiently at
altitudes one half that of the regional jets, regional jet aircraft
operate most efficiently and economically in airspace shared with large
jet aircraft. Consequently, the replacement of turboprop aircraft by
regional jet aircraft increases congestion in airspace previously used
only by large jet aircraft. It is believed that technology and
scheduling improvements will help to fight off congestion.

Security has impacted all air travelers, since September 11^th^.
Passengers flying in shorter-haul markets, though, are most likely to
have altered their travel behavior. As consumer confidence in flying
returned after the terrorist attacks, passengers endured long lines at
airport security checkpoints. The increased time required to pass
through checkpoints negatively impacted the number of passengers flying
in short-haul markets. Short-haul passengers resorted to other methods
of travel and/or conducting business as the perceived cost of air travel
became greater than the benefit. Some of the alternatives for short-haul
air travel are intercity rail, the automobile, and audio and video
conferencing. As the Transportation Security Administration (TSA)
standardizes security screening at airports throughout the U.S. it is
believed that that the "hassle factor" will be reduced to levels more
acceptable to the traveling public.

##### FORECAST METHODOLOGY

##### 

In normal times, regional/commuter demand is modeled using economic
assumptions as inputs. However, the events of September 11^th^ made
econometric models unreliable, at least in the short-term. The forecasts
for the 2003-2005 period are based on assumptions regarding capacity,
with demand forecasts developed from assumptions regarding load factor,
aircraft seat size, and average trip length.

The starting point for developing short-term regional/commuter capacity
was the flight schedules published in the January 2003 Official Airline
Guide (OAG). The scheduled departures, ASMs, seats, and miles flown for
the first 3 quarters of 2003 (to June 2003) were compared against
historical capacity for previous years and adjusted, where necessary, to
reflect seasonal patterns or known changes not reflected in these
schedules. The July-September quarter was estimated based on historical
seasonality.

To prepare forecasts for RPMs and enplanements, discussions were held
with individual carriers, trade associations, manufacturers, and
industry analysts to gain expert insight into developing trends. As
well, the Transportation Research Board (TRB) Regional/Commuter
Subcommittee meets twice a year to discuss issues pertinent to the
regional/commuter industry. Using this insight, assumptions for load
factor and trip length were made on a quarterly basis in an attempt to
capture the trends taking place in the industry. The quarterly
assumptions for load factor were used to forecast industry RPMs. Lastly,
industry RPMs combined with quarterly assumptions for passenger trip
length provided the forecast for industry enplanements.

These preliminary estimates of supply and demand were compared with
actual capacity and traffic data from trade publications and carrier web
sites and adjusted as necessary. Although the forecasts for 2003 contain
numerous assumptions developed from expert opinion and analyst
expertise, we believe the forecasts to be reasonable in terms of
capturing the anticipated course of events.

For 2004 and 2005, projected deliveries of new regional jet aircraft and
average ASM utilization rates were used to estimate system ASMs.
Assumptions for load factor and trip length were used to derive RPMs and
enplanements.

For the remainder of the forecast period (2006 through 2014) industry
growth rates are based on econometric models and traditional assumptions
regarding load factor and average passenger trip length.

##### FORECAST

##### ASSUMPTIONS

In previous years, the regional/commuter database combined carriers
reporting traffic using Form 298C with a select group of Form 41
carriers operating both large aircraft over 60 seats and smaller
regional/commuter aircraft. As a result, traffic reported by the Form 41
carriers operating both large and small equipment were included in the
regional/ commuter databases as well as in the large air carrier
databases. For clarity, the level of duplicated traffic (enplanements
and RPMs) would be presented in the technical notes of the FAA Aviation
Forecasts.

The new definition for the regional/commuter industry resulted from
revisions to DOT reporting requirements and the delivery of new regional
commuter aircraft larger than 60 seats. The revised FAA definition will
place individual air carriers into one of two categories:
regional/commuter *[or]{.underline}* large air carriers, with the
regionals defined as those carriers flying most of their ASMs using
aircraft having 70 seats or less. The division of carriers into specific
categories eliminates the duplication of traffic, capacity, and
financial statistics between the regional/commuter and the large air
carrier databases.

Stemming from the change in reporting requirements, the
regional/commuter forecasts will no longer distinguish those carriers
reporting on Form 298C from those reporting on Form 41. Instead,
separate capacity and traffic forecasts will be prepared based on type
of travel\--domestic or international. Domestic forecasts include travel
between the United States, its territories and Canada. International
forecasts are based on travel between the United States and its
territories and Mexico and the Caribbean. Previously, regional/commuter
traffic was presented on a system basis only.

The development of the regional/commuter international database required
several sources including: DOT Form\'s 298C (Table 11A), 41, and T100 as
well as the Official Airline Guide. Since 298C carriers only report RPMs
and enplanements on Table 11A, the Official Airline Guide was used to
backfill history for ASMs, miles flown, seats, and departures for these
carriers. Also, of the five Form 41 carriers that offer international
service, three do not report domestic traffic separately from
international on Form 41. For these carriers, DOT T100 data was used for
international traffic counts. This international traffic was subtracted
from the system traffic reported by each of the three carriers to arrive
at \"pure\" domestic traffic.

The baseline assumptions for passenger yield, average aircraft seat
size, passenger trip length, and load factor are presented in tabular
form in Chapter X, Table 23.

PASSENGER YIELD

The nominal passenger yield for the reporting Form 41 regional/commuter
air carriers was 26.93 cents in 2002, down 11.0 percent from 2001. Even
with these declines, the Form 41 regional/commuter carriers' yield is
still more than double that of the larger air carriers (11.87 cents in
2002).

Several factors are responsible for the decrease in nominal yield. The
economy in 2001 suffered a 3-quarter recession. Many corporations acted
quickly by either reducing travel budgets and/or seeking less expensive
ways to conduct business. As a result, purchases of higher-fare tickets
dropped, cutting into revenues made by carriers that were not operating
on a contract-flying basis. Revenues were also reduced as the industry
lured customers back to flying with reduced fares for leisure travel.
Finally, the increased utilization of regional jets operating at higher
load factors and longer passenger trip lengths contributed to declining
yields in 2002.

![](media/image20.wmf){width="3.2493055555555554in"
height="2.520138888888889in"}

The nominal yield is expected to increase at an average annual rate of
1.5 percent, from 26.93 cents in 2002 to 32.22 cents in 2014. The real
yield is projected to rise during the first 3 years of the forecast
period and decline slowly thereafter, reaching 24.73 cents in 2014. This
is an average annual decline of 0.7 percent over the 12-year forecast
period.

AVERAGE AIRCRAFT SIZE

The most significant change in fleet composition will result from the
integration of large numbers of regional jet aircraft into the fleet,
most of which occurs in the 50 to 70 seat category. These aircraft have
already increased public acceptance of regional airline service, and
offer the greatest potential for replacement service on selected jet
routes.

![](media/image21.wmf){width="3.2493055555555554in" height="2.29375in"}

The regional/commuter aircraft fleet is expected to continue to grow
rapidly during the first several years of the forecast period. Average
seats per aircraft (calculated by dividing available seat miles by miles
flown) is expected to increase by 1.7 seats annually over the 12-year
forecast period, from 42.8 seats in 2002 to 50.4 seats in 2014. Most of
the growth in seat size is expected to come from those carriers
operating the larger turboprop and regional jets.

PASSENGER TRIP LENGTH

The impact of the regional jet is reflected in the growth in the average
passenger trip length. The introduction of regional jets in large
numbers beginning in 1997 coincides with the significantly higher growth
in the average passenger trip length. Between 1990 and 1996 the average
passenger trip length increased 43 miles, or 7.2 miles per year. From
1996 to 2002, the average regional/commuter passenger trip length
increased by 114.1 miles, for an average of 19.0 miles per year.

In 2002 the average passenger trip length increased by 37.1 miles. Over
the next 3 years, the average trip length is expected to increase 23.7,
11.8, and 10.2 miles, then slow to 5 miles annually over the remainder
of the forecast period. Over the 12-year forecast period the average
trip length is projected to increase from 339.2 miles in 2002 to
431.6 miles in 2014, for an average annual increase of 7.7 miles.

The domestic trip length is forecast to increase from 339.1 miles in
2002 to 432.9 miles in 2014. The international trip length is expected
to increase from 344.2 miles in 2002 to 389.5 miles in 2014.

![](media/image22.wmf){width="3.2493055555555554in" height="2.29375in"}

PASSENGER LOAD FACTOR

The average industry load factor is projected to decline for the first 5
years of the forecast period \-- down one percentage point to
60.3 percent in 2003, and then down 0.5 percentage points annually from
2004 through 2007 for a load factor of 58.4 percent in 2007. The decline
in load factors during this period reflects the large increases in
capacity due to 1,108 regional jet aircraft entering the fleet (an
average of 221 aircraft delivered per year). In 2008 the load factor
holds steady at 2007 levels, and then increases by 0.7 percentage points
in 2009. For the remainder of the period (2010-2014), the load factor
rises 1.0 percentage points annually for a load factor of 64 percent in
2014. The rising load factors during the latter years of the forecast
period are due to regional jet aircraft deliveries tapering from 154
aircraft in 2008 down to 90 aircraft in 2014. It is also assumed the
regional/commuter industry will continue to emphasize frequency of
service and this should keep regional/commuter load factors from
reaching the level of the major airlines.

The load factor for domestic travel is forecast to increase from 61.3 
percent in 2002 to 64.0 percent in 2014. The international load factor
is forecast to grow from 60.8 percent in 2002 to 65.0 percent in 2014.

![](media/image23.wmf){width="3.2493055555555554in" height="2.29375in"}

##### REGIONALS/COMMUTERS

**FORECASTS**

The increasing number of aircraft, especially regional jets with ranges
beyond 1,000 miles, is creating new opportunities for growth in
nontraditional regional/commuter markets. However, the primary role of
the regional industry will remain that of feeding traffic to the major
and national carriers, even as they expand into new markets with longer
route segments.

For the large air carriers, use of their regional partners is an
effective way to maintain a market presence when forced to reduce excess
capacity in selected markets. Regional partners can backfill with
regional jets and provide service in comparable comfort and speed at a
lower cost. The events of September 11^th^ heightened the need for the
larger commercial air carriers to reduce overall costs and capacity and
resulted in the transfer of large numbers of markets and routes to their
regional partners. This transfer of routes is expected to be one of the
major drivers of growth during the early years of the forecast.

While the transfer of selected routes is expected to accelerate during
the early years of the forecast period, this phenomenon should diminish
considerably during the mid to latter years of the forecast period.
Consequently, the rate of growth in traffic will be lower than that
experienced in the past.

Regional/commuter forecasts of enplanements, ASMs, RPMs, fleet, and
hours flown are presented in tabular form in Chapter X, Tables 24 to 26.

AVAILABLE SEAT MILES

In 2003, the year-over-year percentage change in ASMs is expected to be
20.3 percent for the 1^st^ quarter, 17.1 percent for the 2^nd^ quarter,
13.7 percent for 3rd quarter, and 15.1 percent for the 4th quarter.
Again, these higher rates primarily reflect routes being transferred by
the network carriers along with the increase in 50-70 seat regional
aircraft being added to the fleet. Total ASMs for the year are 58.4
billion, a 16.4 percent increase over 2002.

System ASMs are forecast to increase 14.3 percent in 2004 and
10.8 percent in 2005, reaching a total of 74.0 billion in the latter
year. From 2006 through 2014 regional ASMs will increase at an average
rate of 5.3 percent. Over the 12-year forecast period, ASMs are forecast
to increase at an average annual rate of 7.3 percent for a total of
117.3 billion in 2014.

![](media/image24.wmf){width="3.2493055555555554in" height="2.29375in"}

Domestic ASMs are forecast to increase 16.4 percent (to 56.6 billion) in
2003, 14.4 percent in 2004 (to 64.8 billion), and 10.9 percent in 2005
(to 71.9 billion). During the 12-year forecast period, ASMs are expected
to increase at an annual rate of 7.4 percent, totaling 114.3 billion in
2014.

![](media/image25.wmf){width="3.2493055555555554in" height="2.29375in"}

International ASMs are projected to increase to 1.8  billion (up
17.1 percent) in 2003, and to 2.0 billion (up 9.7 percent) in 2004.
During the final 10 years of the forecast period, these carriers' ASMs
are expected to grow at an average annual rate of 4.4 percent and total
3.0 billion in 2014.

![](media/image26.wmf){width="3.2493055555555554in" height="2.29375in"}

## REVENUE PASSENGER MILES

Regional/commuter RPMs are expected to increase 14.6 percent (to
35.3 billion) in 2003, 13.3 percent in 2004 (to 40.0 billion), and
9.9 percent in 2005 (to 43.9 billion). The high growth rates reflect the
longer stage lengths being flown by the large number of regional jets
continuing to enter the fleet. From 2006 through 2014 regional RPMs will
increase at an average annual rate of 6.2 percent. Over the 12-year
forecast period, the average annual rate of growth in RPMs is
7.8 percent for a total of 75.1 billion in 2014.

![](media/image27.wmf){width="3.2493055555555554in" height="2.29375in"}

Domestic passenger miles are forecast to increase at rates of 14.5,
13.4, and 10.0 percent over the first 3 years of the forecast period,
then slow to 6.2 percent annually over the remainder of the forecast
period. During the 12-year forecast period, RPMs are expected to
increase at an annual rate of 7.7 percent, totaling 75.1 billion in
2014.

![](media/image28.wmf){width="3.2493055555555554in" height="2.29375in"}

International passenger miles are projected to increase to 1.1  billion
(up 15.4 percent) in 2003, and then increase to 1.2 billion (up
9.7 percent) in 2004. During the final 10 years of the forecast period,
international RPMs are expected to grow at an average annual rate of
5.2 percent and total 2.0 billion in 2014.

![](media/image29.wmf){width="3.2493055555555554in" height="2.29375in"}

REVENUE PASSENGER

ENPLANEMENTS

Regional/commuter passenger enplanements are projected to increase by
7.1 percent in 2003 (to 97.1 million), 9.7 percent in 2004 (to
106.6 million), and 7.0 percent in 2005 (to

114.0 million). The strong rates of growth during the 3 year period
reflects the transfer of additional routes from the larger air carriers
and the addition of regional jet aircraft to their fleet.

Between 2006 and 2014 enplanements will grow at an average rate of 4.8
percent annually for a total of 174.1 million enplanements in 2014. Over
the entire 12-year forecast period, system enplanements are forecast to
grow 5.6 percent annually. In 2014, regional/ commuter carriers are
expected to account for 17.5 percent of all commercial air carrier
enplanements.

Enplanements are expected to increase at a slower rate than RPMs over
the forecast period. This is due to the fact that the average passenger
trip increases an average of 7.7 miles over the 12-year forecast period.

![](media/image30.wmf){width="3.2493055555555554in" height="2.29375in"}

Domestic enplanements are projected to increase 6.9 percent in 2003,
9.8 percent in 2004, and 7.0 percent in 2005, totaling 110.5 million
passengers at the end of the 3-year period. Between 2006 and 2014
domestic enplanements will increase at an average annual rate of
4.8 percent. Over the entire 12-year forecast period, enplanements are
forecast to increase at an average of 5.6 percent annually, totaling
169.0 million in 2014 \-- 18.6 percent of all domestic enplanements.

![](media/image31.wmf){width="3.2493055555555554in" height="2.29375in"}

International enplanements are projected to increase 14.4 percent in
2003 (to 3.1 million), and by 8.5 percent in 2004 (to 3.4 million). Over
the entire forecast period, international enplanements are projected to
increase at an average annual rate of 5.3 percent, totaling 5.0 million
in 2014.

![](media/image32.wmf){width="3.2493055555555554in" height="2.29375in"}

REGIONALS/COMMUTERS

PASSENGER FLEET

The regional/commuter fleet, once composed primarily of piston and
turboprop aircraft, is moving toward a fleet predominantly made up of
regional jet aircraft. Before September 11^th^, regional/commuter
carriers deployed regional jet aircraft for the purpose of entering new
markets and for supplementing and/or replacing turboprop routes. Post
September 11^th^, the regional/commuter carriers are deploying assets on
routes traditionally served by mainline carriers in response to the
carriers transferring thin routes to their regional partners. As
regional/commuter carriers began flying more long haul routes using jet
aircraft, many of the shorter-haul routes traditionally flown by
turboprop aircraft were discontinued.

Over the 12-year forecast period, the regional/commuter passenger fleet
is projected to net an average annual increase of 126 aircraft, going
from 2,521 aircraft in 2002 to 4,034 aircraft in 2014. During the same
period, the overall fleet of turboprop aircraft will decrease by 324
aircraft. For the first 3 years of the forecast 3.5 regional jet
aircraft will enter the fleet for every turboprop aircraft retired.

![](media/image33.wmf){width="3.2493055555555554in" height="2.29375in"}

Most of the aircraft in the "less than 10 seats" category are operated
by Alaskan regional carriers. Regional aircraft in this category once
made up the bulk of the fleet\--60.9 percent in 1980. In 2002, this
category totaled 490 aircraft and accounted for only 19.4 percent of the
total regional fleet. Between 2002 and 2014, the number of aircraft in
this category is expected to drop to 455 aircraft and account for only
11.3 percent of the fleet. It is assumed that the decline in this
category will occur almost entirely among regional airlines operating
within the 48 contiguous states.

The turboprop aircraft in the 10-40 seat range totaled 871 in 2002 and
was 34.5 percent of the fleet. By 2014, these aircraft are expected to
be 13.9 percent of the fleet and total 562 aircraft. The average net
decrease in the fleet is almost 26 aircraft per year. At present, many
of the short-haul markets serviced by the turboprop aircraft have
disappeared as a result of the processing time connected with ticketing
and clearing through security checkpoints. It is anticipated that as
demand returns, these routes will once again be economically viable for
the regionals/commuters to operate on.

The fleet of turboprop aircraft in the over 40 seats category totaled
128 in 2002. Over the 12-year forecast period, this portion of the fleet
is expected to have a net decrease of one aircraft. It is anticipated
that some of the regional/commuter carriers will retire many of their
ATR aircraft during the early years of the forecast. There are also
expected to be deliveries of the Bombardier Q400 during this period as
well. It is believed that scope clause limitations on regional jets will
result in the larger turboprops remaining in the fleet. In 2002,
turboprop aircraft in the over 40 seat category was 5.1 percent of the
fleet. In 2014, these aircraft are forecast to be 3.1 percent.

In the 30-40 seat regional jet category, there is expected to be a net
increase of 16 aircraft over the forecast period. In 2002, this category
of aircraft made up 4.7 percent of the fleet. By the end of the forecast
period, regional jet aircraft in the 30-40 seat category are expected to
be 3.3 percent.

The majority of the increase in the regional/commuter fleet will be from
regional jet aircraft in the over 40 seats category. In 2002, there were
914 of these aircraft that made up 36.3 percent of the fleet. By 2014,
there is expected to be an additional 1,842 aircraft entering the fleet
for an average annual increase of 153.5 aircraft per year. Of the 1,842
aircraft that are forecast to enter the fleet over the 12-year period,
just under 68 percent are expected to be delivered prior to 2008. By the
end of the forecast period, regional jet aircraft will be 72 percent of
the total regional/commuter fleet.

BLOCK HOURS

Regional/commuter block hours for 2002 are estimated at 5.5 million, an
increase of 6.3 percent over 2001. During the forecast period, hours are
expected to increase to 5.9 million in 2003 (up 7.5 percent), to
6.3 million in 2004 (up 6.7 percent), and to 6.6 million (up
4.6 percent) in 2005. During the 12-year forecast period, flight hours
are forecast to increase at an average annual rate of 4.7 percent,
totaling 9.5 million hours in 2014.

![](media/image34.wmf){width="3.2493055555555554in" height="2.29375in"}

Block hours flown by piston aircraft are forecast to decline from
0.4 million hours in 2002 to 0.35 million hours in 2014, for an average

decrease of 1.1 percent annually. During 2002, piston aircraft flew
7.3 percent of the block hours for the industry. By 2014, piston
aircraft are forecast to be 3.7 percent of the block hours flown by the
regionals/commuters.

Block hours flown by turboprop aircraft totaled just under 2.5 million
in 2002. Hours for this category of aircraft are expected to total
1.6 million in 2014, for an average annual decrease of 3.5 percent per
year. The decline in hours during the early part of the forecast period
is due to the retirement of turboprop aircraft. In 2002, turboprop
aircraft accounted for 45.5 percent of all hours flown by the industry.
By 2014, total hours flown by turboprop aircraft is forecast to drop to
17.0 percent.

Block hours for regional jet commuter aircraft totaled 2.6 million in
2002 and accounted for 47.2 percent of the hours flown. By 2014, block
hours flown are forecast to total 7.6 million and to account for
80.0 percent of the hours flown. Block hours for regional jet aircraft
are expected to increase at an average annual rate of 9.4 percent
annually. The block hours grow at a faster rate during the early years
of the forecast (2003-2008) as large numbers of regional jet aircraft
are added to the fleet.

[^1]: Air Wisconsin, American Eagle, Atlantic Southeast, Chicago
    Express, Comair, Executive, ExpressJet (formerly Continental
    Express), Horizon, Mesaba, and Trans States.

[^2]: All specified years in this chapter are fiscal year (October 1
    through September 30) unless designated otherwise.