# Presentation: 359448

## Regional Aviation:  Key to Airline Industry RecoveryDouglas AbbeyPresidentAvStat Associates, Inc.

**Regional Aviation:  Key to Airline Industry Recovery****Douglas Abbey****President****AvStat Associates, Inc.**

- FAA 2003
- Northwest Mountain Region
- Airports Conference
- Seattle, WA

## Introduction

- Regional Airlines are expanding notwithstanding the current industry downturn
- Regional Airlines are increasingly replacing and supplementing Mainline jets on longer-haul routes with RJ’s
- Regional Carriers retain a competitive advantage due to their relatively low-cost operating structure
- Contract flying arrangements insulate many Regional Airlines from the effects of yield fluctuations

**Regional Airlines Are the **_***True***_** Low Cost Carriers**

## Regional Profit Margins Have Been Solid Over The Long Term

**Operating Profit Margins – U.S. Regionals vs. Majors (1988 – 2****Q02)**

*Source: **Airline Monitor*

**Regional**** Profit Margins Have Been Solid Over The Long Term**

## U.S. Regional Industry Passenger Enplanements 

**U.S. Regional Industry Passenger Enplanements **

**Regional Airline Passenger Traffic has**** **_***Doubled***_** ****in Less Than a Decade**

*Source: AvStat Associates, Inc. for the RAA*

## Historical Distribution of U.S. Domestic Passenger Enplanements 

**Historical Distribution of U.S. Domestic Passenger Enplanements **

*Source: AvStat Associates, Inc..*

## Regional Airlines Have Consistently Grown Faster than Major Carriers 

**Regional Airlines Have Consistently Grown Faster than Major Carriers **

*Sources: ATA and RAA.*

## Regional Airlines are Growing into Longer Haul Markets 

**Regional Airlines are Growing into Longer Haul Markets **

*Source:  Innovata*

**The Transfer Of Markets is **_***Not***_** a New Phenomenon**

## North American Regional Jet Network is Growing Strong 

**2002**

**North American Regional Jet Network is Growing Strong **

## The Majority of RJ Routes are EitherAll-New, Supplemental, or Service Upgrades  

**The Majority of RJ Routes are Either****All-New, Supplemental, or Service Upgrades  **

*Source: AvStat Associates, Inc.*

**All-New**
**326 (35.7%)**

**Major Replacement**
**231 (25.3%)**

**Major Supplement****178 (19.5%)**

**Turboprop Supplement or Replacement**
**170 (18.6%)**

**Genesis of Current RJ Routes**
**(05/02 vs. 01/92)**

## Regional Carriers are Leading theIndustry’s Financial Recovery (3Q02)

*Source:  Carrier Websites*

**Regional Carriers are Leading the****Industry’s Financial Recovery (3Q02)**

**Delta**

**American**

**America West**

**United**

**Southwest**

**Northwest**

**USAirways**

**Amtran**

**Continental**

**Alaska**

**SkyWest**

**ExpressJet**

**Midwest Express**

**Frontier**

**AirTran**

**JetBlue**

**A.C.A.**

**Mesa**

**Mesaba**

## Regionals Continue Capacity and Passenger Growth Beyond September 2001

*Source:  Airline Monitor*

**U.S. Carriers Capacity (ASM’s)**

**U.S. Carriers Passengers (RPM’s)**

- 2002

- 2001

- 2002

- 2001

## Regional Carriers Are Flying More, Especially With Regional Jets (07/01 vs. 07/02)

**Regional ****Carriers Are Flying More, Especially With Regional Jets (07/01 vs. 07/02)**

**Percent Change in Departures by Aircraft Category**

*Source:  Official Airline Guide*

**Domestic U.S. (All Carriers) **

**Narrowbody and Widebody Jets**

**Regional Jets**

**In Production Turboprops**

**Out of Production Turboprops**

**Notes:**
US Regionals currently sustaining roughly 10% ASM growth

## New U.S. RJ Routes (07/01 – 07/02)

*Source: Official Airline Guide.*

## Distribution of New 2002 U.S. RJ Service Announcements by Route Type

*Sources: Public announcements.*

**90 (49%)**

**17 (9%)**

**17 (9%)**

**27 (15%)**

**32 (17%)**

## Distribution of New 2002 U.S. RJ Service Announcements by Stage Length

**Distribution of New 2002 U.S. RJ Service Announcements by Stage Length**

*Sources: Public announcements.*

**Beyond Traditional Regional Airline Stage Lengths**

## Scope Clause

## Regionals are Leading Industry Traffic Recovery

**Regionals are Leading Industry Traffic Recovery**

*Source: American Airlines*

## Regional Jets Represent a Growing Proportion of Mainline Fleet

| Carrier | 2001 | 2002 | 2003 | 2004 |
| --- | --- | --- | --- | --- |
|  | 9% | 16% | 17% | 22% |
|  | 17% | 23% | 37% | 44% |
|  | 14% | 20% | 24% | 28% |
|  | 39% | 50% | 62% | 70% |
|  | 39% | 54% | 64% | 67% |
|  | 15% | 20% | 23% | 29% |
|  | 17% | 27% | 39% | 43% |
|  | 20% | 22% | 22% | 22% |
|             Industry | 22% | 31% | 37% | 42% |

*Source: Salomon Smith Barney*

## Scope Clearly Limits Major Airline Recovery(New 2002 U.S. RJ Service Announcements)

*Sources: Public announcements.*

## Potential Regional Aircraft Growth 

**Potential Regional Aircraft Growth **

*Source: Regional Air Service Initiative (RASI)*

## Importance of RJ Service to Local Communities (Northwest Arkansas Regional Airport)

*Source: Ricondo & Associates, March 2002*

**Importance of RJ Service to Local Communities (Northwest Arkansas Regional Airport)**

| Economic Impact - 2001 (Millions) |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
| Tenant Category | Output |  | Payroll |  | Total |
|  | Direct | Induced | Direct | Induced |  |
| Airlines | $3.01 | $1.33 | $2.37 | $1.26 | $7.96 |
| FBO/Air Taxi/Maintenance | $58.21 | $25.61 | $21.84 | $11.57 | $117.23 |
| Concessions/Rental Car | $18.52 | $10.93 | $1.80 | $0.77 | $32.02 |
| Government/Airport Mgmt. | $2.67 | $0.96 | $1.00 | $0.34 | $4.96 |
| Other | $0.14 | $0.06 | $0.34 | $0.18 | $0.72 |
| Airport Tenants | $82.55 | $38.89 | $27.34 | $14.12 | $162.90 |
| Commercial Service Visitors | $73.03 | $48.65 | $35.25 | $18.80 | $175.73 |
| G/A Visitors | $0.93 | $0.62 | $0.45 | $0.24 | $2.23 |
| Travel Agencies | $56.14 | $33.12 | $2.76 | $1.19 | $93.21 |
| Total | $212.65 | $121.28 | $65.79 | $34.35 | $434.07 |

## Regional Airlines and Low Cost Carrier Competition

## The Roles Regional Airlines Play in Low Cost  Carrier (LCC) Markets

- Currently, 37 and 50-seat RJ’s are being used in a number of LCC markets -- connecting passengers to hubs and providing point-to-point service -- thereby maintaining a strong local market presence by Major carriers
- Larger, 70 to 90-seat, aircraft could be similarly profitable in LCC markets _at the very same fares_
- The combination of flight frequency, competitive cost structure, and superior aircraft economics are considerable competitive weapons

## U.S. Routes Where RJ’s Compete With

**U.S. Routes Where RJ’s Compete With**
**Low Cost Carriers (Sept, 2002)**

*Source: Official Airline Guide.*

## RJ Response to the LCC Challenge: DL Connection at Orlando 

|  | ComairCurrent | Comair &RepublicPlanned | 
Total |
| --- | --- | --- | --- |
| Aircraft | 9 | 24 | 24 |
| Markets | 14 | 25 | 26 |
| Daily
Flights | 
84 | 
168 | 
168 |

*Sources: Public announcements.*

## Trans-Border RJ Routes: Canada –U.S. (09/02)

**Trans-Border RJ Routes: Canada –U.S. (09/02)**

**50 Trans-Border Airport Pairs**

*Source: Official Airline Guide.*

## Transborder RJ Routes: U.S. - Mexico/Caribbean (09/02)

**16 Trans-Border Airport  Pairs**

**Transborder RJ Routes: U.S. - Mexico/****Caribbean (09/02)**

*Source: Official Airline Guide.*

## 70 to 90-Seat Aircraft Opportunities

## There is a Role for Mid-Sized Jets: Comparison of Top-Ranked U.S. Airport Activity and Average Aircraft Size (2001)

*Source: Airline Business Magazine.*

**There is a Role for Mid-Sized Jets: ****Comparison of Top-Ranked U.S. Airport Activity and Average Aircraft Size (2001)**

## 70 to 90-Seat Opportunity: BOS-DCA  

**Market Characteristics:**
- Among the top-10 largest U.S. airport-pairs
- Attractive yield (34.8 cents/mile @1Q02)
- Relatively short-haul (399 miles)
- Point-to-point traffic, limited flow passengers
- Two capacity-constrained airports
- Dominated by a single carrier (USAirways)
- Alternative, albeit inconvenient, service options:WAS: IAD/BWI and BOS: PVD/MHT

## BOS-DCA: The Appeal of High Yields

*Source: Official Airline Guide.*

**BOS-DCA: Competitive Service Options**

## BOS-DCA: Passengers per Departure 

**BOS-DCA: Passengers per Departure **

*Source: U.S. DOT, Form T100.*

## Summary and Conclusions

## Key Issues Summary

**Positives:**
- Regional carriers are expanding during the current downturn
- Continued profitability based on highly competitive cost structure
- RJ’s offer a uniquely flexible scheduling tool: maintain Major market presence by down-gauging, expanding hub catchment area with first-ever nonstops, replace marginal Mainline flying, upgrading turboprop service, and pioneering new point-to-point routes
**Negatives:**
- Reduced sources of finance and credit inhibit Regionals’ ability to accept new units of production -- impacting industry restructuring
- Hassle factor of new security and check-in rules disproportionately affect short-haul travel

**Ability to Find/Support Financing Is a Priority in the Short-Term**

## Key Issues Summary	

**Growing forward:**
- Virtually unlimited Regional growth opportunities - absent Scope, financing constraints, and Demand Management proposals
- Investor appeal of high-growth carriers will continue
- Proven economics and business case of Fee for Departure agreements
- Growing political recognition of the importance Regionals play in a dynamic aviation industry
- New 70 to 90-seat programs are purpose-built and offer new levels of performance, economics, and amenities

## Thank you.Questions and Comments

- www.regionalairservice.org

**Thank you.****Questions and Comments**