Regional Airlines Will Have to Adjust

A look at the status of the industry


All airlines, be it a major, a low-cost, a commuter or a regional can trace their ancestry back to the fledgling days of aviation when airmail was the event that nurtured the industry through their infancy to today's environment of niche airlines.

Prior to 1978 all commercial aviation industry routes, fares and schedules were governed/regulated through the Civil Aeronautics Board (CAB). The Airline Deregulation Act of 1978 phased out the government's control over airfares, services and routes. Thus it created an "Open Skies" policy. The focus was on concern for the consumer. Deregulation and its by-product of competition has led to ticket discounting and flight availability resulting in flying now becoming a primary method of interstate travel between large cities worldwide. Key dates and events for regional airlines was the development of the hub-and-spoke network in 1978, barriers to entry being lifted in 1980 and ticket price freedoms in 1983.

What the regionals bring to the marketplace is the ability for the population located in smaller and rural communities to travel faster, farther and cheaper then if they were to use the more traditional method of rail and highway. The regional airline market is growing and Federal Aviation Administration statistics reflect that as of the 2nd quarter of 2004 nearly 129 million passengers have flown on regional airlines; that is up 18 percent from a year ago.

Regional airlines have transformed from small, independent, fixed-base-operations with a few piston and turboprop aircraft to billion dollar-a-year companies. The number of passengers flying between any two points, yield and airport facilities drives competition for this niche market. While competition among the regional airlines is healthy and industry trends show profits across the board, it is the major airlines that are shaping the dynamics that regionals operate in. This is being done by forcing regionals to take on "Scope Clauses" which in essence are artificially imposed barriers on the size of regional jet's being flown. Where free market principles dictate that all airlines should be allowed to optimize any given flight, regardless of market or time of day, with the specific aircraft type of their choosing, such a concept does not apply to regional airlines.

Aircraft manufacturers are being forced to produce small-capacity jets in the 70 to 100-seat range that meet the growing demands for high density short-haul air travel. The majority of US major carriers are being limited to operating these types of airframes until scope clauses are amended to relax current restrictions. Since the 1978 Deregulation Act, passengers have shown a marked preference for nonstop flights. This propensity for direct flights has resulted with the major airlines elimination of wide-body jets such as the B747, DC10 and L1011 from domestic operations. To fill the void are more versatile aircraft such as the A320, B737, MD80 and B757.

With regional airlines continuing to increase their share of the traffic, it's not surprising that 65 percent of North America's airports depend exclusively on regional airline service. There were 90 regional airlines in the market entering 2004. Regional airlines will remain strategic partners for the major carriers by providing economical service to hub-and-spoke airports and allowing the majors to maintain a market presence (networking). The regional airlines fleet of aircraft is rapidly expanding, increasing load capacity, flying longer segments and providing greater flexibility and operating efficiency to the customer.

Regional airlines compete on the bottom end of commuter carriers and above the business jet class. The business jet is no longer viewed as a pricey perk for the executive. Rather it is viewed now as a cost-effective alternative to dealing with security issues and waiting for flight departures within the hub-and-spoke system. The business jet can fly direct and is cost effective if used properly. After two years of decline, the world's manufacturers delivered 392 new business jets through Sept. 30, 2004 that is up 10 percent from a year ago.

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