Regional airlines search for profitability

CHICAGO (Dow Jones) -- Regional airlines are undergoing changes that could provide investors with new opportunities down the road. Following several years of strong growth, the U.S. airlines that fly regional jets -- seating between 35 and...


CHICAGO (Dow Jones) -- Regional airlines are undergoing changes that could provide investors with new opportunities down the road.

Following several years of strong growth, the U.S. airlines that fly regional jets -- seating between 35 and 100 passengers -- experienced a slowdown last year. So these airlines, which account for half of all commercial flying in the United States, are trying to find new sources of income.

Traditionally, small regional airlines have had predictable streams of revenue through fee-based contracts with major carriers. But new contracts have cut those fees, causing regional carriers to seek new sources of revenue.

Some regional carriers have begun flying under their own names. For example, a plane sporting Continental Express livery is part of ExpressJet's fleet.

ExpressJet has an ambitious plan to take its own brand to 24 cities while flying for other airlines.

American Airlines, a unit of AMR Corp., and Delta Air Lines Inc., own regional subsidiaries American Eagle and Comair. Delta has considered divesting Comair, but American has said it remains committed to owning American Eagle.

The "scope clause" continues to be a headache for regional carriers. It's a provision in pilots' contracts that limits the number of planes or seating capacity of regional jets that can be operated by a major airline.

There's also an acute pilot shortage throughout the airline industry, said Roger Cohen, head of the Regional Airline Association. And with the recent financial turmoil at airlines, he said commercial piloting has lost some of its luster.

We Recommend