"Regional carriers are reshaping air travel"

Tuesday, May 25, 2004

Regional carriers are reshaping air travel 
The Indianapolis (IN) Star 


SAO JOSE DOS CAMPOS, Brazil -- Like the turbulence that rocks planes
during a summer storm, a revolution is sweeping through the airline
industry that could be as important as the switch from propellers to
jets. 

It is being driven by so-called regional airlines, which provide most of
the short-trip domestic flights in the United States using smaller
regional jets. 

The regional airlines are growing rapidly by contracting with the
established major airlines. But as they grow, many of the companies they
serve-- from United Airlines to US Airways and Delta Air Lines-- are
facing stormy conditions and the possibility or reality of bankruptcy
and downsizing. 

"They are all going to have to be reinvented," Elliott Seiden, an
aviation consultant based in Arlington, Va., said of the major airlines.


At stake in this revolution are: 

   Thousands of jobs at airlines and airports across the country. 

   The future of the current hub-and-spoke system, which could be
replaced by more direct or point-to-point flights. 

   Ticket prices and consumer choice of airlines and flights. Enhanced
competition is keeping prices low in the United States, but some say the
industry is likely to see consolidation, since major airlines can't
continue to lose money by the hundreds of millions and survive. 

The airline industry always has been volatile and competitive, but "this
airline crisis is different from the past crises," Mauricio Botelho,
president of regional jet maker Embraer, told a small group of
journalists who toured the Embraer facilities in Brazil recently. "Most
were part of the economic cycle. I think today what we are seeing is a
change in the scenario." 

A total of 587.3 million passengers flew on U.S. aircraft of all kinds
in 2003, 2.2 percent more than the year before, according to a report
released in late March by the Federal Aviation Administration. But the
contrast is clear: Regional and commuter airplanes carried almost 19
percent more passengers, while major carriers flying big jets saw
passenger counts increase about 1 percent. 

By 2015, the FAA predicts that more than two in 10 of all passengers
will fly on a regional or commuter plane, compared with slightly more
than one in 10 of all U.S. passengers five years ago. 

Financially, the same trends are emerging. 

"It (the regional jet) has been more of a transfigurative event than the
introduction of the jet engine to replace turboprops," said Republic
Airways Holdings Chief Executive Officer Bryan K. Bedford. 

The first regional jet was introduced into the United States in 1993 by
the Canadian company Bombardier. It was a 50-seat model. 

Embraer, formerly a Brazilian government-owned aircraft business, got
into the market a few years later with the Embraer 145, and versions of
the two planes control most of the regional jet market. 

All told, 70 percent of regional aircraft are now jets, said Deborah C.
McElroy, president of the Regional Airline Association. 

Regionals act as contractors for the major airlines, providing them with
the shorter flights that are not cost-effective for them to fly with
150-seat 737s or other large aircraft. 

The regional jet got a further boost, as did Embraer, when JetBlue, the
fast-growing discount airline based in New York City, ordered 100 of the
Embraer 190 model. JetBlue and other discounters-- from ATA to Southwest
-- are stealing customers from United and other majors, and forcing them
to cut costs and even create their own discount subsidiaries, called
Song and Ted. 

Seiden is uncertain what the regional jet phenomenon will ultimately
mean to the industry. 

"I think the book is still out," Seiden said. "There is going to be a
role for regional jets no matter what, but I don't know how much, and
you won't know until the (major carriers) settle into equilibrium."


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