Kevin O'Toole/LONDON
WHILE THE MAJOR US carriers continue to make the most of the present business recovery, beneath the surface the second tier of national and regional airline groups are in the throes of making major changes.
Perhaps the most visible evidence of these changes is in the rapid growth rates which some, although not all, of these carriers have achieved in the past year. The best of the low-cost nationals have come close to doubling traffic, while the sharpest regionals bettered 20% growth in 1995. Early signs for 1996 suggest that growth may be more modest, but is still on the right course.
The changes taking place, among the regionals have largely occurred, as a consequence of the two years of restructuring within the majors, which the regionals serve. As the big airlines have ceased striving for market share in favour of the search for profits, so they have been increasingly prepared to hand down a bigger role to their feeders, once confined to only the weakest of routes. In short, the regionals are becoming a more integral and strategically important part of major networks.
This change of role is clearly visible in the changing fleet profiles of many of the key regionals. Regional jets are being acquired, in exchange for the traditional 19-seaters, now redundant.
Comair led the way with the first US fleet of 70-seat Canadair Regional Jets, and its traffic has blossomed. Fellow Delta Connectors SkyWest and Atlantic Southeast have followed suit with similar results.
United Express carrier Air Wisconsin, resurrected three years ago with a fleet, based solely on the British Aerospace BAe 146, has shown the potential for growth. With the pending arrival of the low-cost Embraer EMB-145, the trend could accelerate.
Other carriers such as AMR Eagle, have yet to show an interest in regional jets, but are nevertheless, beginning to strip out 19-seaters, leaving the market to those with lower costs.
The major network carriers have good cause to look to their costs. The new low-cost independent carriers have been gaining ground fast. Estimates vary as to the size of the threat but, the suggestion is that low cost airlines could now account for as much as 15% of the US domestic market. The influence they are having is greater still. American Airlines recently suggested, that around 40% of its bookings, are being affected by low-cost competition.
Where start-ups seem to have got the formula right, growth rates have certainly been explosive. ValuJet came close to trebling its traffic in 1995 and has no intention of slowing down. Its profitability has also been maintained, with the best operating margins and seat costs in the business.
AirTran Airways has proved to be another fast riser. It started life within the AirTran group in mid-1994, alongside regional carrier Mesaba, but was floated off within the Airways Corporation in 1995. Since then, the airline's traffic has been growing at the rate of more than 40% each a quarter.
Not all of the independent national carriers have been as successful. Hawaiian's brush with bankruptcy is one reminder, although better yields and action on costs appear to be having an effect. Even Kiwi, which also sailed close to collapse, now believes that it is back on course to make profits because of the tough cost controls, which it has implemented.
The true extent of the impact which low-cost competitors are having should become apparent when the US Department of Transportation (DoT) releases its imminent study on the subject.
Whatever the DoT's conclusions, there seems little doubt that the changes will continue to take place in the USA, and if analysts are right, can be expected to start to emerge in Europe before too long.
Source: Flight International
