After a decade of explosive growth, the 50-seat regional jet market is starting to slow, but already manufacturers are looking ahead to fresh opportunities in the 70-100 seat classes
When the new breed of small regional jets burst on to the market just over a decade ago, it sparked a revolution that began in the USA, but which is still being felt across air transport markets around the world. Today, as growth rates start to settle in the core 50-seat market, eyes are turning to the next generation of 70-100-seat regional jets and to the market shifts that they may now bring.
Embraer has already raised the bidding with the 190, an aircraft which takes its offering up to the 100-seat class. The speculation has been further fuelled by the fact that the launch order for 100 aircraft came last summer from JetBlue Airways, just about the fastest growing of the US low-cost carriers.
With deliveries due to start in the third quarter of 2005, some analysts already believe that JetBlue's acquisition of the Embraer 190 and its expansion into new smaller markets will put additional competitive pressure on the majors either to operate similar-sized jets themselves or to free their regional partners to do so by busting open the scope clauses contained in existing pilot agreements.
There is no denying the speed with which the 50-seat regional jet market took hold. From a standing start a decade ago, there are now over 1,600 regional jets in the world fleet with 50 seats or below, according to latest figures from the Airclaims fleet database. Over 1,200 of those are in the North American market alone. As of today North American carriers hold another 580 orders for regional jets, although more than half of these are for aircraft above 70 seats, including the JetBlue deal.
For their part the manufacturers, led by Bombardier and Embraer, have continued to keep their production lines producing over 300 regional jets per year, despite the impact of 11 September and the market exit of notable names such as BAE Systems - delivering its last ever Avro RJs last year - and Fairchild Dornier.
Orders return
Order books too recovered last year after a rash of cancellations in 2002 as the key US market descended into crisis. The numbers for 2003 show net orders back at close to 300 after having dived to a negative 120 the year before.
Embraer led the way with 139 net orders for the year, thanks in large part to the massive JetBlue business. By year-end Air Canada had also agreed to purchase 45 Embraer 190s, subject to the airline finding the finance as it emerges from bankruptcy protection. However, Embraer's deliveries slipped to 87 as it repeatedly had to reduce its planned deliveries after allowing ExpressJet, the former Continental Express, to reduce to 36 the number of aircraft it would take in 2003, down from 48, and to account for the rolling delivery postponements and order cancellations of Swiss, the one-time launch customer of the 170. In any case, first deliveries of the 170 were held up as development and integration of new Honeywell software into the fly-by-wire jet proved more difficult and time-consuming than planned. After receiving the necessary certifications in February, the 170s are now being delivered.
With those issues over, Embraer expects to deliver 56 of the 170s this year, bringing its production tally to 141 airliners, rising to 145 transport aircraft in 2005, as the 190 comes into service.
Bombardier, meanwhile, has continued to work through its sizeable backlog delivering a total of 214 regional jets and another 18 Q-series turboprops through to the end of its fiscal year in January. That was up from 191 jets and 29 turboprops the year before, which in the words of chief executive Paul Tellier, made Bombardier Aerospace "the only aerospace company delivering more aircraft last year than the year before".
Bombardier's net order tally of 107 regional jets was buoyed by an order from US Airways for 60 50-seat CRJ200s and 25 70-seat CRJ700s, although that deal included the transfer of 36 orders held by GE Capital Aviation Services. But what has given Embraer the edge in terms of new orders is the new 100-seat offering and with that now winning approval, Bombardier has decided to revisit its decision not to develop an all-new jet in the class. It has officially established a task force to evaluate the benefits and pitfalls of proceeding with the creation of a new-generation commercial aircraft in the 110-115 seat range.
The company has enlisted Gary Scott, a former Boeing official, to lead the team. Scott, whose Boeing experience includes executive roles in the 737 and 757 programmes, was named president, new commercial aircraft programme. The team is expected to focus on whether advanced technologies and manufacturing techniques can help produce a new aircraft with substantially lower costs per seat-mile than its existing 86-seat CRJ900 and a product that will leapfrog Embraer's new lines. "We're giving ourselves more or less a year to reach a decision to be taken to the board," says Bombardier's Tellier.
Although Embraer warns that it will be tough for Bombardier to come in with a new aircraft several years after deliveries of its new 190 begin, Embraer itself was four years behind Bombardier in introducing its 50-seaters and still captured a substantial market share.
Both companies are bullish about the opportunities in the larger seat classes. "For years, almost 60% of flights in the USA depart with loads more appropriate for 70-110 seat aircraft," says Orlando Jose Ferreira Neto, Embraer's director of market intelligence, about the segment covered by the new 170/190 family.
Over the next two decades, Embraer is forecasting deliveries of some 2,950 aircraft in the 91-120 seat segment. That represents around 35% of overall jet aircraft deliveries in the 30-120-seat market.
Barry MacKinnon, vice-president marketing and airline analysis for Bombardier Aerospace Regional Aircraft, is similarly upbeat. He says that more than two-thirds of US domestic markets have fewer than 100 passengers per day, making them "ideal for regional jets". Regional jets also continue to be a major component in US and European airline efforts to restructure, he says: "Majors are aggressively driving down costs to survive, looking for ways to better match capacity and demand." In North America, regional jet capacity was 236% higher this March than four years ago, while seat capacity on turboprops and larger jets were all down, he notes.
Because of continuing talk of scope clause relaxation - though it seems to be slow in coming - Boeing Commercial Airplanes also is watching the developing 90-100 seat market, which is nudging up to the lower-end offerings of Boeing with the 106-117-seat 717 and smaller 737s, as well as Airbus with the 107-seat A318.
Boeing believes that scope clauses have artificially limited the major US carriers to acquiring 50-70-seat regional aircraft, rather than moving up to the 90- to 100-seat segment or beyond.
Scaling up
Randy Baseler, Boeing vice-president marketing, sees declining demand in the 50-70-seat sector, which has proved so successful for the two regional jet manufacturers, and their move into the larger-aircraft sector. "We are not so much concerned about the initial entries there, but about where they go from there. Do they go into 130, 150, 170 seats? Are we concerned? Well, partially."
JetBlue is the first low-cost carrier to order the 190 but others, including Southwest Airlines, are known to be looking at it. No longer called "regional jets" by Embraer, the 170 and 190 set new cabin standards with two-by-two seating and offer lower operating costs and longer stage lengths than regional jets. They also have lower price tags than competing Airbus and Boeing aircraft.
Still standing in the wings is leasing giant ILFC, already the largest customer for Airbus and Boeing. It has been evaluating the acquisition of regional jets on and off for nearly four years. Founding chairman Steven Udvar-Hazy recently said that ILFC is still looking at the market. He expects 70-110-seaters to outsell the smaller Airbus and Boeing jets, but says ILFC continues to assess the aircraft's staying power, residual values and the potential return on its investment. Udvar-Hazy appears especially interested in the new Embraer family: he says he was intimately involved in JetBlue's decision to acquire the 190, even flying JetBlue chief David Neeleman to Brazil in his jet to introduce him to the aircraft.
Neeleman, who calls the 190 "a new category of aircraft", expects to use the 100-seater to enter shorter-haul city-pairs deemed too small for its 156-seat Airbus A320s, such as New York-Richmond; for low-season service into markets like New York-Florida that do not require a high-season pattern of service with large aircraft; and for frequency to nurture smaller markets into larger ones. The 190s will be clustered initially at New York's JFK, Washington Dulles and Boston Logan.
Both Embraer and Bombardier 70-seaters are playing a role in the restructuring of US Airways. The CRJ700 is the first jet to operate in its US Airways Express fleet, while the Embraer 170 has been assigned to MidAtlantic Airways, a new regional jet division. With just three in service in April, the aircraft were already flying an average of 8h 45min a day, and the transition appears smooth.
"These larger regional jets bring us a range of fleet planning opportunities, as they fill the gap between 50-seat and 120-seat fleet types, allowing us to better match supply in existing markets," says Bruce Ashby, US Airways Express president. The new jets also will be used to add flights in markets not currently served, he adds.
Douglas Abbey of the Velocity Group consultancy notes the growing importance of the new 70-plus seat jet in the US market, and expects these new larger aircraft to blur the distinction between traditional airline segments. Abbey notes that regional jets have proved to be an extremely flexible asset. Over their first decade of service, 36% of them were used to start new services, 25% replaced major carriers on routes, 20% were used to supplement majors' services and 19% were used to replace or supplement turboprop service.
Longer-haul routes
The regional jets are also being used for much longer-haul segments than ever intended. Last year, two-thirds of all new regional jet routes were over 800km (500 miles), well beyond the traditional regional airline stage lengths, and at least 18 routes were more than double that. Although regional operators agree this is not ideal, they say they are offering convenience.
Geoff Crowley, president of Air Wisconsin Airlines, a United Express carrier, recognises the discomfort people feel on regional jets on longer hauls and their service is limited to routes where they believe they are adding value because they operate a nonstop. "But we realise there is a limit to people's desire to fly in a narrow tube for a long period," he says. Philip Trenary, president of Pinnacle Airlines, a Northwest Airlink carrier, adds that some long-haul regional jet flights attracted so many passengers Northwest put Airbus A320s on the routes.
As airlines take delivery of the new larger aircraft and continue to take small twin-jets - and with early regional jets in the fleets already 10-12 years old - there is the prospect of a used market developing. The possibility of half-price, regional jets coming on the market for $10 million could open up opportunities for new regional start-ups and secondary regionals resuming service to markets previously dropped. "We will develop a used regional jet market over time," Abbey says. "It's inevitable."
REPORT BY CAROLE SHIFRIN IN WASHINGTON
Source: Airline Business
