As the majors face continued pressure to reduce costs, they will depend even more heavily on regional carriers to take over unprofitable short-haul routes and provide complementary service in which large jets link city pairs during peak times, and regionals provide service in the same markets at other times, says Michael Boyd, president of Colorado consultants Aviation Systems Research Corp.
While this is more prevalent in the US, the same phenomenon is occurring in Canada. Air BC, Canada's largest regional carrier, operates flights between Vancouver and Calgary during the middle of the day to complement the larger jet service offered at busy travel times by its parent company, Air Canada.
The increasing reliance of major airlines on their partners is expected to bring additional passenger traffic to the regional industry. The Federal Aviation Administration predicts US commuter passenger enplanements will rise 9 per cent to 58.4 million in 1995. By 2006, the report forecasts 115 million passengers will board regional carriers, as the number of enplanements climbs at an annual rate of 6.6 per cent.
Last year, the 128 US regionals flew nearly 11.6 billion revenue passenger miles, and the FAA expects RPMs to grow by 8 per cent a year between now and 2006, implying an increase in average stage lengths.
Canadian regional airline traffic is expected to grow at a slower pace. Transport Canada forecasts a 3 per cent average annual increase in the number of regional airline passengers travelling on domestic routes between 1995 and 1998. But the expected open skies bilateral with the US means that cross-border passenger traffic should grow slightly faster, at nearly 4 per cent a year, says Bob Duclos, Transport Canada's chief of aviation forecasting.
During the next decade, regionals and majors will become even more tightly linked as commuter operators acquire more new 30 to 70 seat turboprops and 50 to 70 seat jets. The new generation aircraft like the Canadair RJ and fast turboprops, such as the Saab 2000, are easier to integrate with major airline operations. Comfort levels are increasing, too. 'As cabins become larger, route transfer is a more palatable option for big airlines,' says Wynne.
In the past, regionals did not always prosper when integration with the majors increased their passenger loads. Today, regional airlines are negotiating agreements that will provide additional financial security in the event of a sharp decline in fares, says Deborah McElroy, vice president of the Regional Airline Association. 'The regional airlines are smarter, negotiating better deals with their codesharing partners, and are more critical to the operations of the major airlines.'
The largest regional carriers, that provide feeder service to one or more major airlines, are likely to profit most from the anticipated increase in regional airline traffic during the next decade, adds McElroy.
The US regional airline industry has become heavily consolidated, with operators falling from 250 in 1981 to 128 in 1994. Insiders predict further consolidation, particularly among the mid-sized regional carriers.
In Canada, while there are 30 to 35 regionals, the largest 10 to 12 carry 90.9 per cent of the passenger traffic, says John Crichton, president of the Air Transport Association of Canada. He predicts less consolidation during the next few years. The eight regional airlines owned by Air Canada and Canadian Airlines dominate the regional market, giving their parent companies extensive access throughout Canada.
Despite optimistic projections for the long-term health of the regional airline industry in North America, US regionals are facing some difficulties in the short-term. In the wake of last autumn's American Eagle ATR 72 accident, traffic on regional airlines dipped slightly amid adverse media comment. The low fares and frequent service offered by United's Shuttle, for example, are luring passengers away from some smaller airports served by regionals. If these low frills operations are successful, they could limit the growth of the regionals, says Wynne.
Canada's airlines face little competition from low-cost carriers. As a result, yields in the Canadian market should rise more rapidly than in the US, says Duclos.
Source: Airline Business
