CHAPTER IV
REGIONALS/COMMUTERS
IV-27
For purposes of the Federal Aviation Administration (FAA) forecasts, air carriers that are included as part of the regional/commuter airline industry meet two criteria. First, a regional/commuter carrier flies a majority of their available seat miles (ASMs) using aircraft having 70 seats or less. Secondly, the service provided by these carriers is primarily regularly scheduled passenger service.
During 2002, 79regional/commuter airlines met this definition and reported traffic statistics to the Department of Transportation (DOT) on either Form 41 (10 carriers)[1] or Form 298C (69carriers). However, starting in October 2002, all Part 121 regional/commuter airlines (carriers operating aircraft with over 10 seats) reported traffic on a monthly basis using Form 41. Part 135 airlines (carriers operating aircraft with 10 or less seats) will continue to report their traffic quarterly using Form 298-C.
REVIEW OF 2002[2]
The regional/commuter industry’s results for 2002 reflect the strong impact that the terrorist attacks of September 11th had on the operations of the large air carriers. While the large air carriers have suffered two years of negative growth in traffic since the attacks, the regionals/commuters have continued to post gains in both capacity and traffic. History has shown that the regional/commuter industry endures periods of uncertainty better than the large air carriers. During the oil embargo of 1973, the recession in 1990, and the Gulf War in 1991, the regional/commuter industry has consistently outperformed the larger air carriers.
To survive downturns in the demand for aviation services, large air carriers cut capacity to reduce costs. Code-sharing agreements (or equity ownership of one partner in another) allow large air carriers to get feeder traffic from the regionals/commuters on routes that cannot support the use of larger aircraft. Traditionally, regionals have responded to large carrier cuts in capacity by matching aircraft size to market demand. Past periods of reduced demand saw regionals primarily taking over thin, short-haul markets. During 2002, however, regionals not only took over short-haul routes, but medium- to longer-haul routes as well. This is occurring due to range and speed of the ever-increasing number of 50- to 70-seat regional jets that are entering the fleet.
FINANCIAL RESULTS
For the 12 months ended March 2002, the regional/commuter industry posted an operating loss of $346.6million. This compares to an operating profit of $384.0 million for the same period 12 months earlier. The majority of the losses occurred from July through December of 2001. Operating losses during these 6 months totaled $356.2million. During FY 2001, operating losses for the industry totaled $282.6million.
The first quarter of calendar year 2002 showed a return to profitability for the industry. Operating profits during this quarter were $72.5million. Preliminary data indicates that the second and third quarters of FY 2002 could be profitable as well.
Operating revenues for the 12-months ended March 2002 were $8.6 million, a 3.0percent drop from the previous year. Operating expenses during the same period were
$8.9million, an increase of 5.5 percent from the previous 12-month period.
Nominal yield for the industry during the 12-month period ending March 2002 was 29.42cents. This is a decline of 10.2percent from a yield of 32.77 cents during the 12-month period ending March 2001.
SCHEDULED CAPACITY
AND TRAFFIC
During 2002, system available seat miles (ASMs) increased 16.6percent to 50.2 billion, while RPMs rose 21.9percent to 30.8billion. This resulted in the system load factor increasing by 2.6 points to 61.3percent. System regional/commuter passengers were 90.7million in 2002, 8.5percent over 2001 levels. Regional/commuter carriers accounted for 14.5percent of total commercial enplanements in 2002, up from 12.2percent in 2001, and 8.6percent in 1991.
Domestic Capacity and Traffic
The domestic regional/commuter database includes activity for all U.S. regional/commuters operating in the 48contiguous states, Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands. It also includes transborder traffic into Canada.
Available Seat Miles
In 2002, domestic scheduled U.S. regional/commuter ASMs were up 17.7percent. This compares to an increase of 7.9percent during 2001. During the period 1991-2001, domestic ASMs have increased at an average annual rate of 9.9percent.
The large increase in domestic ASMs during 2002 occurred for several reasons. First, the level of ASMs posted for 2001 was lower than expected due to a weakened economy, the 3-month long Comair strike, and the shutdown of the aviation system for 3 days after the terrorist attacks. The events that dampened capacity in 2001, combined with the transfer of routes from network carriers to regionals during 2002, resulted in ASMs posting an above average increase for the year.
Revenue Passenger Miles
Domestic RPMs increased 23.1percent in 2002, totaling just over 29.8billion. This gain is much higher than the average annual growth rate of 12.4percent for the 10-year period from FY1991-2001. The large growth in RPMs results from the same factors as ASM growth, but is also partially due to the number of larger (50-70 seat) regional jet aircraft that are entering the fleet and the longer-haul routes that are being served by these aircraft.
The higher growth in RPMs relative to ASMs (23.1percent vs. 17.7percent) increased the domestic load factor 2.7 points to 61.3percent in 2002. Over the 10-year period from 1991-2001, the regional/commuter carriers’ load factor increased at an average annual rate of 1.2percentage points per year, going from 46.7percent in 1991 to 58.6percent in 2001.
Passenger Enplanements
From 1991-2001, domestic enplanements increased at an average annual rate of 7.1percent. Domestic enplanements totaled almost 88million in 2002, up 9.4percent over 2001. Regional/commuter carriers accounted for 15.3percent of total domestic enplanements in 2002.
The slower growth in passengers relative to RPMs in 2002 (9.4 versus 23.1 percent) is due largely to the fact that the average passenger trip length increased 37.6 miles. This, in part, reflects the longer stage length of the routes being transferred from the larger code-sharing partners.
International Capacity and Traffic
The international regional/commuter database includes activity between the United States or its territories, and the Caribbean and Mexico.
Available Seat Miles
Regional/commuter international capacity accounts for only 3.0 percent of the total capacity flown by these carriers in 2002. For the year, scheduled international ASMs were down 9.5percent. The drop during 2002 resulted in part from capacity cutbacks by American Eagle and Executive in the Caribbean. The cuts were due, in part, to scope clauses that limit the amount of flying that can be flown on the American code. In November 2002, American Eagle announced the sale of Executive Airlines. As a result of the sale, Official Airline Guide (OAG) schedules indicate that capacity in this region will return to 2001 levels in 2003. In 2001, American Eagle and Executive accounted for 60percent of the ASMs flown internationally.
Revenue Passenger Miles
International RPMs for 2002 were down 6.9percent to 932.3 million. This compares to an average annual growth rate from 1991 to 2001 of 16.7percent. During the same period the load factor increased 1.7points to 60.8percent.
Actual data for the 1st half of 2002 indicates that 30percent of the international RPMs flown by regionals/commuters are to Mexico with the remaining 70percent flown to the Caribbean. Year-over-year percentage change for the same 6-month period shows that RPMs flown to Mexico were down 14.5percent, while RPMs flown to the Caribbean were down 9.8percent.
Passenger Enplanements
International enplanements totaled 2.7million in 2002, down 13.7percent from the previous year. The average annual growth rate in international regional/commuter passengers for the period 1991-2001 is 10.9percent.
THE
EVOLUTION OF A
“NEW REGIONAL”
INDUSTRY
The fundamental character of the regional/ commuter industry has changed significantly since the mid-1980s. These changes include the relative size and sophistication of airline operations, the carriers involved (especially the dominant industry operators), the aircraft fleet mix, and the industry’s relationship with the large commercial air carriers in the national air transportation system.
Three distinct, but interrelated, trends have provided the basis for the changing character and composition of the industry since the mid-1980s. They are (1) industry consolidation/in-tegration; (2) industry concentration; and (3)the advent of the regional/commuter “jet age.”
CONSOLIDATION
AND INTEGRATION
The number of regional/commuter airlines has declined by over two-thirds since 1981, from 250 to only 79 carriers in 2002, 7 less carriers than there were in 2001. The large decline in the number of carriers is the result of several factors. First, the dramatic growth in the number of code-sharing agreements with the major air carriers (see Table IV-1 for a current listing of code-sharing agreements) has made it difficult for carriers without such agreements to effectively compete. Secondly, the air carrier acquisitions of or purchases of equity interest in their regional/commuter code-sharing partners have led to a reduction in the number of independent operators. Finally, it is believed that the expense required for some regional/commuter carriers to comply with the “one level of safety” commuter rule pushed some of the regional/commuter carriers out of business.
CONCENTRATION
As the regional carriers go through the phase of consolidation, the size of the dominant industry carriers continues to increase. In 1981, the top 5regional/commuter carriers accounted for only 20percent of the passengers flown. By 1991, this percentage increased to 30percent. In 2002, the top 5 carriers were responsible for flying over 46percent of the passengers.
Today a large number of regionals are owned, totally or in part, by their larger code-sharing partners, and still others are owned by other regionals. In 2002, 10 regionals were owned totally or in part by 8 of the larger commercial air carriers. Three others were owned by three other regionals. However, in 2002 there were three significant spin-offs of regional subsidiaries by their major owner—Pinnacle (Northwest), Executive (American), and Express Jet (Continental).
A better picture of the present composition of the regional/commuter airline industry is presented in Table IV-3. This table, which lists the top 20corporate structures and their percentage share of 2002 industry enplanements, more accurately reflects the level of industry consolidation and integration with the larger air carriers. In 2002, the top 5 corporate groups accounted for 57.9 percent of industry enplanements, the top 10 for 88.3percent, and the top 20 for 98.1percent.
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THE REGIONAL/COMMUTER JET AGE
The introduction of the regional jet into the dynamics of the demand for air transportation services has significantly expanded the role and market presence of the regional/commuter industry. The phenomenal customer acceptance of the regional jet, coupled with the success operating carriers have experienced in markets where the aircraft is deployed, positions its operators to move beyond the current boundaries of traditional regional/commuter markets. The regional jets’ range and speed has opened up new opportunities, allowing regional/ commuter carriers to serve longer-haul markets and to by-pass congested hub airports by providing point-to-point service.
In last year’s forecast document, the FAA analyzed 11 years (1991-2001) of schedules from the OAG to assess the growing impact of regional jets on the industry. This analysis has been updated to include data for 2002.
Fleet Composition
In 1991, three regional/commuter air carriers operated a total of 20 jets, accounting for one percent of the total fleet and 4.0percent of seats offered for sale. It was not until 1997 that the introduction of the regional jets started to accelerate, increasing by over 100aircraft annually (194 aircraft in 2002) over the next 5years.
Activity and Operational Measures
The number of scheduled regional/commuter jet departures in the 48 contiguous states has grown from just under 9,100 in 1991 to over 1.8million in 2002. In 2002, jet departures by regionals/commuters accounted for 45.8percent of the industry departures, up from just 0.2percent in 1991. In 2002 alone, jet departures increased 42.2percent, from 1.3million in 2001 to 1.8million in 2002.
While jet aircraft accounted for 45.8percent of regional/commuter departures, they accounted for 57.2percent of regional/commuter seats in 2002. Seat capacity provided by commuter jet aircraft increased 47.0percent from 2002, for an additional 29.0 million seats.
Jet aircraft have also penetrated the transborder markets. In 1992, less than 1.0 percent of all regional/commuter flights between the United States and Canada were flown with jet aircraft. In 2002, jets flew almost 51percent of regional/ commuter flights between the two countries. These 52,800flights provided 2.6million seats, over 60percent of regional/commuter seat capacity between the United States and Canada. Since 2001, jet flights and seats in this market increased 14.2 and 16.6percent, respectively.
The newest international market for regional/commuter aircraft departing from the United States is Mexico. In 2002, only 5years after the introduction of jet service, regional/commuter carriers flew over 7,000jet flights between Mexico and the United States, 57.7percent of all regional/commuter flights in these markets. In addition, during 2002 jet seat capacity increased by almost 37,000 seats. By year end, 70.5percent of regional/commuter seat capacity between the United States and Mexico was flown by jet aircraft.
With their higher cruise speed and longer range capabilities, the ASMs flown by jet aircraft are also increasing rapidly, from just 0.9percent of total industry ASMs flown in 1991 to 74.3percent in 2002. Between year-end 2001 and 2002, the ASMs flown by jet aircraft increased 46.0percent, compared to an increase of 26.8percent between 2000 and 2001.
The growth in ASMs flown is indicative of the fact that regional jets are being operated on routes significantly longer, on average, than traditional regional/commuter routes. Since 1994, following the introduction of the 50-seat regional jet, the average stage length flown by regional jets has generally exceeded 400 miles. By comparison, the average stage length for all other regional/commuter aircraft departing from the U.S. has remained at around 200 miles.
Markets/Routes Served
Regional jets provide the flying public with significantly more travel options to choose from in making their travel plans. With the addition of the Bombardier, Embraer, and Fairchild-Dornier regional jets, regional jets are serving more small- and medium-sized hubs. Consequently, the number of airports and city-pairs benefiting from jet service are at an all-time high.
The number of U.S. airports receiving regional/commuter jet service increased from a total of only six in 1991 to 218 in 2002. During 2002, the number of U.S. airports receiving regional jet service increased by 14 airports. In 1991, only 1.1percent of the airports served by regional/commuter aircraft had jet service. In 2002, 48.2percent of all airports served by regionals/commuters received jet service. At present, only two states--Hawaii and Alaska--do not have regional jet service.