Regionals have had explosive growth (too much) and will need to be trimmed back considerably That being said, there will still be a need for small jets/props to be flown for feeding mainline carriers. I think it would be more profitable for a carrier to own the majority of their feed, while contracting a third party to do a small portion and whipsaw against the wholly owned carrier.

If a mainline owns their regional and they pay the wholly owned regional carrier X amount of dollars to perform flying then essentially they are paying themselves (same parent company does both mainline and regional flying). If that same mainline carrier pays a third party to do the flying then that cash is gone from their pocket completely. IMHO, even if the wholly owned regional carrier has a small operating loss then it would still be better than paying a third party(as long as the wholly owned carrier loss is less than the cost of contracting an outsider).

Also, wholly owned carriers dont require contracts for the flying they perform and can be moved around at will of the mainline carrier in and out of markets without notice or penalty. They can serve as an effective tool to explore new markets for future mainline service, without having to send an MD80 or 737 in to test the waters.

There is a reason RAH is moving away from regional contract flying, probably because the growth is gone from that sector and it is time to move onto a new way of making money.