Other regionals are stepping up efforts to provide service under their own banners or entering alliances with large discount airlines. For the past three years, Mesa Air Group Inc. has run an inter-island carrier in Hawaii called go!.
While go! is still producing operating losses, those losses are narrowing. In September,
SkyWest Inc., the No. 1 regional operator by passengers, won a modest contract to operate five planes for discounter
AirTran Holdings Inc.
In their bread-and-butter business, however, competition remains fierce. SkyWest, based in St. George, Utah, recently extended its existing contract with United Airlines parent
UAL Corp., and won the right to place 13 additional jetliners into United service early in 2010. In return, SkyWest said, it agreed to loan United $80 million for 10 years and defer $49 million of payments United was to make to SkyWest. A spokeswoman for SkyWest declined to comment on the concessions.
United recently chose not to renew a regional contract with Mesa, and ended up putting most of that business with ExpressJet, the No. 5 regional carrier.
But Houston-based ExpressJet had to compete with six other airlines for the contract. Moreover, in the first nine months of this year, it flew 7.3% fewer hours than a year earlier for its biggest client,
Continental Airlines Inc.
Mesa, the No. 6 regional carrier, is hanging onto a contract with
Delta Air Lines Inc. only because an appellate court affirmed an injunction barring Delta from terminating the deal. But a series of reversals has hit Phoenix-based Mesa. Its stock is trading at 12 cents, compared with $12 in early 2006.
Mesa CEO Jonathan Ornstein said some big airlines continue to treat their regional carriers as partners, but "others have taken a much more adversarial approach."
The regional carriers together flew 159 million passengers in 2008, up from 78 million in 1999.
But as the domestic airline industry cut capacity by 11% over the past two years—first to cope with surging fuel prices last year, then with the recession—the regional airlines found themselves with too many airplanes as well as planes with uneconomically high lease rates.
Mr. Boyd, the industry consultant, figures that the number of regional jets in the North American fleet will decline to 1,390 next year, down 17% from 1,675 in 2008.
By 2017, he thinks the number will fall to 800. The poor economics of 50-seat jets don't help. With fuel still pricey, planes with fewer seats "burn up all the profits" halfway through a flight, he said.
Bill Swelbar, a researcher at the Massachusetts Institute of Technology's International Center for Air Transportation, thinks Republic and SkyWest have staying power.
But troubles in the sector could result in more consolidation, leaving four big providers in the end, he says. "The question is who's going to be the third and the fourth," he adds, and whether there will be capital available to the survivors.
Mr. Boyd said travelers will notice few service gaps as the sector continues to shrink. But some of the ambitious nonstop flights between small cities and hub airports will be dropped because they don't make money, so passengers–as in the past–will have to make connections.