Then on Valentine's Day took place what is becoming the Bastille Day of airline consumerism - jetBlue got several airplanes stuck on the ramp for hours at JFK. That was all that was needed to light a fuse to politicians, consumerists-without-a-life, and a few journalists who tend to file the story first and research the facts later.

Hot Flash - February 5, 2007

Regional Jet Glut Accelerates. Airports: Get Prepared
Excess Jets Results in ExpressJet

Today, there are two things you don't really want to get stuck with, 'cause they're stuff nobody else wants. One is a litter of stray kittens.

The other is a fleet of excess regional jets.

As CRJs and ERJs begin to come off lease, and/or major carriers increasingly find less utility in their operations, their secondary market applications will tend mostly to be in boneyards, or sunning themselves in the desert, or being the star components of Bud Light displays at the local supermarket.

Our fleet forecasts as far back as 1999 indicated that the number of RJs on order and on option at that time exceeded what the market could support by 2003 - 2004. We advised our forecast clients - manufacturers, suppliers and OEMs - to prepare for a glut of "regional jets." Today, it's here, and our clients have not been blind-sided. This is not to say that RJs aren't fine aircraft, just that there are more of them in the sky than the market needs or can eventually support. And the economic realities of the 2007 airline industry make RJ flying more problematic, too.

Excess Aircraft. Shrinking Mission Applications. Decreasing Economics. To underscore our forecasts, two years ago, Atlantic Coast started Independence Air, and in the process yanked 80+ RJs out from under the United Express system. Far from being found short of aircraft, United didn't miss a beat in finding the replacement lift they needed. hffeb5a.JPG (8373 bytes)

Then last year, we witnessed Continental shifting flying for 69 Continental Express RJs to a cheaper vendor, leaving ExpressJet with a litter of ERJs, all dressed up and nowhere to fly, replete with hefty monthly lease payments. Do the numbers - 69 ERJs, and even if they have very favorable lease rates, say, $100,000 per month, it's easy to see that ExpressJet is looking down the barrel of a nearly $7 million gun each and every month. A potentially lethal gun.

If You Can't Find A Home For Excess RJs, Create One. The challenge for ExpressJet is daunting: they're shelling out millions a month for five dozen (plus) ERJs in an airline environment where virtually every potential major airline system already has its RJ dance card full. The only option open to ExpressJet: try to find - or create - some alternative economic use for those airplanes. So, they're putting some into charter service, and using the rest to start their own scheduled airline as an independent brand. In this case, ExpressJet is creating an all-RJ airline, flying between "underserved" intra-regional markets on a nonstop basis.

The concept of hub-bypass service on a substantial scale, particularly with jet aircraft, has some merits, at least on paper.

On paper, there's enough traffic to possibly fill a couple of nonstop 50-seaters a day between say, Colorado Springs and San Diego, or Sacramento and Tucson. On paper, it's likely that some portion of the flying public would like to go between Raleigh-Durham and Kansas City nonstop, instead of having to connect at CVG, ATL, or ORD. On paper, there is some portion of the flying public that would be willing to pay reasonable fares for such service. And in at least one instance - New Orleans - the concept of adding O&D service, whether on paper or not, would almost certainly be a slam-dunk, based on the underserved nature of post-Katrina MSY.

Potentially Dangerous: Assuming DOT Data is "Demand" Data. What's unknown is whether consumers really will come to the XJet party. Just looking at DOT O&D "PDEW" (passengers per day each way) data in a given city pair isn't a very solid indicator of whether there's potential for hub-bypass flying, or of much else, for that matter. hffeb5d.JPG (12035 bytes)

To start with, such information is not indicative of "demand," but more correctly it merely shows traffic being carried by other airlines, based on existing service patterns, fare levels, schedule frequencies, and a host of other issues, assuming it's been reported correctly.

Such data does not identify emerging markets, nor latent markets that have seen growing communities of business interest. For example, SHV-DTW, based on DOT PDEW data, should have been a loser. Northwest, to the contrary has found it very lucrative, even though the historical data did not illuminate the strong auto industry traffic that has developed over the past decade.

Tossing nonstops between two cities may or may not be able to break through existing brand loyalty and change consumer preferences. It may or may not, depending on each specific market, result in traffic stimulation based on convenience. Or, it might not do diddly to capture or stimulate additional traffic. Until the schedule is set and the service starts, it's a jump ball.

Been There. Done That. Lost Bundles of Money. Historical precedent is not encouraging, however. Nonstop or not, RJs are not exactly airplanes the consumer hankers for any more, particularly on longer hauls.

The 2006 attempt by United Express (Trans States) to implement hub-bypass service from San Antonio to several cities with high concentrations of O&D and communities of business interest, may be a harbinger of what XJet faces. The SAT UAX service had benefit of the strong brand identity (if not local brand equity) of United Airlines, as well as being concentrated at the #1 non-hubsite commercial center in Texas. Yet it failed.

Then there's Independence Air. We need not go too deep into that fiasco, which depended on below-cost fares to stimulate traffic on RJs.

Nevertheless, there is nothing to show that the ExpressJet foray into the airline business, trying to capture market share with 50-seat RJs in hub-bypass operations, can't work. It certainly would be another welcome dimension to a US airline industry that faces a very robust future, and, in most cases, it would represent competition and an alternative consumer option that most existing carriers might not want to try to counter.

Coming: More Homeless RJs. But the real story here is not a new airline, or whether ExpressJet can be successful or not. The real story is that this venture is the iceberg that defines the sinking demand for "regional jets."

The objective of XJet is to create a productive home for 44 jets nobody else wants, as opposed to filling a demonstrable and clearly consumer-supported market need. The sky-writing simply again underscores the emerging fact that the RJ glut is here and now, not something over the horizon. It also points to the fact that there simply is no secondary market for CRJs and ERJs, unless an operator can actually create one.

wpe24.jpg (21321 bytes)

In fact, by 2017, The Boyd Group Global Fleet forecast indicates that fleets of ERJs and CRJs will decline by over 50%, to about 900 left in service. And even this is based on some optimistic economic assumptions.

Emerging Demand: Lower-Capacity Mainline Jets. While stretched versions of the CRJ (-700 and to some degree the -900) will continue to have some residual demand, their cabin ergonomics will tend to work against them in the long run. The trend will be a fleet shift globally toward more accelerated retirement of RJ-cabined airliners, with airline industry focus shifting toward filling the gap left by retirements of DC-9s, F-100s, and 737-200s with new-generation E-Jet mainline aircraft.

Ramifications. RJs are not going away, at least not entirely. But their economics point to fewer and fewer in operation going forward. This portends a number of outcomes that airport and aviation planners would best consider:

Shifting Facility Needs: RJ-specific gate capacity should be revisited. The need willhffeb5b.JPG (12566 bytes) decline, not increase. Unfortunately, at least one major airframe manufacturer is still forecasting another couple of thousand RJs coming on line in the next 20 years. A return of Elvis is more likely.

Small & Rural Air Service: Communities should be ready to deal with the fact that there are new economics in rural air service, and they are not going in the right direction, as witnessed by the fact that RJs are moving out of reach. They need to also recognize that consumers are rebelling against getting on 19-seat airplanes and flying to places where connections are about as pleasant as an Army Induction Center. In some cases, alternative regional access plans should be pursued in lieu of simply trying to get service into the local airport that's either impossible or in the long term won't work anyway.

Hard reality: the driving factor in finding solutions to rural air service starts with a review of the airline industry available to serve such points, not with $10,000 to $40,000 studies or surveys that purport to "determine where community's air service needs really are."

That's like passing out a questionnaire on a sinking ship to ascertain the type of lifeboat the passengers might prefer.

The options within the airline industry in regard to truly rural and isolated air service arehffeb5c.JPG (18176 bytes) usually clear, and no amount of jive "research," outdated MIDT data, or cyber surveys will change that. When the report comes in and the invoice arrives, you're back to the initial realities - there are only a set number (if that) of airline options, and they are not much affected by the needs of the low traffic levels generated by a given small community.

Bottom line: just tossing money at studies and surveys won't do anything to get a second airline or an RJ into a community whose traffic generation can barely support a Metro-III in cargo-combi configuration. The nation needs a whole new approach to assuring rural air service access, and it will have to come from outside of the Beltway, and outside the outdated thinking that we're still in the 1950s.

Financial Institutions: As was found with the turboprops that came on line in the 1980s, the economic half-life of regional jets will be a whole lot shorter than originally planned. Whether the ExpressJet experiment works or not, the fact is that it's a desperation move, not one necessarily driven by market forces, and it's not one that has unlimited expansion opportunities, either for them or for other operators. Therefore, as more CRJs and ERJs come off lease, plan on seeing an airport real estate boom at Mesa, and Marana and Coolidge. Take a look around the world - the secondary market applications for RJs are about on the level with hula-hoops and black-and-white TV sets.

It's hoped that ExpressJet will be a success. But in the long term, the nation is going to see a lot fewer "regional jets" - for better or for worse.