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Regional Aviation
News
Lower Labor Rates At Mainline Carriers Quell Regional Appeal
April 22, 2003
Wall Street is warning that lower mainline pilot salaries are a direct threat to future regional airline growth by squashing the appeal of regional jets. JP Morgan analyst Jamie Baker, in a report issued yesterday, stressed salaries at mainline carriers are expected to fall 20%-30%, leading to a dropoff in demand for regional jets, which have high unit costs. “We expect to see significant cancellation or deferrals of RJs on order, with attendant pressure on regional capacity growth,” Baker said. Baker noted 37- and 50-seat regional jets were in greatest jeopardy since they are “particularly ill-suited to the current revenue environment.” He added, “Lower mainline wages will likely manifest in a retardation of regional growth rates and a resurgence in the popularity of Boeing 737/Airbus A320-sized aircraft.”
Demise Is Premature Others believe the demise of 50-seat jet is exaggerated. Doug Abbey, of Washington, D.C.-based AvStat Associates and the Regional Air Service Initiative (RASI,) said some routes aren’t designed for larger aircraft, citing the recent Northwest announcement of new 50-seat service from Detroit to Tulsa, Okla. He said about half the regional jet service announcements are for new routes, and they’re not usually pioneered with larger aircraft. Baker explained 70- and 90-seat regional jets have far more appeal but added there’s no guarantee those aircraft will settle into regional networks. “AMR’s revised pilot contract places 70-seaters at the mainline, a dangerous precedent for independent regionals,” he added. Seventy-seat regional jets are flown only by regional pilots. Abbey stressed the economics of 70-seaters have yet to be validated at mainline carriers.
U.S. major airlines are still squeezing out cost reductions that will likely flow down to fixed fee-for-departure rates at regional carriers. Baker said United lost $225 million in its United Express operation in 2002 and aims to reduce the costs of its regional feed annually by $170 million, leading to a 10%-12% reduction in departure rates during the next two years. He added that Delta is closely eyeing United’s reductions. -LR
Source: Aviation Daily, April 22, 2003
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