Regional Airline Economics Challenges Small Community Air Service

Small regional airports find themselves caught between a rock and a hard place with demand for additional passengers sourced by regional airlines declining on one side and the unit cost of acquiring those passengers increasing on the other. The reason demand is declining for regionally sourced passengers is not because residents of rural America are traveling less, but because mainline network flights are basically full. As a result, the major carriers no longer depend on regional or “Express” flights to feed their mainline networks.

Unit cost pressure

On the cost side of this chasm, Mike Boyd explains that “air transportation simply is no longer economically feasible in low-volume applications.” Thus, 50 seat regional jets are being retired only to be replaced by new, larger regional jets. While the rate of retirement is often debated, manufacturers are no longer taking orders for 50 seat regional jets and those in use will all reach their maximum life spans within several years.

Larger planes: good news for regional carriers

Boyd contends that further consolidation of the regional airline industry is inevitable. This is not a new trend. From the 1980’s through 2012, the number of regional airlines dropped from 300 to 30, according to CAPA. From 1978 to 2008, airlines chased market share rather than profits. However, in this modern era of profit driven airlines, regionals must boost revenues, since their costs are already low. Given that there are 16 regional providers on only four major carriers, a significant change in the current capacity purchase model is unlikely. As CAPA points out, the shorter term bright spot for the regionals may be 76 seat and larger aircraft, which will generate more revenue per block hour at lower unit costs.

Larger planes: bad news for small airports

Many small and mid-size airports will suffer as 76+ seat regional jets replace 50 seat aircraft. Unless rural economies (and traveler their demand) increase proportionately to the increase in plane size, which is unlikely, frequencies will be reduced and routes cancelled. As a result, travelers from those communities will be pushed to drive more often and/or longer distances to board mainline flights from larger airports, further reducing the mainline network demand for regionally sourced passengers.

Very creative solutions are essential for the country’s small airports. More on those in the next post!

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