Insight – Implications of rising CRJ Op costs

Every reader is aware of the pressures US regional airlines are under. An aspect that warrants more attention is the fleet situation. The former Bombardier CRJ is now a Mitsubishi product. Mitsubishi, through its MHIRJ organization, is supporting this fleet and investing in MRO facilities to achieve this. Even so, CRJ Op costs are starting to climb. The only new build regional jet is the Embraer E-175. This places regional airlines in an ever-growing cost bind. The CRJ is costing more to operate and the "natural" replacement is essentially a monopoly with little incentive to price sharply. Through in much better pilot salaries at regionals and you have wafer thin margins getting thinner. In previous analyses, we have shown that for the big airlines, pilot and fuel costs account for about 75% of operating costs. US regionals get their fuel through mainline partners. This is clearly a big benefit, but as the next chart shows, pilots now are at about 50% of operating costs. As the new higher salaries kick in, this is going to rise. The incentives to cust operating costs at all airlines are universal. But for a US regional it is of the greatest importance. It literally means survival. With that in mind take a look at the operating costs per Seat/Hour among US regionals. The numbers don't favor 50-seaters. Red is the highest cost and green is the lowest, with yellow in-between. Of interest here is the CRJ550, an aircraft solely used by United Airlines. The aircraft is a re-configured CRJ700. But after a fanfare launch, the fleet has been stuck at 57. That is not exactly what anyone was expecting. But if you take seats out of a 64-seater to make it a 50-seater the economics are going to end up worse off. That's just physics. The CRJ700 is a rare bird and should actually be rather popular. We asked United about this fleet and the response? Crickets. It may be they took the wrong bet. Another interesting item here is the move in August 2022 by JSX (Jetsuite) to take delivery of 46 E-145s, mainly with previous Brazilian registrations. As the table above illustrates, the E-145 is less attractive as a regional jet in airline service. As a quasi-private jet, the numbers are likely to work much better. In US regional airline service, the workhorses are the CRJ900 and E-175. The following chart lays out how the US regional fleet is working. Embraer's monopoly position is clearly working to drive its market share. The most recent 2022 data (through June) puts the E-175 at 36% of flights. As airlines retire E-170s they will bring on E-175s. Looking at the CRJ900 and E-175 exclusively in operating costs, we get the following. The CRJ costs are rising and currently are over 8% higher than the E-175. In a wafer-thin environment, that gap is huge. And unsustainable. Look at these numbers in a chart to see the gap is growing after narrowing for some time. With the advantages so obviously in favor of Embraer, what does Mitsubishi do? Investing in MRO is useful but not a long-term solution. If Mitsubishi is going to remain in the regional airliner business they are going to have to come up with something to better compete with the E-175. Embraer has an advantage for now - but its E-175 is aging too. The E2 version is unlikely to ever see US airline use and the development costs are lost. But Embraer is creative and developing a turboprop that should fit the market well. Mitsubishi is still recovering from the shock of its SpaceJet failure. It is high time to shake that experience off, learn from it, and make better use of the talent pool in Canada before they lose it.

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