Future of the U.S. Regional Airline Market

Perhaps no sector in the US aviation market has undergone as dramatic change as the regional airline sector. If we examine what US regional airlines looked like it 1990 and compare them with what they look like today, the difference is striking. The trend is towards larger and more capable aircraft, longer stage lengths, and higher load factors which have changed the nature of the regional airline industry. What was once a large collection of airlines operating “puddle jumpers” has evolved into sophisticated operations, including one regional carrier now classified as a major in the US. This evolution, when viewed in ten year increments, is incredible. What will happen another 10 or 20 years from now? Will these trends continue? Will the nature of the industry continue to dramatically change? Let’s examine some of the ways in which the regional industry has changed, and using past as prologue, project what is yet to come. The Number of Regional Carriers In 1980, there were 247 regional carriers in the US. By 2010, that had shrunk to 61 as consolidation continued in the regional market. We project that by 2030, only a handful of regional carriers will continue to exist.. Just as the market for major carriers consolidated down to three, the regional market will also consolidate into a few major players. The market dynamics for regional carriers has also changed. Initially, regional carriers served only one airline, introducing an element of risk. Today, the largest regional carriers in the US serve all three legacy carriers to reduce dependence on any one carrier. The following graph shows the decade by decade progression of the number of regional carriers, and trend lines for what we can expect in 2020 and 2030, when the population of US regional carriers may dip below 25. Growth in Aircraft Size Regional aircraft keep getting larger, and when new regional aircraft are introduced, scope clauses have historically been renegotiated to accommodate them. The following chart shows the average aircraft size for the regional industry historically. Of course, the average size reflects the entire fleet, and new aircraft purchases were for more modern, larger, and more capable aircraft to lower seat-mile costs. Today, airlines are ordering larger regional aircraft and pressing up against scope clause limits as new 90-110 seat aircraft are becoming available. As we approach 2020, there will be several entrants at the high end of the regional market, the MRJ-90, E2-190, and CSeries. These aircraft will become the next growth vehicles for regional service, particularly outside the United States where pilot union scope clauses are not an issue. The shortage of pilots in the regional industry in the US caused by an abrupt FAA rule change should result in changes to scope clauses. After all, with fewer pilots, the same number of passengers cannot be carried without larger aircraft, nor can growth be accommodated. As new aircraft arrive, we expect scope clauses in the next round of pilot contract negotiations will also need to rise to maintain viable service into smaller cities without major schedule reductions. Stage Length of Flights The introduction of regional jets in the 1990s enabled a major increase in range for regional flights vis-à-vis slower turboprops. Given the comfort levels of regional aircraft, a two-hour flight was typically considered the maximum a passenger could endure. With regional jets continuing to dominate the market, stage lengths have increased dramatically over the last three decades, and appear on track to continue to do so. The Bottom Line The new aircraft being introduced, including the Superjet, MRJ, E-Jet E2 and CSeries all have one thing in common - cabins that are as comfortable and offer a similar passenger experience to mainline aircraft, and even compare favorably with the Airbus A320 and Boeing 737 families in that regard. Offering multi-class service, the regional product is becoming seamless when compared to mainline service levels, with carriers like Delta interchanging mainline 717s with regional partner operated E-Jets on the east coast shuttles. The service levels are virtually identical. With new models in the 100-150 seat market from Bombardier and Embraer, the distinction between mainline and regional aircraft has somewhat blurred. Absent scope clauses, one would logically expect E-190 E2 and CS100 models in regional service, and with growth trends, E-195 E2 and CS300 models to follow by 2030.

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