Premium #305 – Trends in the Regional Jet Market

When fuel prices spiked a few years ago, coupled with the onset of the Great Recession, the 50-seat regional jet market suffered. But with lower fuel prices, are the difficulties for those planes abating with their low capital cost? Let’s take a look at data on the percentage of each fleet that is in service each year for the past decade. For the small regional jets, the market decline is quite clear, as shown in the chart below. The percentage in storage has continued its rise, and is now well over 40% of the total fleet for both Bombardier and Embraer’s smallest models. The CRJ models include the -100, -200, and -440 and Embraer 135, 140, and 145 for this chart. Of course, with the lack of demand, prices for these aircraft have been driven extremely low. When combined with low fuel prices in today’s environment, an opportunity exists to return these aircraft into service if yields and load factors into smaller cities can generate enough revenue. The competition for these regional jets, however, are LCCs operating larger aircraft into nearby cities, and driving lower fares. Depending on market, the economics of bringing back a 50 seat jet can be challenging. The following table documents the number of aircraft in service and in storage by regional aircraft type over the last decade including 50 seat and 70-110 seat regional jets from Bombardier and Embraer. What about the second generation of regional jets, the larger 70-110 seat models? The following chart shows the percentage of fleet in storage for the Bombardier CRJ700 and 900 series, as well as the Embraer E170/175 and E190/195 series. In this segment, we see an apparent anomaly for the CRJ900, for which aircraft have apparently re-entered the fleet from storage, while other models indicate an increasing percentage in storage in 2016. The upward trend extends to the E-190/195 models from Embraer, with aircraft entering storage that are only 10-11 years old at most. The question we must ask is why? Are 70-110 seat jets becoming economically obsolete, and unable to generate necessary yields to offset higher costs in some markets? The answer is apparently yes, as the percentage of fleet in storage is moving upward. The Bottom Line Even with relatively modern and efficient regional jets, it has become economically difficult to maintain service in an environment that includes low fuel costs. This is a somewhat surprising finding, as one would expect regional jets to regain competitiveness on a number of routes and re-enter service, especially since capital costs for some models have dropped to bargain prices. We can only surmise that many of these aircraft in storage were perhaps fully run out before a major maintenance check of engine maintenance event, and as a result would be quite expensive to return to service. In the US market, the largest for regional airline operations, capacity purchase agreements with major airlines are placing considerable financial pressure on regional operators. While regional jets cannot match the cost per available seat mile of larger jets, they should still be able to provide a positive margin given today’s higher yield environment. In a low fuel cost environment, these aircraft should be rejoining the fleet, rather than increasing the percentage in storage.

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