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June 17, 2024
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There is a quiet shift taking place in the regional jet market.  As you would expect with regional jets, this is occurring in the US.

Let’s start with the E-170s American acquired recently.  Its Envoy regional is getting six E-170s previously operated by BA’s CityFlyer. This model was last produced in 2017 and has been eclipsed by the larger E-175 and that in turn should be replaced by the E175-E2.  The E-170 is typically a 72-seter but American is taking that down to 65.  American plans to base these aircraft at LGA in New York.  Then there is growing interest in the E-170’s primary competitor, the CRJ700.  SkyWest is buying them as they can be acquired.  United’s decision to convert the CRJ700 to the CRJ550 is proving to be a smart move. 

This is what we know about the 70-seaters “in the wild”.  Many may be unusable and several are in the hands of airlines bankrupt airlines, .i.e. SA Express.  The biggest problem that makes them even more special – most of them are already in the US market.  That means those based outside the US are going to appreciate in value and are almost certainly being evaluated for a flight back to the US market where they can be deployed. 

There were only 346 CRJ700s and 192 E-170s produced. This is a special size aircraft and it is having a second life as the 50-seaters retire to far-flung places or get scrapped.  These models were not produced for long as US regional airlines were pushing for bigger models with more seats.  The 50-seater regional jet is reaching the end of life – but then this has been said over and over, only to see some of them still flying, even as freighters. 

However, it is clear the former 70-seaters are now hot.  And as we see, they are rare.  Moreover, with so many airlines in trouble, those that can be found and acquired are moving from the hands of the weak to the hands of the strong.  Who would have, even a year ago, predicted that these “outdated” aircraft would make such a comeback?

The interesting thing here is that these 70-seaters won’t be fitted with 70 seats.  They are going to have around 65.  They will be 3-class and have more space than anyone has come to expect on a regional jet in US service.  To get a sense of what this “feels” like, do a search for trip reports on the CRJ550. 

So where’s the market gap?  Quite simply, there are too few of these aircraft.  The E-175 and CRJ900 are quite a lot larger and are at maximum seating under US Scope Clause.  And to reiterate for those who still don’t get it, Scope isn’t moving.  The Big Three in the US operated ~650 50-seaters pre-Pandemic.  This likely means these three network airlines will not be able to retire as many 50-seaters as they’d like.  With every regional jet fleet change, there’s a Scope opportunity.  It’s a careful balance and why United’s decision on the CRJ550 was such a good move because these aircraft count as 50-seaters.

Airlines emerging from the pandemic and chasing maximum efficiency are finding growing interest in “right-sizing”.  This has been an Embraer mantra for years.  

A big challenge for the US network airlines is the crucial role played by regional jets as network feeders.  With schedules cut back because of the Pandemic, the delicate balance of regional feeder services is even more sensitive.  For many markets, the threat of losing air service is all too real.  Fares are too low with rising airline costs are spread over fewer seats.  We estimate for the US airline industry, breakeven load factors are over 100%.  Since the industry is operating way below that, iffy markets are unattractive. 

On the other hand, the Big Three cannot be too ruthless with market cuts.  There’s always Southwest which is on a tear opening new markets.  Southwest is doing this because it can, and also because it must as Breeze lurks in the shadows. 

The emerging gap in the regional market is a thinning of the 50-seater fleet and a shortage of 70-seaters. There are no new aircraft with state-of-the-art economics and technology in this segment.  Several years ago, John Saabas, then President of Pratt & Whitney Canada told your correspondent that the PW800 would work on the CRJ as a re-engine option.  GE is under no pressure to tweak the CF34 that powers both the E-170 and CRJ700.  There is life left in these aircraft and, absent anything new, it might be prudent to consider some sort of technical update.

Between the proverbial Scope Clause “rock” and market demand “hard place,” there is surely an opportunity here. 

author avatar
Addison Schonland
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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