US Regional Airline Market Shifts Power to SkyWest

This is a sector to consider if you are looking for a challenging workplace. This chart tells us that business is pretty good. Load factors are back where they used to be pre-pandemic. The 2023 number is for the half year, so an annual total of ~100m is possible. [caption id="attachment_77704" align="aligncenter" width="580"] US DoT RAA dataset[/caption] But that optimistic outlook is 5% down in volume. Moreover, that is also way down on what was normal between 2016 and 2019. Reflecting on passenger traffic shows a ~30% decline in traffic. That is an eye-popping metric. We keep hearing about the pilot or the captain shortage. Digging deeper, we see the following among the top ten US regional airlines. For 2023, the top ten accounts for over 98% of the market. That is some concentration. And the SkyWest is the elephant on the runway. [caption id="attachment_77706" align="aligncenter" width="580"] US DoT RAA dataset[/caption] The industry is seeing greater concentration than among the mainline network carriers. Imagine the reaction if either American, Delta, or United had a 40% market share. SkyWest's share has grown steadily - the outcome of being a better-run airline in a market where its competitors have not been as well-run. Few people realize just how big SkyWest has become - In June 2023, the airline had a fleet of 492. Given that airlines benefit from economies of scale, the future for SkyWest looks brighter. US regionals are contracted to offer flights to the majors. If you're a major airline, which is your #1 go-to? SkyWest is on your speed dial. The implications? SkyWest has an inordinate influence over the regional market. No OEM can market a regional aircraft without SkyWest as a customer. US majors cannot force anything on SkyWest (without the government). Here's another chart that tells an interesting story. What we see is that there was a more significant gap between ASMs and RPMs before the pandemic. Post-pandemic, that gap shrank and seems to be getting smaller. Notice also the absolute decline in ASMs. [caption id="attachment_77712" align="aligncenter" width="580"] US DoT RAA dataset[/caption] The market is shrinking - whatever the causes. This suggests that the already tight margins are going to get worse. That means the smaller regionals are going to be under even more pressure. Expect more regionals to fail or get absorbed into SkyWest. SkyWest has tried to start a new service to serve communities that lost air service. The majors for the DoT to stomp on that idea. Perhaps considering developing new services outside the contacts with major airlines reflects a bubbling ambition at SkyWest. After all, SkyWest knows the business well enough to make this work; it has the critical mass to pull it off. The reaction from the majors signals they know that SkyWest can make this work, and they won't allow any opportunities for SkyWest to grow. The future of the US regional airline market seems to be increasing power going to SkyWest. And where does that power get deployed? Can the majors hold SkyWest back from its natural need to grow?

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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