Despite numerous questions about regional jets and regional partners, little solid information about what the future may hold for the regional industry came out of the Calyon Airline Securities conference last week. Even so, it was the actions of low-cost carriers Air Tran and JetBlue that piqued interest. While they are cutting back capacity, at least Air Tran is finding it is competing with regional partners rather than mainlines, which gives its larger jet, point-to-point service a considerable advantage.
Any insights into the future of wholly owned regional airline subsidiaries at Northwest and Delta were not forthcoming with both airlines indicating that isn’t even part of the action as they work to gain government approvals and “de-risk” the merger by solving many testy merger issues up front.
Both Delta President and CFO Ed Bastion and Northwest’s CFO David Davis noted that the merger will yield even larger benefits for the combined carrier although the amount has yet to be quantified. Bastion said that the merged airline will have roughly 40 percent of the regional industry flying under the Delta code when the merger is complete which should give the industry pause at the creation of such an 800-pound gorilla.
As for future opportunities, Delta, he said, hasn’t even scratched the surface yet. However, he noted that the ultimate carrier will not only be the world’s largest airline but it will have the world’s largest regional airline. For now they are still trying to decide what the right size for the regional space is, having removed more than 100 regional jets in the Delta program alone by year’s end.
“You’ll hear a lot from us over the next six months,” he said of regional plans.
Northwest’s Davis clarified that the larger jets are being flown by Compass and Mesaba, which are wholly owned, while Pinnacle provides 50-seater lift as a Northwest Airlink. Pinnacle also flies larger regional jets for Delta. “The integration of the Delta/Northwest regionals is an uncounted benefit,” he said, “but how that will work out is to be decided but it will be on the upside” for the merged carrier.

Low Cost Carriers
Low cost carriers Air Tran and JetBlue are holding back expansion plans but definitely finding opportunities in all the mainline capacity cuts. JetBlue CFO Ed Barnes pointed to its Caribbean expansion. Transcon, he said, is down 30 percent and the Caribbean up 200 percent in an effort to increase revenues per available seat mile.
JetBlue is deferring deliveries, slowing the growth of its Embraer ERJ 190 fleet. It already arranged to lease two ERJ 190s to Azul by the end of 2008 and is selling four to Jetscape, which will, in turn, be leased to Azul. Azul is JetBlue founder David Neeleman’s new low cost venture in Brazil which is expected to launch next year. Azul has orders for 36 ERJ 190s and options for 20 as well as purchase rights on another 20. Even so, JetBlue is still committed to the ERJ 190 because it has performed so well on its thinner markets, according to Barnes.
Air Tran slowed its planned growth from 20 percent to 10 percent and is continuing to cut its growth rate in an effort to regain strength. Once it becomes healthy again, it plans to take advantage of the numerous opportunities being created. For now it is replacing connecting service cut by the majors with direct point-to-point service out of Orlando.
Air Tran believes the low-cost-carrier strategy still works, despite the fact that the gap between that segment and the mainlines is narrowing. Haak said that their low cost advantage remains significant. Haak also reported that seat assignment fees, imposed this year, has already raised $30 million in revenues that it didn’t have last year. In the meantime, it is deferring 22 aircraft deliveries and selling an additional 11 aircraft.