Six regional airlines reported their second quarter results with SkyWest, Jazz and Republic Holdings Inc (RJET) continuing to make big profits in the face of crushing losses at their mainline partners, only increasing the pressure for major carriers to squeeze their regional partners in the next contract. Related Story  Mesa, reporting earlier also posted profits. While U.S. regional margins are under pressure, Air Canada has to be irked by Jazz’s margin of 10+ percent despite the fact it was below the 14.09 percent margin target. While RJET’s profits were up from the year-ago period, both SkyWest’s and Jazz’s reported profits down from the year-ago period.
Meanwhile, Pinnacle reported an $11.4 million loss resulting from special charges, without which, it would have turned in a profit of $5.4 million. And, Express Jet came in with losses, expected as it was forced to shut down its year-old branded operation in the face of fuel costs. Related Stories
In June, despite all its troubles, Mesa Air Group, Inc. posted second quarter after tax profit of $17.5 million from continuing operations on operating revenues of $320.3 million. The profit represents $20 million swing from the $22.6 million loss posted in the year-ago period. Related Story
The results reflect the massive move away from 50 seaters, but don’t guarantee an immediate move to larger regional jets. For now, majors are refining what they have, said operators during their various investor calls.
Jazz and Express Jet both reported huge growth rates in their corporate jet operations, reflecting the robust business aviation market.

Divining the Future
While most analysts questions related to the details of airline results, Jim Parker of Raymond James asked leaders to predict the future and what the regional industry will look like in three to five years. However, if he was expecting solid predictions he was disappointed. RJET Chair Bryan Bedford capsulized it when he said that no one knows whether or not the high growth experienced in the last several years will return. Related Story He added the uncertainty in the needs of mainline partners is reflected in the difficulty the company is having in placing the 12 ERJ 170s formerly used for Frontier Jet Express. Horizon, too, is jettisoning its seven CRJ 700s also acquired for Frontier opeations. Larger equipment is supposed to be sought after to replace the oversupply of 50-seat regional jets forced by scope agreements but, for now, they seem to go wanting.
Bedford pointed to the fact that fuel was impacting carriers across the globe and was compounded by the crisis in the credit markets where it is difficult for even those with moderate credit to gain financing. However, he said that a lot of activity is going on in a tough market forcing different airlines to respond in different ways. He pointed to Delta’s actions against Mesa Air Group’s Freedom Airlines and Pinnacle, saying some have been aggressive and continue to be, especially with Delta accelerating the synergies of the Northwest/Delta merger, which received approval from European regulators recently.
Bedford did offer a ray of hope for regionals. “As a consequence of the mergers and acquisitions activity, the operating costs of the carriers involved will increase,” he said. “The gap between mainline and regional costs will widen, creating some opportunity for us to become more value added for our partners. There is a huge difference in the value proposition of 50 seaters and that of 70 to 90 seaters. Those who have the scope relief to do more are interested in doing so but they are refining what they have. We are trying to get a fix on where fuel is going. If it is going to be $110 bucks, that won’t bring capacity back but it will be better. For the next 12 months, we will be in a holding pattern in terms of domestic opportunities. There will be additional marginal acquisition moves. But, all carriers, large and small, have to restructure their operations to be more efficient and more value added to cope with an uncertain economy.”