Speaking before the Wings Club in New York, Chairman, President and CEO of Republic Airways Holdings Bryan Bedford said that sky rocketing oil prices will be a catalyst for change but not necessarily at the magic $100 level, according to a report by Calyon Securities Analyst Ray Niedl. Networks today have done an excellent job in rebuilding their balance sheets and in particular have large cash reserves, said Niedl of Bedford’s remarks. “Nonetheless, we agree with his assessment: there is a break point and that network carriers will not stand still,” said Niedl. “Oil's impact on profitability can be a catalyst for consolidation and it can also be the catalyst for other things like getting labor and management to work together towards a common goal.”
Analysts during recent third quarter reporting calls have pushed for consolidation, although it is likely they are looking for the higher stock prices any consolidation would bring rather than reacting to desires on the part of airlines themselves. While Delta has formed a committee to study possible mergers, it went out of its way to deny it and United were considering consolidating.
In giving a history of the regional airline industry and the evolution of the capacity purchase agreement, Bedford emphasized the importance of operational efficiencies of regional carriers for its own profitability but for the efficiency of network carriers. Through the CPA, network carriers are able to focus resources by using fewer aircraft types and still match aircraft to market by deploying the smaller aircraft from the regional carriers, explained Bedford, adding while this means regionals will have higher CASM owing to fewer seats, they also have lower cost per trip through more efficient fleet management. Bedford noted that 70 percent of all domestic flights have fewer than 100 passengers, making it operationally inefficient for network carriers to service these routes using widebodies.