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Monday, July 17, 2006

Majors Waking to Real Potential of Regional Jets

The advent of mainline jet comfort in regional jets, coupled with the normal economic realities of airline operations which already favor off loading thinner routes to regional partners, are making major carriers realize the real potential of regional jets - especially the larger versions between 70 and 100 seats.

For that reason, there are an increasing number of routes on which regional jets are over 1000 miles, thanks in large measure to cabin improvements that mirror what passengers are used to in mainline narrow-body aircraft. The creativity of some airlines in using larger regional aircraft may even be the leading edge of finally fulfilling the promise of offering point-to-point service in marginal markets, if what Horizon is doing with Redmond/Bend-LAX is any evidence. This is something the low cost carriers have already made into an industry unto itself, but is reaching new levels by the adoption of Embraer's ERJ 190 by JetBlue.

The next step, already unfolding with several carriers, is not only the introduction of multiple class levels but of such passenger amenities as on-demand, in seat, inflight entertainment systems (IFEs) that afford everything from satellite television and radio to music and video programming. The cost to install the IFE with video and audio ranges from $600,000 to $800,000 per plane.

"This is a new world in terms of the use of regional jets," said Bombardier's (BBD) Vice President of Markets and Airline Analysis Barry McKinnon, who pointed out that Jazz is about to unveil the CRJ 705, the 75-seat variant of the 700, with a personal on-demand audio and video IFE mounted on the seat backs and produced by Thales. "This is really changing the perception of how RJs can be used. Cabin improvements include adding an inch to both the headroom and width of the CRJ."

Embraer's (ERJ) Vice President Market Intelligence, Airline Market Luiz Chiessi, agreed. "We are in the middle of a new understanding of what can be done with regional jets." He noted that 50 seat RJs will continue to fly the short-haul mission while larger RJs are used more creatively by airlines. "EJets are flying a 40 percent greater average stage length than the 50-seat RJs. If you analyze what the 100 EJets are doing in North America, 45 percent are being used for natural growth from the 50-seat RJs; 41% are being used for right sizing the aircraft to market demand. The other 14 percent, however, are being used to develop new markets."

The average stage length for an Air Canada ERJ 175 is 580 miles compared to that for the 190 at 850 miles. Republic Airways, operating as a Delta Connection has Embraer's longest stage length at 1,029 nautical miles. For United Express the average stage length is 610 miles with the EJets while, with the 50 seaters, the longest is Express Jet at 550 miles. At American Eagle the average stage length is 430 miles. Once the comfort is pleasant, the majors are applying the regional jets to different routes."

Chiessi said the ERJ differs significantly from the CRJ with 16 percent higher passenger volume than the CRJ 700 or 900 and 25 percent more volume in the overhead bins. "This allows passengers to bring on board their roller-board luggage compared to the increased expense and hassle of having baggage handlers at the aircraft to take luggage that won't fit in the bins.

But he thinks it still remains to be seen whether the major U.S. carriers will adopt IFEs in regional jets. "It really depends on the major and what kind of experience they want to offer the passenger," he said. He pointed out that United (UAUA) offers first class, United Express Plus with a 34-inch pitch and a 31-inch pitch in coach on its RJs. "That is a very good example of offering the passenger the same experience as they would get on domestic or international service."

Chiessi expects the introduction of IFEs to happen in the long run simply because it is a good way to differential themselves from most of the low cost carriers. He added that the new systems, such as the Thales and Panasonic systems offered with the EJets, are much smaller and do not take under-seat capacity from passengers, as older in-seat systems do.

Continental Airlines (CAL) feels that regional jets should cap out at two to three hours flight time, according to CEO Larry Kellner. (RAN, June 19) Of course, it is the only carrier now limited to 50 seat RJs by its scope clause. Not so, at Air Canada or its sister company Jazz's CRJ 700s to connect Calgary and Houston, a stage length of 748 statue miles and a block time of over four hours. Jazz's Calgary-LAX runs 1,207 statute miles. Indeed, Jazz's average stage length for its CRJ 705s is 955 miles. Jazz's Debra Williams noted that it just began Edmonton-Calgary-Yellow Knive and Toronto-Salt Lake for Air Canada. Seat pitch for Jazz is 37 inches in business and 34 inches in its "hospitality" (economy) section.

Air Canada's John Reber indicated the two airlines are largely complementary rather than the traditional feeder role of U.S. regionals. Only 34 percent of Jazz's passengers connect to Air Canada. The airline's market strategy is illustrated by the Texas market. Air Canada had been serving Calgary-Houston with two A319s per day when, last summer, it replaced the 319 with CRJ 705s and added a third frequency. The 319s were freed up for route development. Similarly, the Toronto-Houston market had been served with three 50-seat CRJs, in an all-economy configuration. Those aircraft, now in route development providing non-stop service in markets not served before, were replaced by three Air Canada aircraft -- Embraer's 175s, with two classes of service. In addition, in the Northeast U.S.-Canada market, regional jets have been used to fill in the schedule in very high frequency markets such as Boston, New York, and Philadelphia.

Turboprops are even getting into the act with Horizon's Q400s flying runs that are 500 to 800 miles. On August 1, the airline adds Redmond Bend-LAX at 800 miles, its longest Q400 route.

As for point to point, Horizon's Vice President of Marketing Patrick Zachwieja indicated that its parent company - Alaska - and Horizon plan out routes together and its service strategy fits with Horizon's growth strategy. "Unlike most fee-based operations where the major airline calls the shots, we have a more symbiotic relationship," he said.

He indicated that allows it to do things others are not doing such as the longer, thinner routes and promoting and selling its own brand. Instead of investing heavily in the small RJs in the 1990s, when they knew they couldn't operate them profitably on their short-haul routes, they waited, ultimately ordering 70-seat aircraft, an admittedly high-cost platform but one that was right for expanding its West Coast service. The airline also operates CRJ700s out of Denver flying as Frontier Jet Express, on stage lengths longer than what it sees on the West Coast at 600 to 700 miles. Still that is under the two hour mark.

For the Bombardier CRJ, the longest sector is four and a half hours between Edmonton to Los Angeles at 955 miles. The average sector for the CRJ700 is 625 statute miles, about two hours, and for the CRJ900 it is 610 miles.

Still, the vast majority of the fleet is flying in the one- to two-hour ranges. Even so, airlines are getting creative in connecting points that previously had no service or very limited service, usually over a hub. But as the industry continues to evolve, it is likely regional jets will fly a mixture of hub feed as well as point to point such as what Jazz is doing with Edmonton-LAX. Thus the reason RJs are being viewed differently today.