SkyWest (SKYW) and Republic (RJET) predicted the regional industry will consolidate naturally by the lowest-cost, highest-quality performers increasing their market share in the future. Mesa (MESA), however, indicated that consolidation would come both naturally and through mergers.

"Consolidation in the regional space is, I think, a tough thing to do and I'm not sure it makes a lot of sense," said SkyWest CEO Jerry Atkin, flippantly suggesting that the consolidation would come down to the SkyWest, Republic and Mesa within the next five years. "I know there's a lot of stories with the majors but I don't think that necessarily translates to the regionals. I think there will be consolidation of those who are doing a better job. They will increase their market share so it will happen more naturally than by mergers."

He indicated that consolidation among the majors would likely be good for regionals since it would not result in less of a need for regional feed. "We've been in a situation where our partner reduced its hub which created more need for our services, not less," he said. "It is a matter of getting the size matched to the market well. In fact, I think consolidation might increase the need for regional jets."

Republic's Bryan Bedford agreed but indicated that more business would probably come from the fact that the majors have missed their capital replacement cycle for the narrow- body fleet with 1,100, 25-year-old aircraft in need of replacement over the next decade. It is likely that with the multi-billion capital costs, some will go to regionals, who can finance at much lower rates than the majors, he said.

"Some natural portion of that capital replacement is going to come with the larger regionals," he said. "The oldest RJs will need to be replaced over the next 10 years as well and that amounts to about 1,400 50-seaters. You may not see a growing of those units but an increase in gauge. If we position ourselves well, we should have better than our market share growth rates going forward."

As for the impact of legacy consolidation, Bedford indicated that anything that makes a partner stronger and more competitive is good for regionals. "It won't eliminate the need for regional aircraft," he said. "It may slow growth. Regionals have followed a predictable growth rate, increasing dramatically when the legacies are in financial stress. We have the support today that allows more hand offs to the regionals. Some regionals are more efficient, some are less. If you cull the heard it will be the higher-cost regionals that will go."

Bedford said his airline had the distinction of going through every bankruptcy workout except Northwest (NWACQ) and between 2000 and 2006 revenues rose from $150 million to over $1 billion. "Of course we took our costs down over 50 percent.," he said.

Mesa CFO Peter Murnane said consolidation is a good thing, making the regional industry stronger and able to present a united front.

Atkin said SkyWest, while not interested in the corporate market, is aggressively pursing opportunities both in and outside the U.S. He spoke in response questions about airline plans as to whether its cash position at $850 million presents an opportunity to make a return to shareholders. He indicated SkyWest would, were it not in a growth cycle and pursuing these opportunities as well as the outstanding RFPs.

Murname predicted Mesa would end the year with $300 million in cash, depending on how voracious it gets with its stock repurchase plan. Mesa is looking at non-aviation opportunities but perhaps ancillary businesses that in some way leverages its current and future positions. Mesa is also pursuing growth with the legacy carriers as well as expanding geographically, as it did recently with its deal with Shenzhen Airlines to launch regional service in China.

The three regional executives indicated, in response to a question, that both the Embraer (ERJ) and Bombardier (BBD) regional jets had a place in the market depending on the mission. The CRJ, they said, had a cost advantage in thinner markets, while the more spacious ERJ is better on more competitive, business markets.

Bedford said in response to a question on corporate shuttles that it already has four aircraft on such missions but the problem was that the contracts are generally short term at one to two years to have a long-term investment such as an aircraft devoted to it. "I'm not sure we want to make that a substantial part of our business. He noted that his capacity on the airline side was sold out thorough the first half of 2008.

As for scope, Bedford said whether the 100 seaters are off limits to regionals is unclear. "During this cycle the scope limit was raised to 90 seats with USAirways (LCC) and for others to 76 seats," he said. "The next cycle will come and, when it does, we'll have to see where the lines of demarcation are set."