United Express ASMs To Grow By 23%

United Airlines [UALAQ] is finally beginning to talk about its post-bankruptcy flying plan. While the airline wants to increase its profitable international flying, it plans to increase the use of its regional code-share partners as it reduces mainline domestic flying.

As it has for much of the time it has been in bankruptcy, United is shedding little light on its new operating plans. In making its announcement earlier this month that it would reduce domestic capacity while increasing international capacity, it said little about the role of United Express.

"We will switch some routes from the mainline to United Express flying," said spokesman Jeff Green. "We have not determined the routes. When all is said and done there will be a 23 percent increase in United Express ASMs (available seat miles). The overall domestic mainline decrease will be 12 percent and mainline international will increase by 14 percent. The total system decline will be 3 percent of capacity."

The industry has been left guessing as to just what United's plans are for the regional carriers.

The consensus seems to be that United already built much of this new capacity into the system when it signed new contracts last year. It just never cast the information in the same light before.

"It has been built into the system, but there are modifications going forward," said Ray Neidl, an analyst with Calyon Securities.

Currently United Express has 207 planes in its fleet. Raymond James analyst James Parker estimates that United will need 266 planes next year to meet the increased route assignments. It may need an additional 37 planes beyond current the commitments from its code-share partners, he said.

Both SkyWest Airlines [SKYW] and Chautauqua Airlines, a unit of Republic Airways [RJET], placed substantial orders for new jets, mostly 70-seaters, last year when they signed new code-share contracts. The bulk of the new jets are due next year.

Upon hearing the United announcement, SkyWest has assumed it is a "reiteration" of previous announcements to devote more of its capacity to regional flying, said spokesman Philip Gee. By the end of next summer, SkyWest will be flying 147 planes in the United Express family, up from the current 125. SkyWest is scheduled to receive 22 new Bombardier [BBD] CRJ 700s over the next 12 months. Gee said there are a large number of planes, both CRJ 200s and CRJ 700s, that are optioned pending future United route assignments.

"At this point we are just planning on taking those aircraft we have on firm orders. The process through bankruptcy court is tedious. Whether or not we do get additional flying is probably up in the air. It would need to go through the bankruptcy court before coming to us," Gee said.

Chautauqua has placed 23 firm orders for the Embraer [ERJ] 170 to be used for United Express. It has 31 options for additional Embraer 170s. Chautauqua officials could not be reached for comment.

Neither of United's other two major code-share partners, Mesa Air Group [MESA] and Air Wisconsin, have firm orders for 70-seat aircraft that will be devoted to their United contracts.

"We are always in discussions to do more," said Mesa CEO Jonathan Ornstein. "As the low-cost producer of regional jet ASMs, there will be opportunities for Mesa. Given the uncertainty in the marketplace, I think all the majors are holding off making adjustments."

More than one industry insider suggested that United is delaying a firm commitment for additional RJ capacity to see if US Airways [UAIRQ] liquidates. A switch to a Chapter 7 bankruptcy could potentially free up 22 Embraer 170s already delivered to MidAtlantic Airlines, a US Airways subsidiary. Another suggested that United has its eyes on the CRJ 200s currently flown by Independence Air [FLYI] as some in the industry continue to bet the low-fare reincarnation of Atlantic Coast Airlines will soon fail.

"You can't build a business plan based on someone going out of business," said Doug Abbey, an aviation consultant with The Velocity Group. Instead of actually acquiring a number of new planes, Abbey said United might be shifting its planes from shorter routes to longer routes which would result in more flown ASMs. "It is probably a combination of longer stage length and additional units."

As part of the shift in mainline flying to regional flying, United said it plans to trim four aircraft types from its diverse fleet. There is speculation that United will retire all of its Boeing [BA] 737s, said Kevin Schorr, the research director at the aviation consulting firm of Campbell-Hill. "There are probably markets that don't need a 120-seat 737 any more and would do much better with 50-seat or 70-seat aircraft."

>>Contacts: Jeff Green, United, (847) 700-5770; Ray Neidl, Calyon, (212) 261-4057; James Parker, Raymond James, (404) 442-5860; Philip Gee, SkyWest, (435) 634-3547; Jonathan Ornstein, Mesa, (602) 685-4001; Doug Abbey, Velocity Group, (202) 338-1727; Kevin Schorr, Campbell-Hill, (703)836-1283.<<