50-seat economics

On September 1, 2010, Delta and Comair announced the regional carrier was going to remove the majority of its 50 seat aircraft, dramatically downsizing the airline and the number of employees. The immediate questions one might ask are, what happened that took the 50 seater from being one of the most popular airplanes in the fleet to being such a hot potato, and what does that mean for the rest of the nation’s fleet of small jets?

The answer to the first question is two-fold. First, when the Canadair regional jet was introduced the price of oil was around $15 a barrel. As I write this, oil has closed at $74 a barrel, almost a five-fold increase in cost. Meanwhile, ticket prices, in real dollars, are still at 1984 levels. On the labor front, pilots at many regional airlines have begun to accrue enough seniority that they are getting paid salaries that managers never anticipated paying in such numbers. But make no mistake, the biggest problem is the cost of fuel. Back in 2000, a 50-seat RJ could break even with only half the seats occupied, while commanding a price premium over slower, noisier turboprops. Now, the load factor required to make money is substantially higher. And there are still only 50 seats to use to produce revenue, and almost every major airline has an RJ feed network. Delta has responded in part by limiting the segments of the CRJ 50 seaters to 750 miles or less, which is both a nod to passenger comfort as well as to the reality of the airplanes’ new, reduced earning power.

The second half of the equation is airframe age. The CRJ was build with a designed life time of 80,000 hours and/or 80,000 cycles (takeoffs and landings). The oldest segment of the fleet is now half way to that number, and is due for some very expensive and intensive maintenance procedures on the airframes and engines. In fact, they are due for a total tear-down. While this would effectively mean that the airplane would come out of the shop as good as new, it is extremely expensive at almost $2 million per aircraft. Delta, in the end, did not feel the cost was justifiable, and they made the decision to park the airplanes. Considering the larger RJ models available from both Bombardier and Embraer do not cost that much more to operate while providing both more seats and longer range, it’s a decision that, from a business standpoint, makes sense.

The downside is that Comair will be furloughing every first officer in the company between April 2011 and December 2012. That’s right: Every single pilot at Comair come January 2013 will have been (or had the seniority to be) a captain. The most junior captain will have more than twenty years of service, and the most junior first officer is likely to have been there for fourteen or more years.

So, what does this mean for other 50-seat operators? The fact is they too will have to make a decision in the near future about whether or not refurbishing their current fleets makes economic sense. Because of that, American has been trying to sell its Eagle operation, and Continental has in recent years spun off Continental Express and allowed Continental Express to try some branding of its own. The largest RJ operator in the country will soon be Skywest, and they will not be exempt from making some hard decisions as well. Bomardier no longer produces the CRJ line, and the new C-series has not yet flown. The question will be whether or not Bombardier can get the C-series into production in time to fill the voids, not just as Bombardier sees them, but as the airlines do. Time will tell. And of course all bets are off if fuel prices begin to climb again.

–Chip Wright

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