Regional Airline Association 2008 Convention Report

 - June 9, 2008, 7:11 AM

A trip from the site of last year’s RAA annual convention in Memphis to the venue chosen for this year’s edition, held in Indianapolis last month, covers barely 450 miles, but the psychological distance the industry has traveled over the past 12 months seems more like light years. Granted, the skies had already darkened over the birthplace of Elvis and the blues last spring, but the conversation this year at a nevertheless busy Indiana Convention Center left no doubt that the so-called perfect storm had arrived.

“I’ve been around [the airline industry] for 35 years and except for maybe the days right after 9/11 this is the most challenging time that I can ever recall,” said RAA president Roger Cohen. One need only look at the RAA’s airline member rolls for a glimpse at the extent of that challenge. Now counting 40 airline members, the RAA last year listed 43.

Although some of the decline came from what Cohen described as “clean up” of the list–removing already inactive members from the rolls–this year alone the association has seen now former members Big Sky and Skyway Airlines go out of business. Those losses came after the industry saw non-RAA member Boston-Maine Airways lose its certificate for financial unfitness earlier this year and RegionsAir shut down by the FAA last year for inadequacies in its check airman program. Next to go appears to be Air Midwest, which parent company Mesa Air Group plans to shut down by the end of this year’s third quarter.

Added RAA chairman Bryan Bedford, “Look, we have to be honest. The market is at a new high again today [May 6]…$122 for oil. Airlines weren’t producing profits at $100 oil, so going to $120 is not helping. It’s a difficult time for the industry and all those who function in and around it. So regional airlines are not immune to the stresses of the current economy.”

Still, all the bad news of late didn’t dampen the mood among RAA staffers, who logged record sales of exhibit space–some 7 percent more than the previous year–and saw attendance approach 1,400 by the third day of the show. Regular visitors to these events, including Bedford, have seen plenty of economic peaks and valleys over the years, and the Republic Airways CEO knows as well as anyone that a return to industry health depends on establishing the conditions for growth during down times. Perhaps that fact, more than any other, made this RAA convention a momentous one, and Bedford’s May 7 keynote address reflected the critical state of affairs that so thoroughly colored the three-day event.

Airport Congestion Remains Biggest Challenge

Airing a laundry list of industry ills, starting with airlines’ ever worsening operational performance, Bedford cited a recent analysis of DOT data by USA Today that showed that the average airline passenger last year traveled gate-to-gate, including taxi time, at about 342 mph. A decade ago, that same passenger traveled at 358 mph. Last year, on average, said Bedford, a flight from Las Vegas to New York JFK took six hours and 10 minutes to complete. In 1988 it took four hours and 37 minutes.

“Airbus and Boeing have not been pouring their research dollars into developing slower-moving aircraft,” joked Bedford.

“These staggering numbers, along with outright cancellations, are symptoms of increasing congestion, and they are clearly a major drag on customer service.”

Most people attending this RAA convention would agree that the inability of the National Airspace System to accommodate growing demand for air travel stands at the root of the problem. In fact, said Bedford, “congestion-related delays were already becoming intolerable back in 2000. Not surprisingly, this coincided with the first major onslaught of lobbying for passenger bill-of-rights legislation.”    

Since then, Internet pricing and the spread of low fares have only accelerated the demand for air travel, and last year saw a record 770 million passengers board U.S. airlines. But an antiquated ATC system remains just that, leading to calls for demand management plans such as congestion pricing–to which the RAA has voiced absolute opposition (see AIN, May 2008, page 99).

To its credit, the association gave a platform on which proponents of the DOT’s recent ruling to allow so-called dual pricing mechanisms could argue their case during a May 6 panel discussion moderated by Delta Connection vice president Don Bornhorst. As the head of the only airport authority to vote to accept peak pricing in the event Boston Logan Airport’s recent runway expansion cannot keep up with demand, Massport CEO Tom Kinton expressed some frustration at the lack of progress toward any solution to the problem–in the Northeast particularly–in the absence of meaningful ATC modernization.

“There’s a problem when that goes on,” said Kinton, referring to the domino effect of delays in the New York area on the rest of the region. “There’s a huge cost to us and society when the system isn’t working. We’re not going to get out of the negative news headlines with these bad-news customer stories unless we do something about it. I’m not sure what that something is by the way, but let’s try something.”

Another, more confident supporter of congestion pricing implied that the airlines expose a double standard when they so adamantly oppose market-based pricing at airports. “The airlines are already capturing the rents from a scarce resource,” said Dorothy Robyn, principal partner in Washington, D.C.-based consultancy The Brattle Group. “I have a flight tomorrow at 11 back to Washington; I wanted to get on an earlier flight, but it was $590. So Air Wisconsin has figured out that a whole lot of people want to go back at 9 a.m. and jacked up the price. You know, there aren’t a lot of flights going out of La Guardia at 9 a.m. that have leisure travelers, so the airlines themselves are congestion pricing.”

Bedford, on the other hand, argued that airlines, in fact, “are not acting rationally” in their pricing policies, and that once ticket prices rise to the point where they can cover the astronomical cost of oil, demand will lower and capacity constraints will ease.

Manufacturers of the products who pay for the convention space hope that time never comes, although a new market forecast released by Embraer in Indianapolis recognizes that the U.S. no longer appears likely to account for more than half the world market. The forecast predicts a market for 7,450 jets in the 30- to 120-seat segment over the next 20 years, 45 percent of which will go to U.S. carriers. The forecast shows slow growth in the 50-seat market, particularly over the next 10 years, and a corresponding boom in the 91- to 120-seat segment.

Fellow RAA exhibitors Sukhoi and Mitsubishi expect to help satisfy that demand with their respective Superjet and MRJ, both prominently promoted during the convention’s lineup of product briefings. In fact, Sukhoi planned to fly the Superjet 100 for the first time by the end of last month after a six-month delay that Superjet International senior vice president Paolo Revelli Beaumont attributed to paperwork obstacles. Earlier reports suggested that engine testing delays forced Russian authorities to withhold approval for first flight. Sukhoi continued to quote a first-quarter 2009 delivery to launch customer Aeroflot, leaving no more than 10 months of trials for the program’s four flying prototypes.

Meanwhile, a contingent of Mitsubishi Heavy Industries executives marked that company’s first appearance at an RAA as Mitsubishi Aircraft Corp.–the new entity established specifically to market the MRJ70 and MRJ90 regional jets. Under the new structure, Mitsubishi Aircraft has assumed responsibility for aircraft design, procurement, sales and customer support, while Mitsubishi Heavy Industries builds and tests the airplanes.

Saab Aerotech appeared with Mitsubishi during a joint press briefing as a reminder of the two companies’ plans to establish a joint venture in which Saab would provide worldwide customer support for the new composite-fuselage, Pratt & Whitney geared turbofan-powered RJs. The sides signed an MOU in 2006 but remain in “extensive discussions” over financial and industrial details of a final contract.

Mitsubishi expects to fly the first MRJ90, an 86- to 96-seat jet, in 2011 and deliver the first production example to All Nippon Airways in 2013. Progress on the 70- to 80-seat MRJ70 lags by about a year, reported Mitsubishi Aircraft vice president of sales and marketing Yosuke Takigawa. Meant to sell for roughly $30 million, the MRJ90 has just entered its detailed design stage and remains on schedule for design freeze by next summer.