Regionals feeling the pain of systemwide service cuts

 - July 8, 2008, 10:01 AM

For the first time in recent memory the U.S. regional airline industry could experience a drop in passenger boardings during the second half of this year as skyrocketing fuel costs prompt the nation’s major airlines to reconsider the use of their partners’ most fuel-thirsty assets. Several of the country’s largest regional airlines have already begun to feel the effect, and at least one–Mesa Air Group–flirted with bankruptcy due to a partner’s attempts to pull out of a contract that engages the service of 34 regional jets.

Although Delta Air Lines cited Mesa’s failure to meet guaranteed completion rates for its decision to vacate the contract, a federal judge issued an injunction barring the move after Mesa argued that Delta’s own schedule changes forced the cancellations. Weeks later, Delta notified Pinnacle Airlines that it planned to dissolve their Delta Connection contract effective July 31. If that attempt proves successful, it would remove the nine Bombardier CRJ900s Pinnacle now flies from Delta’s Atlanta hub. Pinnacle vowed to “pursue appropriate remedies,” however, claiming that Delta’s unreasonable schedules caused the poor on-time performance that ostensibly triggered the termination notice.

Not only did Delta’s attempts to sever ties with Mesa and Pinnacle leave a cloud of uncertainty over their future with the Atlanta-based carrier, the fact that Mesa, for one, raised serious doubts that it could deploy the 34 airplanes elsewhere raised broader questions about the status of regional fleets throughout the U.S. in general.

In fact, based on recent announcements by a number of regional airlines, this fall will see a marked drop in regional jet and, in some cases, turboprop service, particularly on routes that do not feed a hub. American Airlines, for example, has said it plans to cut system-wide capacity by 11 to 12 percent and available seat miles (ASMs) at its American Eagle subsidiary by 10 to 11 percent in the fourth quarter.

The announcement came days after Eagle posted a 9.5-percent drop in revenue passenger miles in May, along with a 6.5-percent drop in ASMs. The resulting 2.4-point decline in load factor meant that Eagle filled just 73.1 percent of its seats during the month.

Plans for cuts to Eagle’s Caribbean network call for the airline to shift much of its ATR 72 capacity to Dallas from San Juan starting in September, and completely retire its fleet of 30 Saab 340Bs by the end of the year. From San Juan, Eagle plans just 33 flights in September, compared with its normal winter schedule of 55 daily departures.

It also said it plans to retire between 35 and 40 Embraer regional jets as part of a broader plan to draw down capacity in the continental U.S.

In fact, Embraer regional jets of another color face early retirement from the ExpressJet system as the Houston-based carrier plans some drastic cuts of its own this fall, including a complete withdrawal from Oklahoma City; Tulsa, Okla.; Omaha, Neb.; Bakersfield, Calif.; and Birmingham, Ala. Including reductions in frequencies to many of the cities in which it plans to maintain a presence, ExpressJet expects to cut capacity by 30 percent overall within its branded network.

Happily for ExpressJet, plans by its main code-share partner, Continental Airlines, to start cutting capacity by 11 percent starting in September won’t result in the grounding of any of its Continental Express regional jets for at least a year. That bit of positive news came courtesy of a new seven-year capacity purchase agreement ExpressJet signed last month with Continental that lowered the regional’s rates but guaranteed work for its fleet of 205 Embraer regional jets.

Although the contract allows Continental to withdraw 15 of ExpressJet’s airplanes after a year, it also released ExpressJet from various restrictions against entering code-share deals with other carriers.

For now, it appears also that ExpressJet’s new West Coast code-share deal with Delta Air Lines will survive plans by that major airline to cut 10 percent of its domestic capacity this year. In all, Delta has decided to withdraw between 60 and 70 regional jets from its network.

How and when it might effect the cuts among its various regional partners could well depend on the results of a planned appeal against the decision to force it to maintain its relationship with Mesa, however, and the outcome of any possible legal challenge
by Pinnacle.

A Delta spokesman told AIN that the company continues to evaluate its options and that it hasn’t decided from which regional airlines it would pull the rest of the 60 to 70 airplanes. So far this year Delta has concentrated on reducing capacity on point-to-point routes, and the spokesman said he expected that trend to continue.

Elsewhere, further plans to shed regional jet capacity will see Seattle-based Horizon Air replacing its 20 CRJ700s with Q400 turboprops over the next two years, while more immediate plans by the Alaska Airlines subsidiary call for a series of adjustments among various city pairs. Service cancellations on August 25 will result
in Horizon’s complete withdrawal from Butte, Mont., and the end of flights between Billings, Mont., and Portland, Ore., while frequency adjustments affect no fewer than nine other city pairs. One of the hardest hit includes Portland-Seattle, from which Horizon plans to shed five of its 31 daily flights.