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Why Are RJs So Profitable?  
User currently offlineJhooper From United States of America, joined Dec 2001, 6204 posts, RR: 12
Posted (10 years 7 months 3 weeks 2 days 1 hour ago) and read 4471 times:

We've seen many airlines convert many routes to regional jets. I'm wondering, what is the incentive for this and why are RJs so much more profitable than mainline jets?


Last year 1,944 New Yorkers saw something and said something.
23 replies: All unread, jump to last
 
User currently offlineFLYYUL From Italy, joined Jun 2000, 4980 posts, RR: 51
Reply 1, posted (10 years 7 months 3 weeks 2 days 1 hour ago) and read 4457 times:

They weigh loss, more fuel efficient, need less crew, shorter turn around times, and airlines can more easily control pricing with fewer seats. Fewer seats for sale, more high yield pax.

Mark


User currently offlineM404 From United States of America, joined Nov 2003, 2226 posts, RR: 5
Reply 2, posted (10 years 7 months 3 weeks 2 days 1 hour ago) and read 4421 times:
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Actually its the price of the help. They are usually not the personnel of the mainline carrier but instead are mostly part time and slightly above minimum wage. No unions on the property in the owners best scenario to even demand a 40 hour week. As far as acft wgt. goes yes that's true with lower landing fees but you still have less pax to divide costs between. They are used to start routes where traffic is not yet strong enough to support mainline. But passenger feedback is beggining to reflect a distaste for these pygmy jets and it probably will get many to switch to LCCs when available. On an actual seat mile cost basis versus a paid for DC9 or older B737 I doubt if its less and in fact probably more. The flight crews in many cases are still eligible for food stamps. It a way of getting around middle class labor.


Less sarcasm and more thought equal better understanding
User currently offlineBoingGoingGone From , joined Dec 1969, posts, RR:
Reply 3, posted (10 years 7 months 3 weeks 2 days ago) and read 4390 times:

Cost of the help on a unit basis is generally higher.

RJs benefit from:

Higher Yield Markets
Easier Yield Management
Higher Load Factors
Increased Aircraft Utilization

Going away for LCC... ROLMFAO....

You're only seeing the first generation of RJ's....

Wait until the second generation with better leg room and better seat width, I.E... ERJ's


User currently offlineMTChemNerd757 From United States of America, joined Feb 2004, 230 posts, RR: 2
Reply 4, posted (10 years 7 months 3 weeks 2 days ago) and read 4361 times:

I doubt customer satisfaction has anything to do with it these days..... Perhaps I'm alone in this sentiment, but I almost enjoy RJ's more than larger jets. Delta cut all service except for SkyWest CRJ-200's to Montana (except in Bozeman). As a result, our choices in and out of MT are almost exclusively DC-9s on NWA, Dash-8's on Horizon, United Express CRJ-200's, the CRJ-200's on SkyWest or drive to SLC or GEG. I have found that the CRJ-200's are pretty quiet, and not a royal pain getting on and off, as in larger jets, plus they're a little cozier. So regardless what the reason of increased RJ usage, I think I'm all for it.  Smile Also, they could make a nice replacement for those few remaining DC-9-10's and -20's out there....

Ciao!
Brad



Fight Terrorism - Ride a Bike!
User currently offlineNIKV69 From , joined Dec 1969, posts, RR:
Reply 5, posted (10 years 7 months 3 weeks 2 days ago) and read 4287 times:

I love them! I would take a ERJ-145 over a MD-80. They are so quiet and the ride is great!!

User currently offlineFlyingbronco05 From United States of America, joined May 2002, 3840 posts, RR: 2
Reply 6, posted (10 years 7 months 3 weeks 1 day 17 hours ago) and read 4117 times:

Easy. They pay the pilots with bread and water compared to the bigger planes.

FB05



Never Trust Your Fuel Gauge
User currently offlineSsides From United States of America, joined Feb 2001, 4059 posts, RR: 21
Reply 7, posted (10 years 7 months 3 weeks 1 day 16 hours ago) and read 4047 times:

They are more profitable because of a decline in quantity-demand numbers throughout the system. For example, if demand was 500 seats per day on a PHX-SLC route, then it made sense to have five 737s operate the route daily. When that demand falls to 250 seats per day, however, it's better (and more convenient to passengers) to operate 5 ERJs rather than 3 737s. You reduce your costs, maintain your yield, and still offer your good customers the same frequencies.

I doubt customer satisfaction has anything to do with it these days..... Perhaps I'm alone in this sentiment, but I almost enjoy RJ's more than larger jets.

Depends on who you're talking to. If you live in a place like SLC or CLE, where mainline aircraft were common, you generally hate the RJ (at least on longer routes). They are smaller, feel more cramped, and can't handle much carry-on luggage. If you live in a place like ABI or SJT, however, you love the RJ because it means you no longer have to deal with turboprops. Personally, I prefer the RJ to mainline aircraft on shorter routes, because boarding and deplaning are much quicker.



"Lose" is not spelled with two o's!!!!
User currently offlineFlyboyaz From , joined Dec 1969, posts, RR:
Reply 8, posted (10 years 7 months 3 weeks 1 day 15 hours ago) and read 4003 times:

They are cheaper to operate but oddly enough, the majors would NEVER have them in their mainline fleets because they won't make money. The cost per seat mile is very important to airlines and the RJ's have a fairly high one compared to a larger plane like a 737 or A320. This leads to higher fares. The cost of operating the planes is spread out more with a bigger plane, thus allowing lower fares.

I've posted this before, but I can guarantee you that these planes are NOT popular with the general flying public. In TUS, we get complaints daily about them. Mostly because our airport (jetways) is not setup for these smaller planes and we have to hard stand. People don't like having to climb stairs and walk across the ramp when it's 100 degrees out. But even when it's not hot, they don't like the cramped space and the lack of storage for carry on bags. Neither HP nor CO are willing to spend the hundreds of thousands of dollars necessary to upgrade the jetways.

I don't think the RJ trend will stay quite as large scale as it is now. For an example, this past holiday both CO and NW added mainline service to TUS...CO supplemented an ERJ with a 737 and added a nonstop to EWR. NW added an additional MSP flight and a nonstop to DTW. Even with the extra capacity, the flights were packed throughout the season. Obviously if they had left the schedule the way it was....we would have been grossly short on seats. As it was we had the most denied boardings ever. It would have made for a very sad holiday for people who #1 couldn't get on a plane and #2 had to spend all of their xmas money just buying a ticket to go home!


User currently offlineLTBEWR From United States of America, joined Jan 2004, 13116 posts, RR: 12
Reply 9, posted (10 years 7 months 3 weeks 1 day 15 hours ago) and read 3923 times:

One factor is that RJ's and similar a/c are often operated by the regional subs of majors, like American Eagle of AA where pilots get much less in pay, so a significant part of the ops cost is lower. RJ's let majors also operate to smaller cities, provide important in/out connections, or off time flights to make money on. Last Friday, I took a AA/Eagle flight LGA/DTW, at 9:00 pm, the last flight in the area to DTW as far as I knew. It was on a ERJ-135, and was maybe 1/2 full. Imange the per-seat-mile costs of that flight on a smaller 737 or Airbus. This was my first time on a 'jungle jet' and while it was quiet and had a better ride than a similar sized Turboprop, it was very tight inside, although you do get 1/2 seating set up for those want both an aisle and window seat or an aisle seat. They have very limited overhead room, and all of can guess what happens when a flight is fuller.

User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6197 posts, RR: 34
Reply 10, posted (10 years 7 months 3 weeks 1 day 15 hours ago) and read 3891 times:

The 50 pax RJ "boom" is mainly due to the ridiculous scope clauses. Two things mitigate against any significant increase in their useage: a) the 50 pax RJ market is saturated now, and b) as air travel recovers, RJ's will be replaced by larger equipment as Flyboyaz pointed out.

Another issue that could have a major impact on the decline of RJ's is if US Airways (and/or any other "major") goes Chap. 7. The resulting rationalization/consolidation will reduce competition and allow larger equipment to replace RJ's on many routes.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineElwood64151 From United States of America, joined Feb 2002, 2477 posts, RR: 6
Reply 11, posted (10 years 7 months 3 weeks 1 day 14 hours ago) and read 3827 times:

The cost savings of the RJ is an illusion. They actually cost more. The lower labor costs and lesser fuel consumption is more efficient. But efficiency does not equal profitability.

If you understand what I'm yabbering about, contact me. If not, contact me anyway, and we'll discuss it.

If you think I'm full of it, then ask yourself: Why aren't the airlines making money when all their costs are down, their revenues are up, and they're offering less capacity to better meet demand?

Flyboyaz: Your first paragraph is almost spot-on. You're very much on the right track. But CASM isn't the issue. As soon as I figure out whether or not I can go to 1st class membership (money being the issue), you're on my respected user's list.



Those who fail to learn history are doomed to repeat it in summer school.
User currently offlineRareBear From United States of America, joined Jan 2004, 553 posts, RR: 0
Reply 12, posted (10 years 7 months 3 weeks 1 day 14 hours ago) and read 3810 times:

Here at CHS the RJ is the dominant A/C type. I have flown them many times to ATL, DFW, IAD, ORD, IAH. I am 6'-3" and 240 lb, but I find them more comfortable than the MD-80 series. I positively hate that plane. I'll schedule around it if I can.




Illegitimus non carborundum
User currently offlineDesertJets From United States of America, joined Feb 2000, 7780 posts, RR: 16
Reply 13, posted (10 years 7 months 3 weeks 1 day 14 hours ago) and read 3768 times:

Another important thing to point out is that the 50 seaters are not being utilized like they were originally intended. This is largely the result of the current slump in the airline world. As generally envisioned RJs would replace turboprops on longer segments, suppliment some mainline destinations, and open up new markets not serviceable by turboprops or mainline equipment.

What we see happening now is mostly regional jets displacing mainline equipment. Such as the SLC-PHX example. Persumably as the airline industry turns around flights that were taken over by RJs would go back to mainline equipment and new destinations would open as the 50 seaters become available.

Now as for the 70-100 seaters coming onto the market, that is a topic for another discussion.



Stop drop and roll will not save you in hell. --- seen on a church marque in rural Virginia
User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6197 posts, RR: 34
Reply 14, posted (10 years 7 months 3 weeks 1 day 14 hours ago) and read 3749 times:

The relative importance of CASM to an airline depends entirely (obviously) on yield. So the fact that an RJ has higher CASM than a 737 doesn't matter a whit if the route does not support a 737. Alternatively, an RJ, with it's lower trip costs, can serve a route with higher frequency (that might otherwise support a single 737) and generate higher yields. It should be pointed out that ALL of the RJ operators are profitable whereas their "major" stable mates are not.


Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineBucky707 From United States of America, joined Aug 2000, 1028 posts, RR: 3
Reply 15, posted (10 years 7 months 3 weeks 1 day 14 hours ago) and read 3701 times:

RJ's have a higher CASM than mainline aircraft. But, they also produce a higher RASM. The key to the RJ is that you can shrink in a market, but keep frequency high to satisfy the higher paying passengers. In a mainline market with 4 737s a day, you have about 440 seats. They will pull the 737s out, replace them with 6 RJs a day, for 300 seats. Thats over a 30% drop in seats. Now, which seats do you think disappear......the cheap ones, or the higher fare ones?

User currently offlineElwood64151 From United States of America, joined Feb 2002, 2477 posts, RR: 6
Reply 16, posted (10 years 7 months 3 weeks 1 day 13 hours ago) and read 3658 times:

The relative importance of CASM to an airline depends entirely (obviously) on yield. So the fact that an RJ has higher CASM than a 737 doesn't matter a whit if the route does not support a 737. Alternatively, an RJ, with it's lower trip costs, can serve a route with higher frequency (that might otherwise support a single 737) and generate higher yields. It should be pointed out that ALL of the RJ operators are profitable whereas their "major" stable mates are not.

All is an infinitive. Right now, all RJ operators are operating routes at contract, keeping them profitable. If they were forced to operate in a market environment, we might see something a little different.

Also, you're partly right with your first point about CASM being higher than a 737. HOwever, you're not right about RJs and their lower trip costs. Things are relative, not definitive.

Keep thinking. There's a lot of understanding so far...

RJ's have a higher CASM than mainline aircraft. But, they also produce a higher RASM. The key to the RJ is that you can shrink in a market, but keep frequency high to satisfy the higher paying passengers. In a mainline market with 4 737s a day, you have about 440 seats. They will pull the 737s out, replace them with 6 RJs a day, for 300 seats. Thats over a 30% drop in seats. Now, which seats do you think disappear......the cheap ones, or the higher fare ones?

Actually, with most airlines, you're capacity has dropped from around 480-520 seats (120-130 seat 737) to 300 to 420 (50-70 seat RJ). That's a drop to anywhere from 12.5% to 43%. But did your costs really drop that much? Sure, the individual flight's costs did... What about other costs? Did they drop?

You're thinking correctly, but you're not thinking completely.

Depending on demand, RJs make sense. But there are many areas where RJs are being employed where they're not suitable...

Enough of me for now...



Those who fail to learn history are doomed to repeat it in summer school.
User currently offlineFlyboyaz From , joined Dec 1969, posts, RR:
Reply 17, posted (10 years 7 months 3 weeks 1 day 12 hours ago) and read 3571 times:

Thanks Elwood, I appreciate that!

I like the idea of sending the planes to new markets....I've been asking for a couple years now...where all these little planes are going to go when more capacity is needed. Hopefully it will happen sooner than later.  Smile


User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6197 posts, RR: 34
Reply 18, posted (10 years 7 months 3 weeks 1 day 12 hours ago) and read 3543 times:

Flyboyaz:

"HOwever, you're not right about RJs and their lower trip costs."

Please explain how an RJ does not have lower trip costs vis a vis a 737? Last time I checked EVERYTHING about a 737 was more expensive than an RJ! We are talking trip costs here, not CASM.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineElwood64151 From United States of America, joined Feb 2002, 2477 posts, RR: 6
Reply 19, posted (10 years 7 months 3 weeks 1 day 11 hours ago) and read 3478 times:

Planemaker:

I miss-typed. RJs have finite lower trips costs, yes. However, I contend that RJs operate routes less profitably.

I have not fully worked out the details, and I need more information to prove my point. However, when I have done so, I will publicize it.



Those who fail to learn history are doomed to repeat it in summer school.
User currently offlineOkie From United States of America, joined Jul 2003, 3047 posts, RR: 3
Reply 20, posted (10 years 7 months 3 weeks 1 day 11 hours ago) and read 3456 times:

I think Bucky707 is right on there.
Supply and Demand
The cheap seats will disappear when there is not an over abundance of seats.
Its called yield.


User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6197 posts, RR: 34
Reply 21, posted (10 years 7 months 3 weeks 1 day 11 hours ago) and read 3438 times:

Elwood6451:

I contend that RJs operate routes less profitably.

Compared to what? That is the question. If on any given route you are flying only 50 pax, then the RJ will always be more profitable than any other jet. Period. In fact it will be more profitable (or if the RASM is below CASM, less costly) up to the point that the pax load on the 737 (or 717 etc) passes the breakeven load factor, and depending upon the airline that could be from 70-80 pax.

BTW, not ALL RJ operators are operating under contract - Comair, ASA, Eagle, etc.) But it is immaterial that some RJ operators are under contract because the bottom line is that the mainline would not be able to operate those routes as cost effectively. Otherwise, the mainline would obviously be flying those routes.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineFlyboyaz From , joined Dec 1969, posts, RR:
Reply 22, posted (10 years 7 months 3 weeks 1 day 9 hours ago) and read 3370 times:

I don't remember typing that actually Planemaker..hehe., I do agree they have lower trip costs. That is the main reason why in TUS we have dual departures instead of one large plane. Of course I came back with, if the RJ's trip cost is half that of the mainline, how do we save money by running 2 small ones if that would cost the same as one big one. We've come to the conclusion that they had better use for our planes elsewhere.

User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 6197 posts, RR: 34
Reply 23, posted (10 years 7 months 3 weeks 1 day 9 hours ago) and read 3348 times:

Sorry, I ascribed the quote to you but Elwood 'fessed up.

FYI, even though the two RJ flights cost more than the single 737 flight, because of the choice of departure time on the RJ's (known as quality of service) you typically have a higher yield since you capture more full fare (i.e. walk up) pax than on a single frequency. Please note that I said typically, since an airline may choose not to capture the higher yield for a variety of strategic reasons.



Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
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