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Regional Bubble About To Burst?  
User currently offlineapodino From United States of America, joined Apr 2005, 4500 posts, RR: 5
Posted (5 years 10 months 1 week 8 hours ago) and read 2349 times:

I stumbled across the following ATW article from a couple of months ago.


This article made me think about a few things that would lead me to get out of owning stock in regional airlines.

1. Aside from Delta, every carrier that is flying that uses regional partners (save maybe AS), is currently in negotiations with pilot unions over new contracts. The number one priority for most of the pilot unions is protection of scope, or tougher scope. And CO and UA are about to merge, and you know that the Unions will want the CO scope protected.

2. The economics of 50 seat RJ's still don't make a lot of sense, and there are still too many of them flying.

3. Regional outsourcing is becoming less economical to the operating carrier. As this article states, only UA and AS make money off of their express flying. And someone pointed out that although they keep saying the shift to regional flying was because of lower costs. In reality, mainline CASM are less than what they pay the express. At UAL, the express operation very rarely is cash flow positve. It's about "frequency" and outsourcing.

4. As contracts become amendable, it becomes harder and harder for established regionals to keep costs down. This is what propelled RAH into the powerhouse it is, and also part of what drove MAG into chapter 11, but it has prevented companies like Air Wisconsin from gaining additional flying, and it has also put other regionals such as Business Express and Atlantic Coast out of business, and that was before the RJ boom.

5. With a democratic congress there will be increased scrutiny, as well as possible legislation geared toward the way regionals are operated. Congress this week passed a law requiring even F/O's to hold an ATP certificate. Good bye 500 hour wonderkid.

1 replies: All unread, jump to last
User currently offlineJBo From Sweden, joined Jan 2005, 2513 posts, RR: 1
Reply 1, posted (5 years 10 months 1 week 8 hours ago) and read 2260 times:

I think it's possible that we may see some of the smaller regionals go by the wayside and the industry condense/consolidate into fewer, larger companies.

I also would not be surprised if regional contracts eventually evolve away from the mainline carriers taking on most of the costs towards the regionals themselves taking on more of the expenses.

Some of them are large enough to function and survive with more independent operations, such as SkyWest.

Others may likely struggle and fall apart.

I'd take the awe of understanding over the awe of ignorance any day.
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