ANALYSIS: Europe's regional airlines must adapt to survive

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Since the global financial crisis hit in 2008, Europe’s regional airlines have endured tough conditions. Overall growth, in terms of number of flights for all airlines, has remained relatively flat, and market share has been won by the continent’s low-cost carriers and by eastern rivals such as Aeroflot, Pegasus and Turkish Airlines.

However, what those carriers have gained has largely been at the expense of western and central Europe’s legacy carriers rather than its regional airlines, says Marc Lamidey, former president of the European Regions Airline Association (ERA). Delivering his outgoing address as president during the ERA’s general assembly in the Austrian city of Salzburg on 3 October, Lamidey said the association’s members retained a steady market share of around 16% of intra-European flights over the past five years, supplying 5% of the available seats.

"Our members carry 60 million passengers each year on over 1.3 million flights, collectively. We are not a small industry,” he says, adding that ERA members' load factors "show a story of resilience and flexibility".

A regional success story that appears to endorse Lamidey’s views is Aer Arann. The Irish carrier's "key parameters" are "showing positive movement", says chief executive Seán Brogan.

Referring to the turnaround undertaken since the airline was forced to restructure under court protection in autumn 2010, he says: "Two years ago, we found ourselves in a very difficult position. We’ve managed to come out of that, and in two years we’ve restructured the business."

Brogan adds that "it’s all good news at the moment" for Dublin-based Aer Arann, citing 50 new jobs created earlier this year. "We’re going to carry something in the region of 1.2 million passengers, which is a record number for us. August was a record number in terms of passengers too," he says.

He says Aer Arann’s load factors "are up seven or eight points, which is significant in the regional market", and he attributes much of this improvement to "the hub and spoke model that Dublin offers the UK passenger travelling to the USA".

But Lamidey, despite his belief in the industry, accepts that the outlook is "much rockier" than it was prior to 2008, when life for Europe’s regional carriers was "more stable, steady and predictable".

Peter Morris, chief economist at Flightglobal consultancy Ascend, sees the regional industry’s issues as "driven by aircraft economics… and by competition", and only getting worse.

He says that "step jumps" in the narrowbodies used by Europe’s other short- and medium-haul carriers have enabled both to counter high fuel prices during the crisis. Morris says that from the McDonnell Douglas MD-80 to Boeing’s 737-400, then the 737-800, "and now the jump to the 737 Max", significant efficiencies in fuel consumption have been realised. This is mirrored in Airbus’s products.

"The difficulty at the heart of the regional problem is that they’ve had a bit of a jump from the older [Bombardier] CRJ to, say, the Q400, but then what?" he asks, adding that Mitsubishi’s MRJ, Bombardier’s CSeries and Embraer’s re-engined E-Jet E2 will provide regional carriers with newer, more fuel-efficient aircraft, "but that’s all to come at some point in the future. Fighting the day-to-day battles that the regionals have to, they have one less weapon in their arsenal than the other guys, and you see the consequences in terms of the [diminishing] numbers of players in the market."

The problem in getting access to fuel-efficient regional aircraft was highlighted in August, when Mitsubishi Aircraft delayed the first flight of the MRJ regional jet by 15 months. While launch customer ANA is due to get its first delivery in 2017, Mitsubishi is is not yet willing to confirm when customers Trans States Holdings and SkyWest Airlines will receive their aircraft.

When US-based SkyWest ordered 100 MRJ90s, taking an additional 100 options, in 2012, it said that availability of the MRJ regional jet in 2017 was a reason it chose the aircraft.

Meanwhile, plans for a 90-seat turboprop seem no closer to fruition. ATR chief executive Filippo Bagnato said at the ERA event in Salzburg that the decision is in the hands of the manufacturer’s shareholders Alenia Aermacchi and EADS. Similarly, Bombardier has made no decision on a 90-seat version of the Q400.

Regional airlines may even face low-cost carriers playing them at their own game, as Embraer foresees demand for its aircraft from low-cost and legacy airlines as well as their regional counterparts. The Brazilian manufacturer's chief commercial officer John Slattery says: "We absolutely believe you’ll see not only low-cost carriers but other franchise operators complementing larger aircraft with smaller aircraft."

However, Morris does see positive signs for Europe’s regional operators: "The main low-cost carriers are getting bigger and bigger and, to a certain extent, are beginning to run into the issues the bigger mainline carriers have, in that you can’t just turn the battleship round overnight."

In this respect, he adds, "someone who’s got 10 to 12 aircraft can do things very quickly, so that flexibility is key to what they can offer".

This view is echoed by BMI Regional chief executive Cathal O'Connell. "The future of regional airlines is never rosy," he says. "You talk to a regional airline and they all see their challenges. We know ours: we see the economy, we see markets, we see competition. For me, it’s a question of identifying where our strengths lie and playing to those, to make sure we don’t go into markets which aren't suitable for us as an organisation. We recognise what we can do and what we can’t.”

Ultimately, the strategies of Europe’s regional airlines need to change radically if they are to reverse their fortunes, says Air Malta chief executive Peter Davies. "There has to be a paradigm shift, or we’ll keep going from one disaster to another," he says. While "fuel is being quite kind to us [airlines] at the moment", a lot of regional airlines could struggle if prices rise significantly, warns Davies.