North America looks to turboprops

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North America was the birthplace of the 50-seat regional jet, but now as fuel costs make it an expensive little aircraft to operate, some carriers are looking at the new turboprop entries

They were, the conventional wisdom went just a few short years back, the saviour of the industry, guaranteeing the right size and just the right capacity for so many routes and markets. Now just over a decade later, the small regional jet with its 37, 44, or 50 seats is the weight pulling down so much of the industry, the gas-guzzling oddity that hangs on. And in North America, where these two views followed each other into common currency, the 50-seater faces a new challenge as airlines push capacity out of their systems in a bid to survive. In the USA and Canada, and indeed around the world, where markets have not yet outpaced the 50-seater, a new generation of propeller-driven aircraft has begun pushing the little RJs into second choice of equipment on precisely the type of routes that the 50-seat jet was supposed to make into goldmines.

chip childs

Chip Childs

Chief operating officer, SkyWest Airlines

"I can emphatically say the 50-seater is not dead. There are markets that are precisely the right size"

The 50-seater took off as a compromise of sorts: as public mistrust of turboprops grew, the carriers of North America needed a jet that would not run afoul of pilot contract limits on aircraft size, the so-called scope clauses, and one that would also be the right size for the budding USA-Canada transborder markets where the bilateral treaty still limited aircraft sizes. Teal Group analyst Richard Aboulafia says the 50-seater "was not an illogical concept, but was distorted by the market irrationalities of scope and the Canada border barriers. Now, with scope clauses relaxed and the US industry taking steps to rationalise ­capacity, perhaps it will revert to its original role." Gregory Aretakis, vice-president planning and revenue management at Midwest Airlines, insists that some carriers have lost sight of this original role: "These planes are feeders and were never intended to be anything more. But airlines bought so many of them that they had to put them someplace."

Now, the industry has seen scope relief in contract negotiations and in bankruptcy reorganisations, and it has seen the larger regional jets, the Bombardier CRJ700/900 and the ­Embraer E-Jet series, gain wide acceptance.

As a result, the 50-seater is now the highest cost per unit aircraft, says Aretakis. "It is highly sensitive to unit-cost changes, from fuel to labour to any other input," he says. Warren Kaplan, chief operating officer at Vision Aviation Holdings, says the Las Vegas-based carrier's turboprops burn one-third less fuel per hour than its jets, both made by Dornier.

Same size, higher costs
The challenge of spreading rising costs over a small unit of production is a case of the undesirable meeting the immutable. Although the majors in most cases have already agreed to pay the fuel bill for their regional partners, says Doug Abbey of Seabury Group consultants, someone still has to pay it. Abbey says the typical 50-seater's direct operating costs have gone up by more than 40% since 2003, and even though this is not significantly out of line with other aircraft, that increase must be absorbed by a small number of ­passengers - 50 at most.

The high cost of operating this size aircraft has been conveyed dramatically by recent attempts to fly 50-seaters in independent, branded flying as opposed to the traditional feeder service under contract with a major. The first, the FlyI venture of Independence Air, failed spectacularly in January 2006, after just 19 months of CRJ200 flying following the Washington Dulles-based carrier's split from United Airlines. An attempt by Houston-based ExpressJet to fly some 40 Embraer ERJ-145s that were freed up from its Continental Express business has created little other than losses and further scepticism. ExpressJet's most recent performance gives little reason for optimism because the branded operation showed a load factor of 56% for the year's first two months. That is 20 percentage points below its codeshare performance.

Even where the 50-seater is still a major fleet element, it is not valued. As Delta Air Lines president Ed Bastian says: "We've just got too many of them." In fact, Delta's Comair regional unit, the first big-scale user of the 50-seater, plans to park as many as 35 jets that it owns or contracts with others to fly for it under the Delta Connection banner. Delta has the largest US regional jet fleet.

Remaining faithful
But the 50-seater has its devotees. Skywest Airlines president Chip Childs says: "I can emphatically say that the 50-seater is not dead. There are markets that are precisely the right size for the 50-seat regional jet. We're placing them in service for our new Midwest operation. Yes, we're a little heavy on -200s but they can be ideal for coming out of a growing (former) turboprop market such as a CRJ flight we operate for Delta between Salt Lake City and Montrose, Colorado." Childs says Skywest also finds that the 50-seaters are just the right size for adding frequencies in markets that will later support the carrier's larger regional jets. Of course, Skywest has a huge investment in the 50-seater: it has 138 of them in service for Delta, United and Midwest. And ASA, a sister subsidiary of Skywest Holdings, has 112 of the 50-seat CRJs, and 12 ATR-72 turboprops, all with Delta.

Some carriers, because they hesitated to leap on the 50-seat scramble, have benefited from the delay. For instance, at Finnair, "the smallest we've ever had are our Embraer 170s at 76 seats", says Colin Molloy, the airline's vice-president for aircraft trading. Other carriers that stayed away from the 50-seat rush include Horizon Air, the regional affiliate of Alaska Airlines and a well-known brand in its own right. Marketing director Dan Russo says: "We never got into the 50-seaters. We had always had a strong turboprop element in our fleet and when we transitioned out, we went to the larger regional jets that were coming in. We have the CRJ700s, but no 50-seaters, but now, we are actively studying moving the entire Horizon fleet to a single type. The economic benefits of moving from a dual fleet-type are clear, and in the current fuel environment, the benefits of simplification may outweigh the flexibility of two types."

Back to the future
That single type, says Russo, may well be the Bombardier Dash 8 Q400 turboprop, which the airline uses on routes it had served with its old Fokker jets, without any noticeable loss of passenger acceptance.

If the turboprop wins at Horizon, the Seattle-based carrier will be joining a trend, a back to the future move that has seen propeller-driven aircraft begin to replace jets in both the hearts of passengers and the minds of managers. At Frontier Airlines, for instance, the same Q400 turboprop won out as the ideal aircraft for its new Lynx unit, a venture that links higher-yielding business and leisure destinations within a few hundred miles of its Denver hub. This twin-prop aircraft costs about 30% less per trip and has four more seats than a CRJ700, Frontier says.

Meanwhile, at Toronto-based start-up Porter Airlines the Q400 was also the hands down winner. Porter's founder Robert Deluce says: "The turboprop presented significant environmental advantages in a market like ours here in Toronto that is keenly sensitive to concerns such as emissions and noise." Porter operates from a close-in airport with very noise-aware neighbours.

At Pinnacle, a major RJ operator, the addition of the Q400 "has exceeded our expectation in every respect", says Pinnacle chief executive Phil Trenary. Pinnacle now uses the Q400 in its Colgan Airlines unit in Continental Express service at Newark Liberty International Airport, and Trenary says the aircraft's performance has been limited only by air ­traffic control's refusal to let it fly as fast and as high as it can. He says: "You can tell who is behind the radar screen by how the airplanes handle on that particular day. Some days they will go up and fly with the jets and come in on the short runway. The next day they may be held low and not be able to use that [crosswind runway]."

Turboprops are not a one-off phenomenon and are "certainly not limited to the Third World, as its presence at Newark proves. Its long-term future is likely as long as fuel rises long-term," says Abbey. Dash 8 operators say they are not concerned about the model's performance despite much-publicised landing-gear problems at SAS. Trenary has suggested the need for a larger Dash 8, a possible stretch in which UK-based Q400 operator Flybe has also expressed interest.

But for a carrier with many 50-seaters and no prospect of new turboprops, what is to be done? Mesa Air Group has tried two exotic ventures: a five-RJ operation in Hawaii called go! and a new venture in China. The Hawaii unit is considered by some just a place to use 50-seaters when no other territory can be found for them, but Mesa chairman Jonathan Ornstein insists that it is holding its own and has "long-term opportunities", although they may be with larger aircraft. He also insists that the Chinese venture has a future, although the four 50-seaters there may eventually be replaced by China-built jets. Mesa wants to take seven more of its 87 Canadian and Brazilian RJs out of its fleet by October, and Ornstein says: "We have basically, in a lot of respects, taken on a huge amount of costs to pull down these 50-seaters."

For others with hopes of foreign ventures, long-term lease and other ownership considerations often limit the offshore placement of many RJs, according to ExpressJet chief ­executive Jim Ream.

Seabury's Abbey is relatively confident that unwanted 50-seaters can be placed in the world market. "Remember when Independence tried flying 50-seaters under its own name and failed utterly. Most observers panicked about the market being flooded [with its aircraft]. It wasn't." In fact, Mexican regional start-up ALMA uses at least one former Independence CRJ, and Jorge de Lara, its executive vice-president commercial, has said the ­aircraft is the right size for its needs.

The market for regional jets
Pointing to one small bright spot, Mel Faucett, a Delta Air Lines fleet manager, says: "The 50-seaters can be sold. If you're looking for a smaller executive jet, you'd have to wait a long time, years in many cases, for something from manufacturers like Gulfstream. You can buy a 50-seater relatively cheaply and get its interior fitted up nicely for a ­reasonable total in a reasonable time."

Consolidation of the US industry, through long-anticipated mergers, could push even more of the 50-seaters out of the fleet. Bryan Bedford, chief executive of Republic Airways Holdings, the largest operator of the Embraer E-Jet family, says that the industry is over-supplied on small jets. He thinks that "if you put any of these network carriers together, you can make a very critical argument there could be as little as 50 and as many as 100 small jets that need to come out of the system".