The small regional jet has become firmly established as a significant competitive weapon for feeding the North American majors' hubs.

If all the regional jets now on order and option by US carriers were delivered tomorrow, the collective number of seats would exceed that provided by all the regional turboprops in service today. This begs a fundamental question. Do America's regional airlines anticipate that passenger traffic will actually double - or better - in order to justify this buying binge, or is the industry simply repositioning itself to reflect maturity?

Like most truths, the answer lies somewhere in between. With almost 25 years of operating experience in one of the most competitive of markets, US regionals have continued to reinvent themselves and, in doing so, have earned a place as the country's short-haul air service specialists. Fundamental to the development of the industry since the early 1990s has been the availability of the small-capacity jet - an aircraft built specifically for the regional's operating environment. With nearly 140 of these jets in service with nine carriers, a comprehensive review can be made of their impact on US air service. Evidence suggests that the bullish order book may be not only justified, but might perhaps represent just the beginning of what will be the inevitable transition from a predominantly turboprop fleet to one marked by a jet majority.

Few would dispute the value of the Comair example in validating the regional jet concept in the US marketplace. Indeed, the emergence of Delta Air Lines' Cincinnati hub as a viable competitor to stalwarts such as Chicago/O'Hare and Pittsburgh is a direct result of Comair's contribution.

Similarly, there is little doubt that Air Canada's recent success has been due in large measure to new crossborder route opportunities that came about because the airline had the only appropriately sized jets. Few of its competitors have been able to develop an equivalent array of transborder schedules. But the Comair and Air Canada operations also represent anomalies. With more than 1,000 regional jets on order and option in the US alone, it is critical to realise that drawing optimistic conclusions for other operators based on these examples may be inappropriate.

Unlike many other codesharing regionals, Comair is a public company which, despite a minority ownership by its marketing partner Delta, continues to operate as an independent company. Delta historically has allowed its regional affiliates to operate schedules highly complementary to its own flights, a practice only recently adopted on a large scale by other major carriers. Also, being among the first of the regional jet operators, Comair was in a unique position to accrue all of the new passenger traffic stimulated by the introduction of new-generation aircraft at many cities. Finally, with a fleet of almost 80 Canadair Regional Jets, Comair is a mature operator of the type.

Air Canada's successful regional jet operating experience - especially in transborder markets - is also unique. Under the US-Canada open skies air service agreement signed in February 1995, Canadian carriers immediately gained the rights to serve any city in the US without restriction. Unlimited access to Canada was also granted to US carriers, but with the important exceptions of the three largest markets of Montreal, Toronto and Vancouver, where open access has been phased in over three years.

Over that period, Air Canada increased its transborder service from 14 cities and 650 weekly flights to 42 cities, 1,300 weekly flights and 72 routes. Among those destinations that gained a nonstop service from Toronto were Charlotte, Cincinnati, Kansas City, Milwaukee, Nashville, Pittsburgh, Raleigh-Durham, St Louis and Washington National. Successful beyond almost all expectation, Air Canada's financial turnaround has been synonymous with its regional jet operations on such routes.

Air Canada has not seen success everywhere, however. If ever a case study existed on the competitive merits of flight frequency, aircraft capacity, and marketing and promotional campaigns - and their impact on passenger loyalty - the Cincinnati-Toronto route would rank near the top. This is Comair's largest passenger market, and the carrier transported over 200,000 people between the two airports in 1996 on no fewer than eight daily roundtrips - all of them on CRJs. Building from scratch in 1984, initially with turboprops, the carrier developed the market in a competition-free environment. The market was so strong that passenger traffic more than doubled between 1993 and 1996, by which time regional jets had been introduced.

In November 1997, Air Canada introduced four daily flights on the same route using its own CRJs. As an incentive, it offered triple bonus frequent flier miles. Comair responded the same day with a triple bonus offer of its own. But within two months it was obvious that Air Canada was not going to attract enough defectors to make its service viable. Comair's greater frequency - more than double that of its competitor - was keeping passengers loyal.

In an effort to create a better mousetrap, Air Canada announced that it would serve a meal on every flight - a radical offering on a 407-mile route. But in April this year, Air Canada conceded what many industry observers had believed was inevitable: the power of the Delta/Comair hub and the nine-versus-four flights was too strong. Air Canada discontinued its service.

Further evidence of the might of the combination of Comair, Cincinnati and the regional jet is seen in the competitive responses of two other regional carriers - American Eagle and Continental Express. The regional jet war took off in earnest in December 1996 when Continental Express received its first Embraer ERJ.145s. As a wholly-owned subsidiary of Continental Airlines, this was the first regional jet service to be offered by a US major. The airline has a contract for 50 firm and 150 option aircraft. Continental Express' choice of regional jet routes, 18 months on, offers valuable intelligence on how small jets will reshape air service between many US airports.

By early 1998, 23 ERJ.145s were providing revenue service for Continental Express from its hubs at Cleveland, Houston and Newark. Of the 26 city-pairs served, the average stage length is 471 miles. The longest is the 725-mile route between Newark and Milwaukee and the shortest is 115 miles between Newark and Hartford. Newark-Milwaukee is one of 11 market pairs that were not served by either Continental or Continental Express as recently as two years ago. Houston is now connected to four such points - Amarillo, Lubbock, Tampico and Wichita; Cleveland to two - Raleigh-Durham and White Plains; and Newark to five - Cincinnati, Halifax, Milwaukee, Ottawa and Savannah.

The ERJ.145s have replaced Continental Airlines' large jets on only six routes and, in most of them, the regional jet's smaller capacity has allowed Continental to upgrade from a single nonstop flight using a Boeing 737 to multiple daily frequencies. Examples include the routes from Cleveland to Minneapolis-St Paul, and from Newark to Dayton and Louisville. The ERJ.145s also provide complementary service with Continental's McDonnell Douglas DC-9s and MD-80s on five other routes.

In May, Continental Express ordered 25 firm and 50 option ERJ.135s, the 37-seat little brother of the ERJ.145. The order will enable Continental Express to become the first large US regional airline to operate an all-jet fleet. According to Jerry Losness, chief operating officer at Continental Express, that goal should be achieved within five years.

Indeed, if Continental exercises all of its options, it will have around a quarter of the more than 43,000 regional jet seats potentially to be operated by the entire industry. Losness says that the key role of the ERJ.135 will be the replacement of turboprops on existing routes rather than the development of new markets. At Cleveland in particular, where 19-seat Beech 1900Ds are currently used, the regional jets will gradually replace the turboprops while frequency is increased and schedules are massaged to improve connections with Continental Airlines services. This way, Continental Express hopes to grow its 19-seat routes to support the more expensive 37-seat jet. However, Losness says the airline will retain the 1900Ds for as long as they are needed.

American Eagle, meanwhile, has made public its initial deployment plans for the 50-seat ERJ.145s and 70-seat Canadair CRJ-700s it ordered in 1997. Chicago/ O'Hare - not Dallas-Fort Worth - was the starting point on 15 May when the airline put its first four ERJ.145s into service. Parent company American Airlines has acknowledged that Chicago was chosen because '. . . the competitive threat in the midwest is greatest, with Comair CRJs operating from Delta's nearby Cincinnati hub to 65 per cent of the markets served from O'Hare by American/American Eagle.' The airline goes on to admit: 'Customers tend to prefer jets over props, so regional jets at O'Hare are a must for American Eagle to remain competitive in the midwest.' The launch routes are from Chicago to Cincinnati, Cleveland and Milwaukee, with prime focus on the first two. Cleveland, it should be noted, is also Continental Express' largest regional jet hub.

But Peter Pappas, senior vice-president of planning at American Eagle, explains that there were other compelling reasons to begin jet service at Chicago. 'We felt from a corporate standpoint that we needed to help American Airlines in its battle with United Airlines at Chicago,' he says. 'Ours will be a premium jet service configured so that the business passenger should find it very attractive. There will be all-leather seating with a stand-up coat closet.'

The six or seven daily flights to Cincinnati and Cleveland will be timed to marry with American's schedules, focusing particularly on connections for international flights. 'It's not really the regionals that are competing with one another. It's really the majors themselves that are in competition. We are there because American needs us to be there,' says Pappas.

Indianapolis and Columbus will be the next American Eagle regional jet destinations - where they will replace existing turboprop service - followed by Duluth, Fayetteville, Montgomery and Shrieveport, which are all new markets, in the summer. American Eagle's ERJ.145s, which it will receive at a rate of two a month over the next two years, will enter DFW and New York/JFK next year.

American Eagle is now considering its 30-seat jet options and says it is in discussions with Embraer and Fairchild Dornier. A decision is likely this summer. 'We see a lot of new market opportunities for the 30-seater out of Dallas, in particular as a replacement for our smaller turboprops,' says Pappas.

Critically, as with Continental, American's regional jets are flown by a subsidiary that operates separately and distinctly from the major, even though in each case the marketing strategies of major and regional are clearly linked. That distinction, of course, has become a highly contentious matter among the pilot union groups of the major carriers. By contrast, Midway Airlines is unique among US regional jet operators in that its 50-seat CRJs are flown by the same pilots who also fly Airbus and Fokker jets. Midway's scheduling is a useful case study in the effective use of increased frequency with smaller capacity as a means of developing competitive hub mass.

Midway's operating base at Raleigh-Durham is surrounded by some of the country's most competitive connecting hubs. Atlanta, Baltimore, Charlotte, Philadelphia, Pittsburgh and the two Washington airports lie within 400 miles of Raleigh-Durham. That explains why this has been one of the region's most difficult airports to sustain. American Airlines, for example, was unable to develop Raleigh because the local market was too small to feed daily, multiple, nonstop MD-80 services.

But Midway has been able to make Raleigh work, chiefly because the regional jet's size is more suited to the market. The initial service pattern of the first four CRJs bodes well for the operation. Less than seven months after its first order was placed, Midway converted three options to firm orders. Now, Midway's competitors are beginning to link Raleigh to their hubs using their own regional jets.

Midway has recently announced regional jet links from Raleigh to eight cities - Atlanta, Boston, Columbus, Fort Lauderdale, Jacksonville, Orlando, Newark and Philadelphia. The average length of these routes is 462 miles. As a competitive tool, the advantage of using smaller-capacity aircraft has allowed the carrier to develop markets by gradually increasing frequencies and load factors to match those of its competitors.

The Raleigh-Philadelphia route is a good example. Raleigh has historically faced a significant local market imbalance against Philadelphia, which has five times the population and an airport dominated by US Airways. These market disparities are confirmed by Midway's traffic reports before it acquired regional jets. Using Boeing 737s, MD-80s, DC-9s and Fokker 100s, US Airways recorded load factors of 68 per cent in 1996 and 70 per cent in 1997 on its average of five daily nonstop flights to Raleigh. Midway, which was offering three F100 services a day to Philadelphia, had load factors of just 49 per cent in 1996 and 44 per cent in 1997. With between 29 and 54 passengers enplaned per departure in 1997, the smaller capacity of the regional jet was clearly better matched to Midway's needs than the 98-seat F100.

This year, Midway has replaced its F100 service with the CRJs and added two more daily roundtrips. In effect, it has matched its competitor's frequencies while reducing seat capacity by 15 per cent. It is too soon to determine the effects, but Midway has used the CRJ's smaller capacity in the same fashion in other markets where it faces stiff competition, including Atlanta, Newark and Orlando.

While regional jets have been a success in connecting hubs with spokes and hubs with hubs, they have yet to prove their viability in linking two non-hub cities. Various attempts by Mesa Airlines to introduce small jets in the huge intra-Texas market have failed, as did Comair's routes between the New York area and South Carolina.

Mesa's intra-Texas service from Fort Worth/Meacham Field was regarded as a potential bellwether for other regional jet point-to-point operations. But fierce local competition from American and point-to-point, low-cost carrier Southwest Airlines, coupled with Mesa's own internal turmoil, proved too strong. As an independent regional, Mesa also suffered the disadvantage of not having the feed from a parent major carrier. Instead, it has redeployed the CRJs to its codeshare services for America West and USAirways; feed from these network carriers might provide the success Mesa seeks.

Comair, meanwhile, ended its services from New York's La Guardia and Newark airports to South Carolina after it was unable to acquire sufficient slots at capacity-restricted La Guardia to develop frequency. Comair was also unable to challenge Continental's market dominance at Newark.

But if any doubt remains about the future character of airline competition in the US, there are still ample previews alive and kicking. In a growing number of markets, regional jets have become the predominant, and sometimes the only, means of air service. Between Boston and Montreal, for example, Air Canada's CRJs vie with Comair's. It is the same on the Ottawa-Newark route, except here it is Air Canada and Continental Express going head to head. American Eagle's first ERJ.145s are working from Chicago to Cincinnati and Cleveland - the country's two fastest-growing regional jet hubs. US Airways says it intends to operate regional jets between Philadelphia and Raleigh - a challenge to Midway's small jet service.

If these 'shots across the bow' were neither received nor processed clearly enough, Comair's announcement that it will begin regional jet service from Cincinnati to Houston - into prime Continental Express territory - certainly delivers the message. Regional jets have become the major carrier's newest competitive weapon.

Source: Airline Business