Despite industry decline, Delta Connection has held on to its pole position in the regional jet race and this looks set to continue with the company's commitment to take 76 more aircraft in 2003

The US airline industry has been turned upside down over the past 13 months, with a seemingly never-ending string of aircraft delivery deferrals, capacity cuts and layoffs. Despite the upheaval, several regionals have been expanding, taking on jets, adding capacity and hiring new staff at record rates. Delta Air Lines, a pioneer in deploying regional jets, has also become the poster child of regional jet strategy since the 11 September terrorist attacks, using six types as the centrepiece of a major schedule revamp.

In these days of pinching pennies, major carriers are trying to spare their regional affiliates because they can play a critical role in preserving network footprints and market share. Delta has slashed its 2003 capital expenditure budget to $1.7 billion and has nearly zeroed the line item for new Boeing deliveries, but has left intact its $800 million investment in regional jets. Two years ago, new mainline aircraft accounted for over 80% of Delta's capital expenditure budget.

"The regional jets and the routes we are putting them on are cash positive from day one," says Delta Connection chief executive Fred Buttrell. "You can't spend money to lose money in this environment. If you add mainline aircraft, it would be very cash negative."

Buttrell has overseen the deployment of about 60 additional aircraft since taking over as Delta's regional jet mastermind last November. He will be managing 296 regional jets by the end of 2002, spread across five operators and six types. Delta is the industry leader in all these categories and plans to remain so with its commitment to take 73 more regional jets in 2003. Buttrell plans to commit to another batch of regional jets for 2004 delivery in the next few months.

Paying dividends

American Airlines and Continental Airlines have roughly half the number of regional jets that Delta has, with United Airlines, Northwest Airlines and US Airways even further behind. No other US major has more than three regional jet operators or more than four regional jet types. The clear lead held by US operators in regional jet deployment, compared to the European flag carriers, is illustrated in the table on P49.

At a time of dwindling demand, Delta's large lead in the regional jet race is paying dividends. Regional jets are suddenly the right size for many traditional mainline markets and their operators have lower cost structures. "There are still a lot of routes where we can add more and be cash positive from day one," Buttrell says.

In response to the rapidly changing route economics, Delta has asked its regional partners to rejig their route networks overnight several times over the past year. Atlantic Southeast Airlines (ASA) overhauled its schedule at 28 cities in one swoop last autumn. The Delta subsidiary then took delivery of seven Bombardier CRJs last January alone, including its first 70-seater, leading to another batch of schedule changes. The carrier has added nearly 1,000 employees over the past year.

"We turn on a dime; we're not a battleship," says ASA senior vice-president Bryan LaBrecque. "We've built this company to move on opportunities faster than our competitors."

Independent SkyWest Airlines added 27 CRJs in the first eight months after 11 September, with all but a handful placed in the Delta Connection network. SkyWest quickly doubled its Salt Lake CRJ operation and also began feeding Delta's Dallas/Fort Worth hub last autumn.

"We were well prepared for taking delivery of all the aircraft; the biggest challenge after 11 September was the opening and closing of so many stations," says SkyWest chief executive Jerry Atkin. "In November and December our reliability suffered because we had so many new people."

Delta's regional partners do not see any end to the almost constant shuffling. On 1 November, independent Atlantic Coast Airlines (ACA) is shifting 10 of its Delta Connection Fairchild Dornier 328JETs from New York LaGuardia to Cincinnati, Ohio. Delta subsidiary Comair is taking over with CRJs all the LaGuardia flights that ACA is dropping, and is launching 16 new flights from Washington National on the same day. But it is handing over flights in Cincinnati to ACA, and flights in Orlando to new Delta partner Chautauqua Airlines.

"They just view these aircraft as units and move them around the network irrespective of who operates them," says ACA president Tom Moore. "I get embarrassed when I have to look at a map to figure out where we fly."

Comair president Randy Rademacher predicts "things are going to continue to change. The focus is on flexibility, staying loose and taking advantage of opportunities that come along."


The schedule and gauge changes, made possible by Buttrell's diverse portfolio of regional jets, helps Delta better align capacity with demand in a difficult environment. They are also pegs in Delta Connection's hub diversification strategy. Over the last 15 months, Delta has gone out of its way to make sure its hubs are fed by more than one regional. The strategy was created during the three-month pilot strike last year at Comair, which crippled Delta's CRJ-dominated Cincinnati hub. But Rademacher says flowing regional jets through multiple hubs instead of limiting flying to out-and-back routes also improves aircraft utilisation.

"We've drawn lines in the sand at all the hubs over the years and it will require some adaptation," he says. "But if we succeed, the odds of growth for all of us are good."

By November, Cincinnati-based Comair will operate only 75% of the regional jet flights at the Cincinnati hub, with ACA's share growing to 25%. Delta has also diversified the hub by moving in ASA and three of its ATR 72s.

ASA still dominates its hometown of Atlanta, but Comair began operating a handful of flights there last November. ASA has historically dominated Dallas/Fort Worth, but growth there is being split between ASA, Comair and SkyWest. In Salt Lake City, SkyWest is still the only feeder, but Buttrell hints: "You'll start seeing other carriers rotate through there."

SkyWest chief operating officer Ron Reber says: "We hear it and we expect it. I think a majority of our Delta growth will go towards the Dallas hub."

Rademacher also expects to direct most of Comair's 2003 growth to Dallas and tentatively plans to open a crew base there. Comair closed its Orlando base a month ago and will have CRJs to redeploy as Chautauqua takes over its Florida routes over the next year. But Rademacher stresses that nothing is set in stone considering the upheaval in the industry.

"You've got to remain flexible," he says. "I'm not going to put a stake in."

Flexibility is Delta Connection's hallmark. Buttrell can chose between the 32-seat Fairchild Dornier 328JET, 37-seat Embraer ERJ-135, 40-seat CRJ400, 50-seat ERJ-145, 50-seat CRJ100/200 and 70-seat CRJ700. The 328JET and ERJ-135 do not overlap because the 328JET performs better on shorter stage lengths. Buttrell also has separate missions for the ERJs and CRJs, with the ERJ and low-cost Chautauqua focusing on the low-yield Florida market. Chautauqua is taking intrastate routes that ASA or Comair CRJs cannot operate profitably and longer-haul routes that are being down gauged from unprofitable Delta Express 737-200s.

Buttrell also finds unique missions for the 40-seat CRJ, which ASA and Comair refer to as a "-400". The 40-seater and 50-seater are identical from the outside and Bombardier calls both the "-200". But the -400 costs less to operate thanks to an incentive package from Bombardier aimed at making the aircraft competitive with the ERJ-135. Delta puts them on long thin routes such as Atlanta-Monterrey and on business routes where the extra legroom can be a marketing advantage.

ASA has 10 CRJ400s and no more on order, but LaBrecque says the carrier is looking at converting some of its CRJ200 options to CRJ400 orders. Delta can add 10 seats to any of its CRJ400s at any time,but has no ambitions to do so because it would have to suffer the operating cost consequences.

Simple fleets

Comair's 115 CRJs include one 70-seater, 17 40-seaters and 97 50-seaters. Nearly all of its deliveries over the past year have been of the 40-seat variety, giving it more flexibility. Next year, Comair will take 30 aircraft, broken down evenly among the three types.

"The 50-seater will be the base player in the fleet for a long time," Rademacher says. "But the good thing is there's hardly any difference in the three types. In this environment a simple fleet makes a lot of sense."

The beauty of Delta's regional jet portfolio is that the diversity does not come at any extra cost. Comair already has over 100 aircraft with a common type rating and ASA will take its 100th CRJ next year. Delta has committed to only 15 ERJ-135s and seven ERJ-145s, but there is no penalty for the small fleet size because Chautauqua operates ERJs for three other carriers. SkyWest will operate 48 CRJs for Delta by year-end and 56 by the end of 2003, but can keep its costs down because it also operates the type for United. "You get efficiencies by having single carriers with single fleet types under your code," Buttrell says.

He also sees the benefit of keeping niche fleets, like ACA's 30 328JETs and ASA's 19 ATR 72s. The ATR ploughs short-haul high-volume routes, mainly from Atlanta. Buttrell also tries to save the 328JET for routes under 800km (430nm) because the CRJs are more economical on longer sectors. "They like to have this armada of carriers and there is no aircraft like the 328JET in their portfolio," says ACA's Moore. "The 328JET has economics that cannot be matched by other aircraft."

He expects Delta will consider "incremental" 328JET growth and ACA is keeping Buttrell "appraised if there is a fire sale and of the opportunities that may be available".

Earlier this year Delta decided to add Chautauqua ERJ-135s instead of more ACA 328JETs, partly due to supportability concerns stemming from Fairchild Dornier's liquidation. Buttrell says "the 328JET is still a good aircraft" and he wants to keep them as long as they can still be adequately supported. But he also stresses: "We feel we have a viable 30-seat airframe with theERJ-135 and a good platform to operate it in Chautauqua."

Delta sees a continuing role for 30-seat turboprops, at least at Dallas and Salt Lake City where thin, short-haul routes remain. ASA operates 31 Embraer EMB-120s, 18 in Atlanta and 13 in Dallas. ASA plans to replace the Atlanta Brasilias with CRJs next year, but LaBrecque says the Dallas markets are too small to support CRJs. He is considering replacing the Dallas Brasilias with ATR 42s, to give ASA a common turboprop fleet of ATR 42s and 72s. SkyWest operates 16 Brasilias out of Salt Lake and does not have any all-jet ambitions. "The turboprops will still play a significant role in the short-haul market," predicts Atkin. Delta has actually been slower than most US majors in phasing out turboprops and none of its four main hubs are all-jet.

Other US majors would love to match Delta's regional jet fleet, or at least close some of the gap. Some are spinning off their regionals in an attempt to drum up cash to fund regional jet expansion, a strategy Delta is not interested in duplicating at ASA or Comair. But the spin-offs have had only mixed success and most majors' regional jet expansion ambitions are hamstrung by restrictive pilot contract scope clauses.

Restrictions removed

Delta has the freedom to add regional jets with 50 or fewer seats because its scope clause limits, which were less restrictive than others to begin with, were essentially erased after the carrier incurred two consecutive quarters of losses. Delta Connection is still prohibited from operating more than 58 70-seaters, but it will take three more years of deliveries to reach this cap. Again, this restriction is not as harsh as those at other US majors.

Only much smaller America West Airlines and Alaska Airlines have no scope restrictions. Bankrupt US Airways has secured nearly unlimited authority to add regional jets beyond its paltry fleet of 70. But its options are limited because it is obligated to place most of these aircraft at high-cost subsidiaries and have them flown by furloughed mainline pilots. Delta, whose regional jet expansion in the northeast over the last three years is partly responsible for US Airways' woes, has already taken advantage of the carrier's bankruptcy and is ready to pounce if further capacity cuts are made.

Underlining the importance of regional jets in its business plan, Delta recently acquired 40 slots at Washington National (DCA) that were previously leased to US Airways by Trans States Airlines and Northwest Airlines. Delta handed 32 of the slots over to Comair and eight to ASA so it can start competing with US Airways on nine routes. Delta also handed 14 slots previously used by Delta Shuttle to Comair which last month began seven daily flights to Boston. The November switch to larger regional jets at LaGuardia will also put more pressure on US Airways.

Rademacher hints that Comair is flexible enough to direct further expansion to the northeast if opportunities arise. "If somebody slashes capacity in the east, we may change things around," he says. "DCA and LaGuardia are slot restricted, but up until a few months ago we didn't have slots in DCA."

Source: Flight International