Consolidation and continued network pruning at US major carriers is likely to spur fierce competition during the next five years as all their regional partners scurry to gain existing market share as organic growth has evaporated.
Mesa chief executive Jonathan Ornstein recently told employees the US regional industry “is looking to reshape itself”, as evidenced by Republic Airways Holdings recently-announced plans to purchase Frontier and Midwest Airlines.
Ornstein warns that “going forward the trouble our partners are dealing with will impact us over time”.
Recognizing that further mainline consolidation in the US is likely to occur, Republic chief executive officer Bryan Bedford recently said revenue streams for regional carriers serving those carriers are likely to shrink, creating robust competition for contracts that expire within during the next five years.
Management at SkyWest Inc has already started preparing for the competition to steal market share away from its competitors. Company chairman and chief executive Jerry Atkin recently said the company is talking to every major carrier in the industry regarding additional codeshare opportunities.
Parallel to those discussions SkyWest is launching an internal cost reduction plan to effectively compete and win business away from its competitors.
Similar to Republic in some fashions, SkyWest is attempting to build revenue diversity outside the traditional regional airline mode through an investment in Brazilian regional carrier TRIP. SkyWest recently upped its stake to 16%, and TRIP management expects its US stakeholder to increase its investment to 20% by February.
But not every regional carrier has the financial strength of Republic or SkyWest. Recently asked if consolidation is likely in the US regional sector SkyWest chairman Atkin admits fewer participants will remain five years from now, but that is more likely to occur through carriers shrinking and failing rather than traditional merger and acquisition activity.
The near-term pressure on regionals is likely to continue as Ornstein says yields at mainline carriers remain extremely weak, and “it is almost impossible to raise equity”.
He believes that heading into the autumn mainline carriers need to see a rebound in business traffic to see an improvement in their economic outlook.