US regionals are rushing to upgrade to jets, but there may still be room for smaller carriers flying smaller turboprops on shorter routes

Several large US regional airlines are slashing and even shutting down their turboprop operations, leaving smaller carriers hoping there will be enough trickle-down opportunities to sustain what is left of their all-turboprop fleets. Twelve US regionals have taken roughly 200 turboprops out of service over the past year and plan to remove at least another 50 by year-end. At least five of these airlines expect to be all-jet by this time next year, throwing into question the future of the turboprop in the continental USA.

But small turboprop carriers without the cash to expand into jets are not about to throw in the towel: they hope to survive by increasing their reliance on government-subsidised essential air services (EAS) and new, albeit small, market opportunities left by others. "We don't have any jet ambitions, but we believe there will still be plenty of opportunities that present themselves as Horizon, Mesa and SkyWest and others reduce their fleet types," says Big Sky Airlines chief executive Kim Champney.

The demise of the turboprop has been accelerated over the past year by post-11 September capacity cuts, pilot contract scope-clause limitations and the increasing popularity of initial public offerings.

All-jet prospects

Three US regionals plan to go public this year - Chautauqua Airlines, Continental Express and Express Airlines I - and all have highlighted all-jet fleet plans in their prospectuses. All three are concerned that the risk associated with turboprop flying, which is typically paid for on a revenue-sharing rather than fixed-fee basis, would scare away potential investors.

Continental Express, which was spun off in April as ExpressJet, has removed 17 turboprops since September and will retire its remaining 29 turboprops by April 2003. Northwest Airlines made sure its Express I subsidiary had a plan to remove its 23 remaining 30-seat Saab 340s before its forthcoming spin-off as Pinnacle Airlines. Chautauqua expects to have disposed of its 36 340s by the third quarter, as it goes public as Republic Airways.

For these carriers, simplifying fleets around the regional jet translates into cost savings, less risk and improved customer perceptions. But their major-airline partners are not necessarily ecstatic about losing routes that have little competition and can sustain high fares, but are too small or too short for regional jets.

Northwest hopes to keep these markets by shifting them to affiliate Mesaba, which has agreed to take 11 of the final 23 Express I turboprops. Continental has found a new home for 25 of its Raytheon Beech 1900D 19-seaters at partner Gulfstream International Airlines. Gulfstream, which is part owned by Continental, is now in talks to also lease some of Continental Express's ATR 42s and Embraer EMB-120 Brasilias.

Chautauqua is becoming all-jet, but its owner, investment firm Wexford Capital, still sees a niche role for turboprop operators. Wexford purchased Shuttle America from bankruptcy last year and is transitioning the carrier's fleet from five Bombardier Dash 8-300s to 18 Saab 340s. "You can't put regional jets on everything," says Wexford president Joseph Jacobs. "There is a role for the turboprop."

Chautauqua, Continental Express and Express I are hardly alone in their all-jet ambitions. Air Wisconsin is retiring 11 of its 21 Fairchild Dornier 328 turboprops this spring and is trying to get out of leases for the final 10. Another United Express carrier, Atlantic Coast Airlines, retired its last 21 BAe Jetstream 32s last year and intends to remove nine of its 31 remaining Jetstream 41s this year as part of a plan to be all-jet by the end of 2003. Delta Connection carrier Comair plans to retire its seven remaining 30-seat Brasilias at the end of the year, making it all-jet.

Based on their current fleet plans, the number of US regionals operating both jets and turboprops will shrink almost in half over the next two years, leaving eight in this category: American Eagle, Atlantic Southeast Airlines (ASA), Horizon Air, Mesa Air Group, Mesaba Airlines, Skyway Airlines, SkyWest Airlines and Trans States Airlines. Mesa and Skyway are the only carriers in this group still operating 19-seaters.

That leaves six small niche 19-seat operators without any jet ambitions: Big Sky, Colgan Air, CommutAir, Corporate Airlines, Great Lakes Aviation and Gulfstream. Most of these carriers count on winning newly available EAS subsidies to keep their operations afloat. The EAS budget more than doubled this year, to $113 million, but there is not enough to satisfy everyone's appetites. Mesa, in a bid to keep its 1900Ds working, is taking on Big Sky, CommutAir, Corporate and Great Lakes, all of which are trying to increase their share of essential air services to survive and eagerly await the day when Mesa's 1900D leases expire and the airline leaves the EAS business.

Idle aircraft

"Virtually everybody is sitting out there with idle aircraft, so everybody is looking at [EAS] routes they before wouldn't consider," says Corporate chief executive Chuck Howell. It is a point that Big Sky's Champney echoes: "The last several years there has been virtually no competition for essential air services, but since 11 September there's been a lot more interest. We do have concerns that Mesa has taken a very aggressive stance and gone after essential air services."

Just over half of the cities served by Big Sky and Great Lakes are in the EAS programme, but several routes are now up for re-bid and the incumbent carriers may not be able to afford losing them to Mesa. Great Lakes has already parked seven 1900Ds and all eight of its Brasilias, and is now trying to negotiate early lease returns for four Brasilias and 10 1900Ds. Big Sky continues to operate all 16 of its 19-seat Fairchild Metros, but six of these fly seven EAS routes that are now up for grabs, with Corporate and Mesa making bids.

Corporate is bidding for more EAS cities to get its four parked J32 19-seaters flying again. With nine of its 13 routes subsidised, the airline still operates 13 J32s. CommutAir is less reliant on subsidies, with only two of its 18 cities in the EAS programme. But the carrier, which has parked 10 of its 26 1900Ds, seeks at least another two EAS cities. Colgan Air relies on EAS to support its seven 1900Cs, but has to look elsewhere for work for its 10 340s, three of which are parked.

Start-up Boston Maine Airways, which launched scheduled services last December, is banking entirely on opportunities outside EAS for its 10 J31s. The Pan American Airways subsidiary is now operating about half its J31s. "There are a lot of domestic opportunities for the J31s," says Pan Am counsel John Nadolny. "There are smaller niche markets where regional jets can't get in for operational or economic reasons, but they are markets people still have to reach."

Boston-Maine, Midwest Express subsidiary Skyway and other 19-seat operators envisage taking over non-subsidised routes now served with 30-seat turboprops. They point to all the carriers quickly cutting their 30-seat fleets, leaving markets that may be more suitable for 19-seaters given market conditions. "As assets get shifted to larger markets, the smaller markets will need services," says Champney.

ASA has stopped flying 11 Brasilias over the past year and is to retire another eight by year-end. SkyWest parked six Brasilias in December and plans to remove at least two more this year. Trans States has kept all 33 of its 30-seat turboprops, but is flying them 20% less than a year ago. Horizon removed 10 30-seat Dash 8-100/200s last year and is to remove another this year as it takes Q400s. Mesa has stopped flying three of its 19 Dash 8s and aims to return the five -100s operated by its CCAir subsidiary.

Meanwhile, pilot scope limitations are hastening turboprop retirements at American Eagle. Senior vice-president of marketing and planning, Tom Bacon, says scope limits have rendered 15 of 100 Saab 340s and six ATR 72s "lazy" - aircraft now being used as spares.

Capacity increase

US Airways' three regional subsidiaries, Allegheny, Piedmont and PSA Airlines, are again operating their entire combined fleet of 109 Dash 8s and 27 328s. These are driving a 20% year-over-year capacity increase for US Airways Express, but the future of their turboprops is in doubt now US Airways has secured scope relief to double its regional jet fleet to 140.

"Some of the 30-seat routes will be replaced with jets, but some won't," says Howell. "What will happen to those routes? They will go away or another operator will come in and operate 19-seaters." But some doubt whether the 19-seater is viable without government subsidies. "We don't think there is any role for 19-seaters," says Wexford's Jacobs. "[EAS] is not a real market. That's the government paying you."

Whether larger turboprops have a future, Mesaba plans to operate 49 of its 83 Saab 340s until at least 2007, while SkyWest has no retirement plans for most of its 79 remaining Brasilias. ASA plans to retire its last Brasilia by 2005, but sees a longer-term role for its 19 ATR 72s. Trans States has no retirement plans for its 25 J41s, five ATR 42s or three ATR 72s. "It's great to go all-jet, but the economics don't add up in an air fare challenging environment," says Trans States marketing director Bill Mishk.

American Trans Air (ATA) also sees expansion opportunities for the 30-seat turboprop operation at its Chicago Express subsidiary. ATA has acquired six extra 340s for Chicago Express, giving it 17 aircraft. "I think there is a fundamental problem with low-fare carriers with jets; I don't see it," says ATA treasurer Charlie Cleaver. "They [the all-jet regional carriers] are leaving behind really good markets."

Source: Flight International