The regional airline industry continues to be the healthiest sector in the business, judging by the results of this year's Airline Business Regional Airline Survey. With passenger growth of 12.2 per cent, a revenue increase of 7.1 per cent, and a net result of 4.6 per cent of turnover, the regionals are still riding high.
As always, the fact that many regional carriers are privately owned, either as independent companies or wholly owned subsidiaries of major airlines, makes many reluctant to divulge financial information. Any industrywide conclusion is therefore tentative, making passenger traffic the main ranking criterion. Twenty-five regionals which appeared in last year's survey have failed to provide traffic data this year and therefore cannot be included. Seven of these have legitimate reasons for being excluded, in that they have ceased operations, merged or grown too large to meet our definition of a regional. But that leaves 18 airlines which should be in the survey, together with another handful which did not reply either last year or this.
When it comes to measuring financial data, the situation is even more difficult. Only 45 regionals out of 100 have provided a revenue figure for both years, and only 26 have given net results for both years. Based on this limited sample, regional airline industry net results increased by 11.1 per cent to $223.6 million in 1997. The main table and summary show a net profit of $229 million for the 28 airlines which reported a net result for 1997.
Global study
Despite the shortcomings, sufficient outward-looking carriers have provided information to permit an industrywide analysis, subject to the caveats concerning missing airlines, and this survey remains the only global study of regional airlines. Such a study is important, because manufacturers, bankers and investors need global data in order to help them make broad strategic decisions, as well as establish benchmarks to assess individual carriers. Many regional carriers operate in discrete market niches, and an airline which is appropriate for benchmarking purposes could be in a different country, or even continent.
Several regionals grew very substantially during 1997. The fastest growth in passenger terms came from Spain's Air Nostrum and Germany's Augsburg Airways, both of which doubled in size, aided by new codesharing agreements with their home-based major carriers. Several other regionals recorded growth rates which would excite any airline manager - Rheintalflug (68.3 per cent), Flandre Air and Iran Asseman (both 66.7 per cent), CityFlyer Express (62.9 per cent), British Regional Airlines (60 per cent), Nordeste (59 per cent), Regional Airlines (56.4 per cent), and Mesaba (52.9 per cent).
In most of these cases, high growth is linked with partnerships of one kind or another with major carriers, although Rheintalflug, Flandre Air and Régional Airlines have focused mainly on indigenous growth using their own brands, and the Régional Airlines data include the former turboprop operations of Deutsche BA.
The most profitable regional airline is Delta Connection carrier Comair, with a $75.4 million net result and a 13.4 per cent net margin, closely followed by fellow Delta feeder Atlantic Southeast, with a $54.5 million net profit and a 14.1 per cent net margin. Tiny Eagle Canyon Airlines beat both of the Delta carriers, to achieve a 16.1 per cent net margin.
Hard ground
Most of the other US majors own their regional carriers outright and release no financial data, so there is no way to compare these excellent performances with similar operators. The Mesa Air Group fell on hard ground last year, recording a net loss of $48.6 million as it made a $72 million provision against United cancelling its codeshare agreement at Denver.
Regional jets have now become the norm for the larger regionals, with 35 out of the top 50 regionals now either operating them or holding orders or options. However only eight of the bottom 50 regionals include regional jets in their fleets.
Over the next four pages of this survey, the 100 largest regional carriers which divulged traffic data are ranked in descending order by 1997 passenger numbers. Revenues, net profits and net margins are shown for airlines that provide financial figures. Further data are provided on employee numbers, ownership structure, fleets and alliances.
Page 54 contains an alphabetical list of the regional airlines in the survey with their rankings. This is accompanied by a commentary on changes in which carriers are included. Then on page 57 we rank the top 20 airlines by revenue and profit. The last page of the survey, page 58, carries a table cross-referencing each major carrier's main regional relationships, together with definitions and notes for the whole survey.
What is a regional?
The principal definition of a regional airline used in this survey is a carrier whose fleet is mainly composed of aircraft smaller than 100 seats, flying scheduled services on regional routes of up to 800 km. Airlines which operate mainly on trunk or long-haul routes are not included, but major carriers' regional subsidiaries do meet the criteria.
Some carriers combine regional flying with different types of operation - such as charter flights or longer haul routes - and in these cases a judgement is made about whether the airline's operations are principally regional in nature.
Airlines appear in the form of their corporate entity. For instance, there is a single entry for the four American Eagle carriers, the four Air Canada Connector subsidiaries, Canadian Regional Airlines, and the three wholly owned US Airways Express carriers. The Mesa Air Group also appears as a single entry.
In and out: a fluid list
Twenty-five regionals which appeared in last year's survey have failed to provide traffic data this year. Seven of these are excluded for legitimate reasons. Avianova (27 last year) is now part of Alitalia Team. TAT(29) has been integrated into Air Liberté. Transwede(51) has become part of Braathens Safe. Brasil Central (56) has been folded into its parent, TAM. Aerosur (63) now operates larger aircraft so does not meet our regional-airline criteria, and US regionals Mahalo Air (55) and GP Express (96) have ceased operations.
That leaves 18 airlines which should be in the survey, including TransAsia (ranked 4 last year), Merpati Nusantara (5), Sempati Air (13), Binter Canarias (24), Air Littoral (31), SAS Commuter (36), Aer Lingus Commuter (38), Air Nelson (45), Malmo Aviation Schedule (50), UFS (57), Portugalia (58), Hamburg Airlines (67), and five smaller carriers. These carriers have all failed to respond to repeated requests for data. To make matters worse, a few sizeable regional airlines, Brit Air, Olympic Aviation and Taba, have not participated for the last two years.
The good news is that several regionals have provided data for the first time. Iran Asseman Airlines, SAM Colombia, National Jet of Australia and Aerolitoral of Mexico all enter the top 50, with Manx Airlines, Southern Australia Airlines and a host of smaller carriers joining the survey in the lower half. Startups include LOT subsidiary EuroLOT and Italy's Azzurra Air, while Lone Star Airlines has been renamed Aspen Mountain Air.
With such a fluid list of airlines, movements in the rankings are influenced more by which airlines have provided data than by real growth, especially among the smaller carriers. However, several fast-growing carriers have moved up significantly, with Air Nostrum up 34 places from 73rd to 39th; Regional Airlines up 25 places; Air Dolomiti up 17 places; and Skyways, Cimber Air and Aeromar up 15 places. Gill Aviation moved up 30 places, but has restated its 1996 passenger traffic figure.
As always, several carriers provide a dilemma in terms of whether they are true regional airlines or not. In these cases, a value judgement has had to be taken. Several carriers have been included even though they operate some aircraft larger than the 100-seat notional maximum which Airline Business uses in its definition of a regional airline.
Crossair is still mostly a regional airline, although it also operates nine MD-80s on charter flights. Aces Colombia has six Boeing 727s and two Airbus A320s, and operates domestic trunk routes and medium-haul flights to the US as well as regional services.
While remaining regional in terms of their scope of operations, several carriers operate larger aircraft. Rio-Sul has 12 B737s, UNI Air flies five MD-90s, Iran Asseman has four B727s, and Maersk Air Ltd, the UK arm of Maersk Air, has four B737s. Several others, including Great China, Arkia, Aero Asia, Nordeste, Sata Air Acores, and Air Malawi, have one or two larger jets supplementing their traditional smaller regional aircraft.
In these cases the larger aircraft are included in the fleet totals, but not mentioned in the fleet breakdown column. This breakdown only includes aircraft seating between 19 and 100 passengers. Several carriers also operate some smaller aircraft, most notably Las Vegas based Eagle Canyon, the bulk of whose passengers fly on a fleet of 14 Cessna 402s.
Air Philippines and Aerosur are excluded from this survey because their large aircraft operations are believed to account for the majority of their business, and this fate is likely to befall several other 'hybrid' carriers next year.
Another rise in earnings
Based on the 26 regional airlines which provided bottom-line information for both of the last two years, in 1997 regional airline industry net profits grew by 11.1 per cent to $223.6 million.
Once again, the most profitable regional airline is Delta Connection carrier Comair, with a $75.4 million net result and a 13.4 per cent net margin, closely followed by fellow Delta feeder Atlantic Southeast Airlines, with a $54.5 million net profit and a 14.1 per cent net margin. Comair's profit jumped 26 per cent, but ASA's fell slightly. In net margin terms, the much smaller Las Vegas based independent Eagle Canyon Airlines beat the rest of the industry, including both of the Delta carriers, to achieve 16.1 per cent.
Most of the other US majors own their regional carriers outright and release no financial data, so there is no way to compare these excellent performances with operators like American Eagle, US Airways Express and Continental Express.
The Mesa Air Group recorded a net loss of $48.6 million following a $72 million provision related to the company's dispute with United. The provision includes $26.3 million against 'damage' to Mesa's Denver operation, $39.4 million for the cost of aircraft disposals, and $6.4 million for severance costs. United has announced its intention to cancel all its codeshare agreements with Mesa, and America West may follow, leaving Mesa with a drastically curtailed operation comprising flights under its own name and that of US Airways Express.
Brazil's TAM, the second most profitable regional in 1996 with a $58.9 million net profit, fell back to $28.3 million in 1997, but only slipped to fourth place in the profit rankings. TAM suffered from heavy competition and expansion costs, but has bounced back commercially after a well publicised explosion blew a hole in the side of one of its Fokker 100s. Profits at fellow Brazilian carrier Rio-Sul, owned by Varig, also fell due to competitive pressures.
The net profit at Europe's largest regional, Crossair, rose from $18.6 million to $29.8 million, securing it third place after the two Delta operators. While its 5.2 per cent net margin leaves room for improvement, Swiss accounting laws allow generous depreciation policies.
The move to jets obviously worked for Northwest Airlink operator Mesaba Air, whose net profits jumped from $7 million to $17.1 million on a 40 per cent increase in revenue. Utah based SkyWest bounced ahead with a $10.1 million profit, up from $4.3 million. It is now preparing to add a United franchise to its operations for Delta and Continental.
Sabena's regional wetlease subsidiary Delta Air Transport moved into the black. Profits increased significantly at Jersey European, now an Air France franchisee, and at Avianca's regional subsidiary SAM Colombia.
The average net margin of these 26 carriers is 4.6 per cent, which is a good result by airline standards but lower than the 6.4 per cent achieved by the 32 regional airlines which provided bottom-line information for last year's Airline Business regional airline survey. The travails of Mesa and the Brazilian regionals account for most of this change.
Only 45 regionals have provided a revenue figure for both years, and their overall revenue increased by 7.1 per cent. Set against the 12.2 per cent increase in industrywide passenger numbers, this implies that regional carriers are experiencing some dilution in yields. In revenue terms, the fastest growing regional was France's Flandre Air, whose revenue more than doubled, followed by Air Baltic (43.7 per cent), Aeromar (43.4 per cent), Mesaba Airlines (40.3 per cent), and SA Airlink (40.0 per cent).
Source: Airline Business
