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Regional
Jets expand the regional market
Popularity of the regional jet (RJ) has prompted many industry observers to predict the demise of the 30-to-40-seat turboprop aircraft. Extensive media coverage of large-dollar orders recently placed by many U.S. regional carriers (such as American Eagle, Atlantic Coast, Continental Express, Comair, Mesa, Mesaba, and SkyWest Airlines) appears to have fueled most of this speculation. But the numbers simply do not support such a climatic shift away from the regional turboprop fleet. Turboprops Retain Superior Economic Results on Short-Haul Routes RJ Fills New Market Niche Based on data compiled earlier this year, RJ operators have replaced only 10% of their turboprop routes with regional jets. An additional 15% have also been supplemented by the RJ (usually on peak, high density in-bound and out-bound flights between a hub and heavily-traveled spoke city). (See Summary of RJ Operations and Worldwide Distribution of Flight Segments tables.) To date, that has been the full extent of the RJ's penetration into traditional turboprop markets (which average less than 300 statute miles in length). Remaining RJ utilization has been used to replace or supplement jet routes (47%) and provide service into new markets (28%) with an average worldwide trip length averaging slightly less than 500 statute miles. Turboprops Retain Lower Breakeven Performance An important reason why we believe the RJ will not displace large numbers of turboprop aircraft in most short-haul, low-density regional markets resides in the divergent operating economics of these competing aircraft. Consider the following example. If passenger yields are held constant, total costs of a 34-seat Saab 340B turboprop, for example, will be almost half that of a 50-seat RJ, when operated on a typical 200-statute mile flight. In terms of seats needed to break even, the argument becomes even more persuasive. Under the same scenario, the Saab 340B requires slightly less than 16 revenue seats per flight to break even, as compared to 27 for the RJ. On longer-haul routes averaging 500 miles, however, the RJ appears almost certain to become a regional "workhorse" of the industry. Compared to a B737-300 on an average 500-mile segment, the cost performance of the RJ mirrors the financial superiority that the turboprop aircraft retains on shorter 200-mile flights. A Canadair Regional Jet, for example, requires only 4 seats to break even, compared to almost 54 seats for the larger Boeing aircraft. During 1996, 88% of the world's turboprop fleet operated on stage lengths of less than 300 miles. As long as these short-haul, regional markets continue to demand high frequency operations, it is obvious that the turboprop's superior economic profile will continue to support strong airline demand for this equipmen over several more years. Product Life Cycle Also Favors Turboprops Benchmark Defined
Through 1996, however, more than 1,700 19-seat regional aircraft (accounting for nearly one-third - 32.9% - of the total world-wide regional fleet) remain in scheduled airline service. Moreover, deliveries are forecast to continue through the year 2015, averaging approximately 14 units per year. Based on current fleet size and projected deliveries, therefore, service viability of the 19-seat aircraft is expected to continue for another 18 years - establishing an imputed life cycle for type of 44 years. Decade of Growth Still Possible Using the historical and forecasted product cycle performance of 19-seat regional aircraft, it would appear that mid-size turboprop aircraft will continue to enjoy strong demand since the average fleet has moved only 32% through its projected life cycle. These aircraft are also experiencing an acceleration of growth rates in ASM and RPM production beyond prior years output. Further, deliveries of larger 41-to-90 seat aircraft (including the RJ) are not forecast to exceed projected 30 -to 40-seat deliveries before the year 2008 - at which point a gradual decline in mid-size deliveries can be expected to occur based on actual results of the 19-seat product cycle. The data would suggest that the turboprop is likely to represent the mainstay of regional operations for at least the next 15 years. The RJ, however, will certainly add an important element to the industry's product mix. Just not at the expense of the commuter airlines' core source of profitability....those turboprop aircraft.
Summary of RJ Operations
Worldwide Distribution of Flight Segments
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Continued viability
of the turboprop is also confirmed by a review of regional aircraft product
cycles. For purposes of this discussion, we used 19-seat regional aircraft
as a benchmark. Between 1971 and 1988, 19-seat aircraft accounted for more
deliveries than any other regional category - until surpassed by new generation,
mid-size 30- to 40-seat aircraft in 1989. Peak time of the 19-seat life
cycle was also confirmed by a decline in its annual growth rate of available
seat mile (ASM) and revenue passenger mile (RPM) production.