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Higher Ground
Strengthened by the regional jet, commuter airlines can jump a lot more than puddles

Twenty years ago, the Commuter Airline Association of America changed its name to the Regional Airline Association. They already foresaw what would become of the national air travel network as deregulation’s domino effects were set in motion. Today, there are roughly 200 airlines in the U.S. (depending on which day you count) and the regional players have developed from supporting roles to take the lead in many larger and medium-sized markets.

Somebody has to, as report after report issued by both the federal government and by trade groups lambaste the airline industry as a whole for substandard service and poor scheduling. According to a U.S. Department of Transportation study released in early April, only 72.6 percent of flights on the ten “majors” were on time in 2000. From 1999 to 2000, there was a 20 percent jump in complaints.

But you knew that already, if you’ve been hanging around any airports lately. So what are industry people doing about it? The latest trend seems to be further consolidation, as the mergers between TWA and American Airlines and between USAir and United take place. For many passengers as well as airline employees, the hope is that the blending of routes, big jets and schedules will smooth out the congestion and smooth over customers’ ruffled feathers.

Meanwhile, as the giants get bigger, some second- and third-tier cities would find their citizens driving for a couple hours to the nearest metropolis if it weren’t for the regional and feeder airlines. The most prominent of course is Northern Kentucky-based Comair, the Delta partner which is currently in the throes of a pilot strike. But there are others: Midwest Express, Atlantic Southeast, Midway, Corporate, Continental Express. One of them – American Eagle – was actually accorded “major” status by the FAA last year by virtue of its revenue.

Most are owned in large or small part by a parent major, but some are independent. For the most part, they contract with majors, who take care of certain costs and marketing needs for them. They all compete with each other and with the big boys for market share at airports like Louisville International, and also on a larger stage. For instance, two of the regional players were among those that recently garnered some of the lucrative contracts for discounted air travel for federal government employees.

If their reputations in the world of business travel are anything to go on, maybe these utility players will turn some of those federal frowns into smiles.

The age of the regional jet
“We need larger holding and gate areas for the major airline partners. Funding is not an issue. The issue is trying to build new airports and runways. The FAA needs to exercise more leadership.”

— RAA president Deborah McElroy, Flight International, Nov. 14, 2000

The most evident trend in the regional milieu is the fast-tracking growth in regional jet (RJ) service. In fact, those flights comprise almost nine percent of all domestic routes, on over 600 aircraft. According to Air Transport World, the number of cities served by RJs has doubled to 161 since 1996. That means a lot of business potential for all the players, although it can backfire sometimes. While Comair, for example, has allowed Delta to devote more of its larger aircraft to longer flights by taking up the slack in the medium-length department, Delta has also seen fit to replace two of Comair’s NKY-St. Louis flights with its own.

According to the Regional Airline Association, RJs made up 18 percent of the U.S. regional airline fleet (32 percent of available seats) in 1999, a year in which they carried 78.1 million of the nation’s 665 million passengers. RJs now account for 49 percent of weekly domestic departures, and are on course to carry over 100 million passengers as early as 2005. Comair alone flies 110 RJs, and the others’ fleets are expanding rapidly.

“People want bigger airplanes and jets,” says Jason Liechty, regional sales manager for Midway Airlines. “I think most airlines are going that direction. We fly Canadair regional jets. We’ve purchased new 737s, and our average fleet age is two and a half years old.”

The RJs have sparked their own trend, called overflying. It means that not everything happens around a hub, turning the regional player into less of a feeder, more of a self-sustaining entity. Such point-to-point service is great news to business people, whose time spent spinning in and out of hubs could be better spent on sites or in crucial meetings. Hub or not, RJs are getting more numerous, as well as evolving into newer models with 80, 90 or over 100 seats. Will that entice the majors to start their own RJ service? Not likely, as they’d prefer to follow the investment advice of many of their passengers and spread the risk.

“Using regional jets to fly nonstop point to point avoids those hub cities,” explains Blue Grass Airport’s Michael Gobb. “It also allows us access to major hubs we haven’t had before. Before, to get to the South or Southwest, you had to go through Atlanta or St. Louis. Now you can use the Memphis hub. It opens up Central and South America too. And it provides regional competition, which in turn takes care of many of our pricing and disparity issues. One example is that prior to starting nonstop with Northwest to Memphis, the business fares to Houston or Dallas were $850 or $900 – those fares went to $550 the next day.”

The RJ manufacturers can’t make them fast enough. Last year, Canada-based Bombardier signed a $2 billion contract with two Delta subsidiaries for 94 jets to be delivered over the next nine years. Curiously, the four giants in the RJ-making field are all foreign, the other three operating from Germany (Fairchild Dornier), France (BAE Systems) and Brazil (Embraer). Some of that business reverberates back to Kentucky however, as General Electric Co.’s Aircraft Engines division (with operations in both Cincinnati and Northern Kentucky) is on board to supply Bombardier with a motherlode of engines. Fairchild CEO Chuck Pieper has said he hopes to grow the company from an $800 million to a $5 billion company by 2008. And as a sure sign of the RJ’s influence on the overall industry, Boeing recently made its first appearance at the Regional Airline Association convention.

One carrier taking on some of those Embraer aircraft is Milwaukee-based Midwest Express. The airline currently operates a fleet of 34 DC-9s and MD-80s from its home base in Milwaukee, with hubs in Omaha, Nebraska and Kansas City. Both Louisville International and CVG are serviced by Midwest Express subsidiary Astral Aviation, which operates Skyway Airlines. The company recently announced it would spend $1.15 billion to purchase 20 airplanes from Boeing and 20 from Embraer. It will outfit the 100-seat Boeing 717s with only 88 seats in order to accommodate its marketing target of first class business service seated two by two in leather seats. The company also indicated that it would buy 50 more jets from the two makers in coming years. What’s more, in another deal worth $640 million, Midwest further extolled its luxury brand by contracting with Rolls Royce to supply the engine plants.

The 2001 Zagat Airline Survey ranked Midwest Express the No. 1 domestic airline based on its comfort, service and food. Not bad for a carrier that started life as an internal corporate air service for Kimberly-Clark Corporation. After beginning to offer aircraft maintenance services in 1969, the aviation company capitalized on the opportunity offered by the Airline Deregulation Act of 1978 and began offering its own commercial service in 1984. The company went public in 1995, and continues to experience steady growth in passengers.

Some have concluded that it’s the prolifeation of RJs that’s clogging the airways, but regional airline officials point instead to an air traffic control system that hasn’t yet adjusted to the new way of pushing tin. They also point to airport capacity, a growing – or is it non-growing? – problem that has its apotheosis at New York’s LaGuardia, where the wait to take off is nearly as long as many of those shuttle flights.

“We are looking to redesign the airway system,” Regional Airline Association vice president Scott Foose told Air Transport World in December. “We need better coordination in allocating capacity. And airports need to look at runways to determine capacity enhancements that they need to develop over the next 20 years.”

What’s up and not up at Comair
There is perhaps a telltale sign of the state of Comair’s employee relations when you look at what is otherwise a very complete website. But click on the “Employee News” button and all you get is a message: “Coming soon.”

Both sides hope that message describes a ratified pilots agreement. But there was no improvement in sight as of this writing, nearly four weeks into a strike by its pilots. It doesn’t help the airline’s situation that there’s a general pilot shortage in the industry, although the recent recessionary period may have ameliorated that somewhat. Not only have pilots been leaving the military in large numbers, they’ve also been leaving the smaller carriers for the larger ones.

Not that Comair’s tiny. But its wage and benefits scale has been characterized as such by the pilots, who want a company that does battle with the big boys to pay like them too. The airline’s 1,350 pilots have stated their desire for higher pay, company-paid retirement, more rest between shifts and pay for non-flying hours when they are on duty. The company’s flight attendants have demonstrated their support for the action.

The strike’s effects have been most pronounced at its CVG hub, with significant but successful scrambling at Blue Grass and hardly any disruption at Louisville International, which only features six daily Comair round-trips to and from CVG and offers 17 other airlines from which to choose.

At issue is the typical 50-seat plane. No matter how important a cog it is in the network of air travel, its smaller seat count is directly linked to the pay its pilot receives. At Comair, that pay starts as low as $17,000 during the pilot’s first year, then jumps up above $29,000 the second year … numbers that raise the eyebrows of concerned passengers wanting satisfied professionals in the cockpit. Over 45 percent of the airline’s passengers connect to Delta flights, and the Delta-owned company contributes a full seven percent to the parent’s overall passenger count, shuttling over eight million people in 2000.

Certainly Raymond and David Mueller, father and son, couldn’t have foreseen Comair’s prominent place in the industry when they founded the airline in 1977 with a few regional Piper Navajo flights. The carrier went turboprop in 1981 and revolutionized the industry by being the first commuter airline to go to regional jets in 1993. As it’s grown, it’s won all the major industry awards, while turning a steady profit for itself and its majority owner, Delta, which has steadily been acquiring more of the company since the relationship first began in the mid-1980s. Delta took its biggest and final bite in 1999, when it spent $1.8 billion to buy the remaining 78 percent of Comair stock it didn’t already own. The airline’s growth has been boosted by its Comair Aviation and Jet Express charter services too, which have led the way in serving the upper-end business executive market.

Even as the strike loomed, Comair was busy expanding its concourse at CVG as well as using under-used gates at another terminal. Soon the airline will join American Eagle under the official “major” designation, when it reaches the level of $1 billion in revenue.

Midway filling a need and filling aircraft
Midway Airlines knows all about labor tussles, as it recently experienced a battle of its own with the ramp workers at its headquarters in Raleigh, North Carolina.

But labor relations haven’t slowed the growth of this regional/national airline, which currently operates 23 50-passenger regional jets and plans to increase its 128-passenger 737 fleet by eight this year. The carrier, named for the lake-hugging Chicago airport where it was founded, came through financial crises in the 1990s largely through the efforts of Cary, North Carolina-based John Sall and James Goodnight (who poured $15 million into the company) and their hand-picked CEO Robert Ferguson III, who used to boast the same title with Continental Airlines. The company moved its headquarters from Chicago to Raleigh-Durham in 1994 after American Airlines dropped plans to locate a hub there, but the substitute has quickly gone from 12 to 31 markets, achieving countrywide coverage with 250 daily flights.

Midway holds the hub lease through 2013, and currently holds 29 percent of the RDU market share. It was recently ranked No. 2 in Consumer Reports for superior value and service.

Like Midwest Express, Midway went public in 1997. Midway Airlines reported a net loss of $15.5 million for 2000, its first losing year since becoming a public company in 1997. And like most others, the blame lay on high fuel prices.

Midwest Express counts 60 percent of its passengers as business travelers, while Midway’s claim is 70 percent. Midway also carries nearly half again as many passengers, primarily because it seems to target a “business class with a coach attitude” market while Midwest goes out of its way to court the “business-first-class” mentality.

Jason Liechty, Midway’s area sales manager, oversees Midway’s coverage of the Louisville and CVG markets. He laughs when the Milwaukee carrier’s name comes up in conversation.

“We have so many similarities,” he says. “We’re both regional carriers, and people who travel us love us. It happens once a day. They interchange us because we both have such high standards. But it doesn’t affect either airline negatively.”

Midway counts among its Louisville corporate clients a major insurance provider and a liquor distribution giant, but he points out that you don’t have to be big to work out a package.

“Midway, by being a smaller regional carrier, is able to be more responsive to passengers’ needs, and the same goes with corporate business,” he says. “We’re able to work with medium and smaller-sized companies. I don’t really have a minimum amount.”

When told of efforts by the likes of Blue Grass Airport to line up several companies or groups for a package, Liechty says it sounds good, but “when you get three companies with different travel patterns and policies, who’s going to be in charge? The problem is not so much entering into an agreement, but managing that agreement afterward.”

Liechty says the relative smallness of an airline like Midway is good from both a customer and industry point of view.

“I worked for another major carrier for 21 years, and the perception is that the Americans, Uniteds and Deltas are always going to be better,” he says, “but the bottom line is that having done both, bigger is not always better. ”

Smaller communities, big opportunities
“Since 1975, nine cities within 150 miles of Paducah have lost air service amid consolidation that has seen about one-fourth of the nation’s airports vanish in favor of larger metropolitan ones.”

— Paducah Sun reporter Joe Walker, August 27, 2000

At Barkley Regional in Paducah, TransWorld Express has three arrivals and departures per day and Northwest AirLink has five, taking passengers to connections at their respective hubs in St. Louis and Memphis. Not long ago, the city – like Owensboro down the road – faced the possibility of losing commercial air service, but has turned things around by dint of hard marketing work and an understanding of how important air service can be to a community.

It wasn’t that long ago that such commercial service existed in towns like Hopkinsville and Bowling Green. While there’s no resurgence yet in Hopkinsville, Bowling Green’s Tri-Modal Airpark idea aims to bring it back someday, even if the project’s aviation goals have been somewhat stymied of late by funding shortages.

There’s no doubt that as corporations continue to locate manufacturing and distribution facilities in these smaller cities, commuter carriers will take second and third looks at providing them service once again, provided the runways are sufficient. Even at existing lengths however, the puddle jumpers could be in business. It’s a matter of juggling equations with variables like available aircraft seat numbers, maximum altitude and its concomitant fuel burn rate, and number of miles to bigger airports in cities like Evansville, Nashville or St. Louis.

That juggling act is also being carried out by federal industry overseers as they analyze pending mergers like the one between USAirways and United. Their stamp of approval could mean the difference between continuing travel options on smaller jets operated by USAir or the prospect of one more once-powerful airline headed down the flight path of former giants Braniff and Pan Am.

Airports in Owensboro and in Jackson, Tennessee were shocked by last year’s pullout by Northwest Airlink, leaving both searching for a carrier.

In stepped Corporate Airlines of Smyrna, Tennessee to save the day. Beginning in March, Corporate began to offer three daily flights from Owensboro-Daviess County Regional Airport to St. Louis. The airline also serves the RDU hub of Midway.

“We are a partner with Midway and with TWA,” explains Corporate Airlines president and CEO Charles “Chuck” Howell one day after attending the official merger ceremonies of TWA and American in St. Louis. “You have a code share arrangement, just like franchising. Regional airlines do the same thing.”
Howell’s company began as a Midway partner, and has built itself a resumÈ that capitalizes on a reliability rating of 98.5 to 99 percent, a lofty stratum in the business, highlighted by no maintenance cancellations.

“With that track record,” says Howell, “we started a dialogue in January 2000 with TWA. Their feeder TransStates Airlines had chosen to get out of some of the smaller markets. We started in five cities on May 8. Since then we’ve proven ourselves there, and were looking to other opportunities. That brings us back to Owensboro, a city where Northwest Airlink had pulled out because of some ‘fleet realignment’ – meaning getting rid of props and going with regional jets. We saw an opportunity to step in and take over.”

The opportunity is no doubt enhanced by the airport’s proximity to MidAmerica Airpark, an industrial park project located adjacent to the facility that began welcoming tenants in 1995.

“We think connecting Owensboro is a great fit for the St. Louis system,” Howell continues. “The dynamics of the St. Louis hub over the Memphis hub is almost double the number of flights – a little over 700 flights a day by TWA.

So is Howell interested in other points on the Kentucky map?

“Yes, we’re interested,” he replies. “There are some locations inside the concentric circles away from the St. Louis hub – we’re always open to opportunities that make sense and make money.

“I like to quote Mark Twain,” Howell says when asked about the alleged decline of the turboprop in the face of the regional jet craze. “The reports of the turboprop’s death are greatly exaggerated. While everyone would love to get on a 747, the reality is that certain markets aren’t sized for that. One airport’s slogan says ‘Our way or the highway.’ You can fly or get in your car and drive. To stimulate a local market, we throw out the saying ‘We can get you there for less than the price of a speeding ticket,” which is less than $100 airfare for the short trip to St. Louis and back.”

Howell characterizes the regional jet craze as “good for some cities, but devastating for the third-tier cities. It’s a niche we do and do very well. Because of our reliability and credibility, we feel we’ve been able to change the perception of the turboprop business.”

As the players filling the short-range utility role, Corporate and other airlines like it may best express the essence of the commuter airline business.

“Air service is an extension of the Chamber of Commerce,” explains Howell. “It’s very important, and we’ve been able to quickly sell that message to community leaders. As I say in my Chamber speeches, it’s not just the folks in Owensboro trying to get out of town, it’s the world trying to get to Owensboro. They want to know how they get there, and if you have to drive one or two hours, it’s less desirable.”

In other words, the amenity of flight can be just as crucial to Kentucky’s touted small-town quality of life as its rural backdrops, friendly downtowns and abundance of outdoor recreation.

“Air service is part of that quality of life,” says Howell. “Even if it’s the mid-level manager who has to leave and fix that thing at the plant. Our running joke is that the difference between long-term parking and short-term parking is about 25 yards. Compare that to the drive time to major airports, plus parking and luggage hassles. The true quality of life is not missing your son’s soccer match or your daughter’s ballet recital.”


Adam Bruns is associate editor of The Lane Report.
editorial@lanereport.com

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