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Small Community Service Prospects Faye Malarkey Regional Airline Association Federal Aviation Administration 30th Annual Aviation Forecast Conference March 18, 2005. Regional Airline Facts. Estimated 129 million passengers transported in 2004 More than 15,000 flights a day

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Small community service prospects faye malarkey regional airline association federal aviation administration 30th

Small Community Service ProspectsFaye MalarkeyRegional Airline AssociationFederal Aviation Administration30th Annual Aviation Forecast ConferenceMarch 18, 2005


Regional airline facts
Regional Airline Facts

  • Estimated 129 million passengers transported in 2004

  • More than 15,000 flights a day

  • 1 in 4 domestic passengers travel on regional airlines

  • Regional airlines operate approximately 2,700 aircraft, approximately 1/3 of the U.S. commercial airline fleet


Regional airline service
Regional Airline Service

  • Serve 735 airports in

    North America

    (95% of total)

  • Serve 655 airports in

    United States (98% of total)

    • Regional airlines provide the

      only air service at 72 percent

      of these airports


Regional airline passengers 11 million in 1978 129 million in 2004
Regional Airline Passengers11 million in 1978 129 million in 2004


Code sharing the lifeblood of the regional industry
Code Sharingthe lifeblood of the regional industry

  • 54 code-sharing agreements

    • 10 owned by majors/nationals

    • 2 partially owned by majors

    • 42 marketing agreements

      (as of January 2005)

Code-sharing airlines transport 99% of passengers


Code sharing
Code-Sharing

  • Under “fee for departure” agreements, major airlines determine where regional airlines fly

    • Major pays regional flat rate per flight

    • Service must fit within the network

    • Service must match revenue objectives of major, including opportunity cost of flying to one market vs. another

  • Under “pro-rate” contracts, regional and major airlines partner on routes and service

    • Regional paid portion of revenue from fare, assumes portion of financial risk

    • New fare environment making this service harder to provide. Communities may need to provide revenue guarantees for new regional service


Regional airline fleet
Regional Airline Fleet

Turboprop routes have dropped 54 percent over the last decade (from 1429 routes to 651).




Short haul markets have lost substantial service since 2001
Short-haul markets have lost substantial service since 2001

The shortest bands drop at the highest rate due to availability of substitute products (car, bus, train, access to LCC by driving to alternative airport)

Source: BACK / OAG Schedules Database


Regional airline service makes the hub and spoke system work
Regional Airline Servicemakes the hub and spoke system work

  • Regional airlines are structured to work with network carriers to absorb risks from network reconfigurations

  • 21% of domestic passengers travel in markets that produce less than 50 passengers per day*

  • Network carriers depend on these markets for 27 percent of their passengers*

  • Low fare airlines provide limited service to small communities – only 7% of their passengers and 10% of their revenue come from smaller markets.*

  • The service provided by regional airlines is critical for the operational and financial success of the major airlines

*Source: “A Significant Co-Dependence” by Aaron Taylor, Eclat


Scope clauses create inefficiencies
Scope Clauses Create Inefficiencies

  • Scope clause restrictions, which some airlines have been able to revise but not eliminate, should be reevaluated in the current economic climate

  • Major and regional airlines must be able right-size aircraft to markets

  • Scope clauses fail to serve the long-term economic interests of the regional airlines, major airlines, or the pilots of both

  • It is simplistic to view scope only as a labor dispute when it continues to deprive communities of competitive alternatives and increased nonstop routes

  • In a deregulated environment, limitations on air service should not be acceptable to Congress or federal policymakers


Regional airline growth and success
Regional Airline Growth and Success

Regional airlines affected by major carriers finances

Regional airlines must maintain or reduce costs or will be priced out of the market

Majors have many choices for partners

Lower ticket prices and yields have caused majors to reduce “fee per departure” contracts

Regional carriers with “pro-rate fee” agreements seeing less income due to lower ticket prices


Regional airlines have reduced costs in response to reduced revenue cost and revenue per asm cents
Regional Airlines Have Reduced Costs in Response to Reduced RevenueCost and Revenue Per ASM (cents)

Source: DOT OIG


Taxes fees on a 200 ticket have more than tripled
Taxes/Fees on a $200 Ticket* Have More Than Tripled Revenue

1972Taxes = 7% ($15)*

2004Taxes = 26% ($52)*

1992Taxes = 15% ($29)*

*Sample itinerary assumes one-stop domestic round-trip with maximum passenger facility charge (PFC) per airport; $200 total price includes taxes and fees.

Source: ATA


Taxes and fees impact service
Taxes and Fees Impact Service Revenue

  • Airlines face pressure on fares and cannot pass increased fees to passengers

    • Average leisure fares down 10 percent in 2004 compared with 2003; business fares down 8 percent

    • All airlines must absorb increased costs or could lose passengers to other airlines

  • Passengers are even more price sensitive in short-haul markets

    • Regional airlines lose passengers to the road as the “fly-drive equation” changes and passengers drive to airports with lower fares


  • Taxes and fees impact service1
    Taxes and Fees Impact Service Revenue

    • The aviation security fee in the President’s FY06 Budget Request would increase by 120 percent to $5.50, capped at $8 one-way and $16 round-trip

    • The new tax would bring the total federal security tax on airlines to $4.7 billion per year

    • Passengers traveling on regional airlines would be disproportionately impacted because multiple flight segments mean more tax occurrences

    • This fee increase would raise fares for travel to rural communities, will divert resources away from carriers serving rural markets, and makes this service even more expensive for carriers, putting air service to smaller communities at risk.


    Budget cuts impact service
    Budget Cuts Impact Service Revenue

    • AIP targeted for one of the largest reductions ($600 million) in the entire fiscal year 2006 budget request, despite a proven track record that enhances airport safety, capacity, and security

    • Administration suggests airports should respond to cuts by imposing maximum PFCs as potential revenue source of $350 – 400 million per year

    • As airport rates and fees increase, service becomes more expensive


    Essential air service
    Essential Air Service Revenue

    • EAS currently ensures commercial air service to 146 communities (36 of which are in Alaska)

    • Because of increasing costs and the continuing financial turndown in the aviation industry, about 37 communities have been forced into the EAS program since 9/11/2001


    Essential air service1
    Essential Air Service Revenue

    • The FY06 Budget Request would severely cut and potentially dismantle the EAS program

      • Funding for EAS would be cut by $52 million (1/3 of communities would be forced out)

      • Cost-sharing criteria imposed on EAS communities based on hub airport distance

      • Communities within 100 miles to large hub airports, 75 miles to small-hub airports, or 50 miles to airports with jet service would lose commercial air service and receive only 50 percent of previous funding for surface transportation use only

      • Communities less than 210 miles to a large or medium hub would receive a 25 percent cut funding cut (subject to fund availability)

      • Communities more than 210 miles would experience a 10 percent funding cut (subject to fund availability)


    Demand management
    Demand Management Revenue

    • The FAA forecasts that traffic will exceed pre-2001 levels during the current fiscal year and will exceed 1 billion enplanements by 2014.

    • Peak-hour pricing systems are inconsistent with national goals to enhance air service competition throughout the United States

    • Regional passengers pay the same aviation taxes and fees as other travelers and should not face higher ticket prices or limited travel options because we failed to modernize and expand the airport and airway system

    • Congestion pricing limits service and fare choices of passengers in small or medium sized cities and is not an appropriate solution

    • RAA favors federally-mediated voluntary negotiations to address capacity concerns, similar to those that were used effectively by the federal government for Chicago O’Hare.


    Www raa org

    www.raa.org Revenue