FLUG REVUE December 2004: ERA sees difficult times ahead

ERA DISCUSSES REGIONAL SHAKE-UP

By Patrick Hoeveler

Once upon time there was still a clear distinction between regional carriers and state airlines. The regionals only operated aircraft under 100 seats, and over short distances. Now the no-frills airlines and the recession in air transport have thrown everything into a state of confusion. Despite this identity crisis, things appear to be looking up. “We are seeing clear signs of recovery in the market,” said Director General Mike Ambrose at this year's General Assembly of the European Regions Airline Association (ERA) in Vienna. Thus, the ERA member airlines are reporting passenger growth of 4.3 percent – albeit with reduced yield – and an average utilisation of 59.7 percent for the first six months of 2004. Ticket prices are around one-third lower than three years ago on average. Forecasts as to how the situation will develop and what future fleets will look like are difficult to make. “There are no crystal balls any more,” said the new ERA President and CEO of Aegean Airlines, Antonis Simigdalas.

Could the rise in oil prices have the effect of awakening turboprops after a long period of hibernation? At any rate the companies concerned agree that it could. “Turboprops have clear advantages when fuel prices are rising. And fuel is not going to get any cheaper,” said Dag Waldenström, VP Sales and Marketing of Saab Aircraft Leasing. ATR, together with Bombardier the only remaining manufacturer of turboprop-powered regional aircraft, believes it is a case of “back to basics” for the regionals. After all every one-cent hike in the price of oil costs the US airline industry alone $180 million p.a. John Moore, Senior Vice President Commercial at ATR, presented all manner of impressive number games in Vienna. Thus, he said, 49 turboprops had been ordered world-wide since the last ERA assembly. This was a 68 percent increase on the previous year, while the number of new jets has declined by 39 percent to 179 in the same period.

This trend is apparently confirmed by the recent major order by Air New Zealand for 17 Bombardier Q300's with a contract value of $269.5 million, plus options for another ten Q300's and thirteen Q400's. According to Moore, one of the arguments in favour of propeller aircraft is their suitability for routes with low passenger volumes or for deployment on small airfields. On top of this there is their commercial efficiency: on a 555km route, an ATR 72 can operate ten flights for the same operating costs calculated per seat mile as a CRJ700 runs up over a mere six trips. And finally, due to the high average age of the global turboprop fleet (almost 18 years in the 41-50 seat bracket), there is plenty of scope for modern types.

Despite these forecasts, there was no discernible mood of exaggerated optimism. ATR predicts a constant demand of around 50 new turboprops per year over the next ten years. Moore does not believe that higher costs will create more demand; the market will merely build up a little padding. He sees the freight carrier market as very important, “as it takes the used turboprops off the market.”

Similarly enthusiastic, but at the same time restrained tones are to be heard from Canada. Barry MacKinnon, Vice President Marketing and Airline Analysis, Bombardier Aerospace Regional Aircraft, also expects demand to average about 50 new turboprops per year. “In any event, it will be worth while continuing production through to 2010.” The production rate of the Q400 is even set to rise to two aircraft per month. Whether we can expect a new generation of propeller aircraft is in the lap of the gods.

On the other hand, the incredible rise of the regional jets has slowed down some more, as Barry MacKinnon also had to admit. “The demand for 50-seaters is still there, but the boom of former times is over.” The Canadians are reducing the production rate of their CRJ family accordingly, in the case of the CRJ200 from around ten aircraft per month to 7.5 units. Production of the CRJ700 and CRJ900 remains around 10 aircraft per month, a planned increase having been abandoned. As a result, 2,000 employees in Montreal and Belfast will loses their jobs. And there could be worse to come: given the financial problems of Delta, a major customer of the CRJ family, another sword of Damocles hangs over the aircraft manufacturer. If the regional jets on order from Delta are not taken, then according to Bombardier the production rates might have to be slowed down further, with another 1,200 redundancies. According to GE, however, this does not detract from the long-term growth forecasts for the regional jet segment.

All in all, the industry is still under pressure. “We have to be vigorous in our defence,” said Mike Ambrose, exhorting his member airlines, whose numbers have fallen slightly. As there is little prospect of reducing the costs which airlines can influence, attention is focussing increasingly on the costs which are out of their control, such as charges and taxes. The ERA paper, “A Vision for European Air Transport”, presented in Vienna is intended to help its members to take action against excessive regulation by the EU Commission and discrimination compared with other modes of transport, as implied in the EU White Paper, “European Transport Policy for 2010”, for example, in the areas of subsidies, passenger compensation, security charges and taxes. The principal demand in the document may sound banal, but is perfectly justified: politicians, the ERA asks, should pursue clear and consistent strategies and also promote the successful development of European air transport in the long-term. And if the politicians do consider the consequences of possible regulations before adopting them in the future, then the ERA leadership will actually have achieved one of its most important objectives.

From FLUG REVUE 12/2004

Last updated 11 November 2004

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