US Regional Airline Consolidation Makes Sense
Regional airlines in the United States play an important role in the national air transportation network. Regional airlines serve many communities that cannot be served profitably by larger, full-service jets. With nearly 2,000 aircraft and flights for the largest US airlines, as well as some providing services on their own, this group of airlines connects many people to the world and launches the careers of many who ultimately work in major US airlines.
This part of the industry also faces significant challenges. Skywest Airlines announced it would cancel service to 29 smaller cities due to a shortage of pilots, only to be told later it had to continue services as it had received a federal subsidy for some of them . United Airlines has placed a large order for full-size jets in part to replace flights currently being flown on smaller jets by regional airlines. One way for this critical sector of the airline industry to survive is to encourage consolidation to make these carriers more efficient.
Recruitment of pilots
Probably the biggest challenge for regional airlines today is finding enough pilots. Even when they can hire, these pilots are quickly recruited by larger airlines. This is especially true for low-cost, fast-growing airlines. Although consolidation between regions will not reduce the number of pilots needed or make more available quickly, it does mean that the industry could better plan and prepare. Indeed, training schools could be more efficient when hiring in larger quantities. Additionally, a larger airline means more growth opportunities for pilots and faster movement to the left seat. Reducing some redundant flights at carriers could also ease the burden of hiring pilots.
Fleet and other synergies
Like most things, planes get cheaper the more you buy them. Having larger individual regional airlines means fleet orders could be better optimized. It also means that spare parts, maintenance and other operational costs become more efficient due to economies of scale. Leverage with major suppliers like Embraer increases with scale, as does parts sourcing and distribution. Even underway, line maintenance becomes easier with a wider route network and more opportunities for individual aircraft to stop at a maintenance base without an additional flight.
Beyond the fleet, other synergies are also likely. This includes basic overhead costs like IT and accounting, training, and human resource activities. Spreading these fixed costs over a larger base of operations increases efficiency and lowers unit costs of production, making merged companies more sustainable during tough economic times. None of these companies are huge, so it wouldn’t be like two big companies combining to make the company less competitive. Instead, it would be smaller carriers combining to better fit the fast-changing world of big US airlines.
Perhaps the biggest and best synergy of regional consolidation is the best use of limited management talent. Airlines in general don’t have deep talent banks, and regionally there isn’t much room between senior management and front-line employees. Republic Airlines and Skywest Airlines tend to perform better than other regional carriers, and it’s no surprise that their management is also considered top notch.
Staffing in all businesses has become more difficult. Regional airlines tend to be very thin at the management level. Using this industry’s limited talent to manage and operate a greater percentage of ASM is a good use of talent and a way for the regional industry to stay ahead of the game despite constant pressure from the big airlines they want fly.
Essential Air Service Efficiency
The Essential Air Service (EAS) program is in its 44th year since its inception when US airlines were deregulated in 1978. The program is unnecessary and ill-suited to the realities of today’s air system. The EAS program is piloted by regional airlines in the United States, primarily in cooperation with a major US airline as a feed to a domestic hub. Accepting these subsidies imposes restrictions on carriers, as Skywest learned when they attempted to cancel cities as described above. Combining carriers will not make the EAS system more efficient, but it may make it easier and less expensive to meet service commitments. This would be due to having more aircraft and greater network reach which could allow these services to be offered at lower overall costs. As long as taxpayers continue to spend money to support these questionable services, the industry will respond better with the most efficient operations possible.
Not like major airline consolidation
The US airline industry today has four huge airlines – American, Delta, Southwest and United – which each account for about 20% of the total domestic commercial airline market. Many believe there should be no more consolidation, even though there are many carriers in the United States that are not part of the “big four” club and one way to compete is to expand them themselves.
But even those who are skeptical of the continued consolidation of major US airlines should embrace the idea of regional consolidation. The regional industry is a hodgepodge of independent and airline-owned carriers, many of which fly under the banners of a major airline, but some, like Cape Air and Silver, fly under their own name. This sector of the industry has been on the wrong side of the industry whip, which means that while changes have occurred at the major carriers, regional carriers have not always benefited. They have also been exploited and taken advantage of in some cases. Consolidation in this sector of the industry would be welcome and would improve the state of the industry, while guaranteeing more jobs and further stabilizing the American airline network.