Editor’s Note: The following is a series of interviews carried out by the author in May 2020. The series has covered so far the state of the industry and fleet (available in the Special May/June 2020 issue of Airways), the future of the Passenger Experience, and what’s next for Route Networks, Hubs, Scheduling, and Connectivity. Check our subscription plans if you wish to access this and other prime-quality content. 

In this new chapter of the Future of Air Travel in the age of COVID-19, we’ve asked a panel of former airline CEOs, frontline staff, journalists, analysts, and bloggers to weigh in on what a ‘New Normal’ world could hold for the US regional airline sector.

Regional airlines in the United States account for 41% of all scheduled flights, according to the Regional Airline Association (RAA). The Association claims that regional airlines operate exclusively up to 63% of the regular service to US airports.

Though the regional airlines live in the shadows of their parent and contract flying airlines, these carriers are an essential part of the airline networks in the United States. While mainline airlines boomed in the last decade, regional airlines, especially the independent contract carriers, have had a much harder go of it.

Republic Airways operates service as American Eagle, Delta Connection, and United Express using a fleet of Embraer 170 and Embraer 175 regional jets. (Photo: Cory W. Watts)

These independent contract carriers have been besieged by a myriad of headwinds, ranking from unfavorable scope clauses, Pilot shortages, operational meltdowns, higher operational costs due to inefficient 50-seat jets, to more in-house mainline flying.

These headwinds have resulted in severe financial losses, downsizing, multiple trips to the bankruptcy courts, and liquidations. In recent years, the overall departure numbers of these regional airlines declined from a 2007 peak of 5.14 million to 3.86 million in 2018.

This lower-profile industry is a mixed bag with perpetually profitable players on one side like SkyWest (OO), and more troubled carriers like Mesa (YV), ExpressJet (EV), and Republic Airways (YX). The COVID-19 crisis accelerated the failure of weaker regionals, with Compass (CP), Ravn Alaska (7H), and Trans States Airlines (AX) already shutting down.

Once Alaska’s largest regional carrier, RAVN Alaska shut down its entire operation, laid off all staff, and filed for Chapter 11 bankruptcy in the midst of travel disruptions due to the COVID-19 pandemic. (Photo: Nathan Coats)

Past economic shocks have benefited regionals as mainline airlines shifted the capacity to contract flying. But is this time different?

Courtney Miller, Managing Director of The Air Current believes that the prospects could be different from the wholly-owned regionals such as Envoy Air (MQ), Horizon Air (QX), and Endeavor (9E) versus the independents like Republic and SkyWest.

“In general, regional airlines will be just fine as the major airlines look to retain service at minimal costs. Yet, the current 50-seat fleet represents a lot of airplanes without financial commitments that can be parked and probably retired. That will probably drive more re-hubbing and consolidation of flights for smaller markets,” Miller said.

“The majors will be conserving cash as much as they can, and they can do this by leveraging the regional airline balance sheets. We saw this during the 2000s, when airlines needed regional jets but didn’t want them on their balance sheets, so they signed long deals with regional airlines who purchased the aircraft. The regional airlines then aligned [Capacity Purchase Agreement] CPA terms with financing terms to ensure there was no tail risk. Once the major airlines started to build healthy balance sheets, they wanted the benefit of the ownership, so they invested in their wholly-owned carriers and placed aircraft there.”

“I suspect the independent carriers could see a resurgence in aircraft they own and ultimately fly, while the wholly-owned carriers could find themselves in an undesirable position,” Miller concludes.

A Republic Airways Embraer E175 lining up for takeoff in Miami. Before the COVID-19 crisis, the airline served as a feeder for this major American Airlines hub, with domestic flights and international destinations in the Caribbean. (Photo: Roberto Leiro)

Rohan Anand, Airways Podcast Co-Host believes that regional flying will still be needed, but will “Need high fares to achieve profitability and high margins. Regional airlines will require business travel demand to return, which will [come back] in phases, but certainly not overnight.”

Regional airlines face negative effects of changes in consumer behavior exacerbated by COVID-19. Madhu Unnikrishnan, Editor Airline Weekly notes that in the United States “we are hearing that people now say they’d rather drive 3-5 hours than fly. Whether that lasts remains to be seen, but if airfares do eventually rise, people may be more likely to drive a few hours to a hub rather than take a short connecting flight. Regional airlines probably have a tough future ahead of them.”

Ben Baldanza, a former CEO Spirit Airlines, and Co-Host of Airlines Confidential Podcast, expects to expect consolidation in the regional space “as less connectivity will mean more with fewer players.”

Months before the beginning of the COVID-19 pandemic, United launched the Bombardier CRJ550, marketed as the world’s first 50-seater that offers first-class seats. The aircraft were operated by GoJet (G7) under the United Express brand. (Video: United Airlines)

Scott Hamilton, Managing Director Leeham Company, believes that regional airlines, particularly niche players, face the toughest odds for their survival, “Chapter 11s in the US would not surprise me in the least. Regional airlines, other than SkyWest, are probably most at risk. Specialty carriers (those in the state of Alaska, Harbour Air, Kenmore Air, and similar elsewhere in the world) are probably a huge risk.”

Seth Kaplan, co-host of Airlines Confidential podcast, believes that regional airlines can go either way, “Regional airlines are experiencing incredible short-term pain. In the long run, those that survive will benefit from a very different labor market, especially for Pilots. Whereas months ago they had trouble recruiting, now they’ll have furloughed mainline pilots banging on their doors.”

Kaplan continues, “On the other hand, it’s difficult to say whether regional airlines will mainly get the benefit of that, or whether the benefit will primarily flow to mainline airlines, which will demand big concessions in their regional flying contracts.”

Editor’s Note: In the next chapter of The Future of Air Travel in the Age of COVID-19, the author will explore the future of low-cost carriers in the United States.