Regional Jet Competition Heats Up In Northeast Markets - 2000-04-03

<B>Regional Jet Competition Heats Up In Northeast Markets</B>

By David Jonas

New battle lines are being drawn as the major carriers continue to infuse regional jets into their fleets. Expansion plans and new launches by American Eagle, Continental Express, Delta Connection and US Airways Express, as well as the likely elimination of slot restrictions at key airports, have ignited heavy competition in Northeast markets as each carrier strives for regional dominance or, at least, a fair slice of the pie.

Continental Airlines, intent on a stronger position in the New York metropolitan area, announced a huge expansion out of LaGuardia, calling for regional jet service to more than 20 destinations. Pending government approval, the first cities to receive Continental Express service in September will be Buffalo, Rochester and Syracuse, N.Y.; Greensboro, N.C.; and Richmond, Va. The plan is to add a subsequent destination each month, including Albany, N.Y.; Columbia, S.C.; Hartford, Conn.; Manchester, N.H.; and Portland, Maine. Once the full schedule kicks in next year, 95 daily departures on 37-seat Embraer 135 and 50-seat Embraer 145 jets will be offered from LaGuardia.

"Our corporate sales folks in New York feel that approaching corporations with a broader range of service is an advantage," said Jim Ream, president of Continental Express. "Newark as a prime airport doesn't always work for corporations in the area, especially those with multiple offices. Extending the product beyond the mainline hub will help corporate travel managers think of Continental in broader terms."

Aside from a well-entrenched marketing presence in the metro area due to years of strong growth across the Hudson at Newark, Continental cited two factors for the move: congressional legislation encouraging service to smaller communities from slot-controlled airports and the efficiency of new regional jets.

Indeed, the Air 21 legislation--which provides $40 billion to make the skies safer, modernize air traffic control, reduce flight delays and boost airline competition, and was approved by Congress and the President--includes clauses to phase out many slot rules at LaGuardia and other restricted airports. That paves the way for carriers to begin RJ service where they previously could not.

"There is a general concern that a lot of smaller Northeast markets were having a hard time getting air service to the region's hubs, more so than in other parts of the country," Ream explained. "So, it made perfect sense to give regional jets the opportunity." However, he added that Continental's move was market-focused, not just a result of new legislation. "We probably would have been slowly adding service all along, but this gives us an opportunity to just go ahead and do it."

Delta, like Continental, immediately took advantage of the open floodgates and followed with an announcement of its own, calling for another 21 RJ routes from LaGuardia--for a total of 31--to begin operating this summer, pending approval. Like Continental Express, Buffalo and Rochester, N.Y., will be in the first wave, and other links, including Manchester, N.H., and Portland, Maine, will compete directly. Other destinations include Burlington, Vt.; Knoxville, Tenn.; and Providence, R.I.

Delta's planned expansion follows last month's launches from LaGuardia to five Southeastern destinations, four of which also will be served by Continental Express. The Delta service will be handled by regional subsidiaries Atlantic Southeast Airlines and Comair using 50-seat Canadair jets.

Delta dominated the RJ scene in 1999 by acquiring those two Delta Connection affiliates and forging a new relationship with a third, further strengthening its Cincinnati and Atlanta fortresses and beginning a slow westward advance toward Dallas (BTN, Oct. 25, 1999). But a battle for New York versus Continental and any other competitors has become the newest focus.

In a special report published by Delta in January, the carrier said that while $30 billion in revenue is at stake in the profitable Northeast business markets, no one carrier is a true market share leader. "One major gap remains in our service from cities north and east of Atlanta. By offering nonstop convenience to New York and Boston, we increase the likelihood that travelers will choose Delta as their preferred carrier for all their destinations," the report said. "RJs' point-to-point service between two nonhub cities in the lucrative Northeast market reflects a key strategic decision that supports mainline expansion."

To further support that strategy, Delta not only is building RJ service out of LaGuardia, but also is firing up a new fleet of at least 45 RJs and an expanded Northeast strategy in cooperation with Atlantic Coast Jet, a subsidiary of Atlantic Coast Airlines. Though destinations and schedules have yet to be announced, initial routes from Washington Dulles into the Northeast are expected later this spring. In fact, 18 jets--both 50-seat CRJs and 32-seat Fairchild 328s--will be up and flying by year-end. "The impact of these new services will grow throughout the year, and the majority of those new jets will be online in 2001," said ACA spokesman Rick DeLisi.

With Continental and Delta eyeing the prize in New York, US Airways likely will feel the heat. Though the carrier's Express operation, via its Chautauqua Airlines affiliate, late last year launched three daily flights between LaGuardia and Atlanta using ERJ-145 jets, and in February increased jet service from LaGuardia to Columbia and Charleston, S.C., it does not have the same network strength as the bigger players to feed the RJ routes.

However, RJs lend themselves to greater opportunities for competition and coexistence. Aside from Continental, Delta and US Airways, both American Eagle and United Express operate jet flights in and out of LaGuardia. DeLisi said, "The regional jet provides the ability for multiple carriers to operate in the same market and all do well. Quite simply, smaller jets mean more frequencies and more choices for travelers." Case in point: United Express, also in cooperation with ACA, flies hourly RJ service between LaGuardia and Washington Dulles.

In general, Ream agreed that there is enough demand in New York to support several overlapping RJ operations. However, he predicted "brush wars" in certain markets and said that "for long-term success, it will come down to who is most effective in managing their distribution system in the New York region."

Of course, LaGuardia already is heavily congested and a slew of new flights, regardless of aircraft type, only will compound the problem in the near term. "Delays will be an operational challenge," Ream acknowledged, "so that's why we'll ease in one market at a time."

The build-up at LaGuardia also reflects a recent trend in the airline industry away from hub traffic and toward point-to-point service. In fact, a recent hub report published by Salomon Smith Barney found that non-hub flying grew three times faster than hub flying, reversing the trend of the past decade. "This result implies a less stable and more aggressive industry competitive structure, as well as a saturation of hub growth opportunities," the report concluded.

However, Ream said, "Continental Express moves to point-to-point flying only where we have a strong marketing presence and strategic position, like in New York. Most other point-to-point service throughout the country does not work."

LaGuardia isn't the only New York area airport offering RJ service (see chart, page 21). ACA/United Express, for example, offers hourly departures from Newark to Washington Dulles, though some still use turboprops. Delta has RJ service at all six area airports, while Continental serves all but Stewart Field, including 20 destinations from its Newark hub.

Farther up in New England, American Eagle has begun an RJ build-up at Boston Logan. American Eagle last month began daily nonstop service with 37-seat ERJ-135s to both Nashville, Tenn., and Richmond, Va. Nonstop Norfolk, Va., flights started yesterday to complement existing flights to Columbus, Ohio, and Philadelphia. As part of a $270 million terminal renovation at Logan, American will build a modern RJ terminal with dining and shopping tailored for the regional passenger. The new terminal underscores AA's push to make Boston an important focus city for a stronger Northeast presence. In fact, American Eagle last year acquired Business Express Airlines for that very reason. Though AA had no RJs in service, it brought firm orders to the table, which have been folded into American Eagle's aircraft delivery schedule.

However, American Eagle has only a small RJ presence in New York. Instead, the carrier is deploying its incoming RJs on routes out of Chicago and Dallas/Ft. Worth to boost mainline hub operations.

For its part, US Airways Express, via its Chautauqua Airlines affiliate, on June 11 will begin daily nonstop RJ service between Boston and Indianapolis. By June, US Airways Express will operate 155 daily RJ departures using a total of 26 Embraer 145 and Canadair Regional Jet aircraft.

In other RJ news, Midwest Express Connection affiliate Skyway Airlines on April 17 will launch the first nonstop service between Reagan Washington National and Grand Rapids, Mich. Four daily flights will operate with 32-seat Fairchild 328 jets. Skyway now flies three RJs for Midwest Express, with two more prepping for service and another 10 optioned for 2001.

In Cincinnati, where Delta and its wholly owned subsidiary Comair enjoy nearly complete market dominance, regional passengers by December will be guaranteed a jet flight when the Comair operation completes its fleet renewal. Comair already flies 90 Canadair RJs from the Cincinnati hub, and as more are added throughout the year, all turboprops will be replaced. In fact, with a few acquisitions under its belt and an overall aggressive regional strategy, Delta predicted it will maintain a one-third share of the industry's RJs through 2003 and field a fleet of 180 by year-end. Those planes already provide Delta with more than $1 billion annually.

Continental Express also is targeting an all-jet fleet. A new order placed in February for another 75 Embraers will help it reach that goal. A total of 200 firm orders--67 of which already are in service--will be delivered by the end of 2003.

Meanwhile, TWA, through an agreement with Trans States Airlines, now provides its customers with RJ service from its St. Louis hub. Flights kicked off in February to Peoria, Ill., Northwest Arkansas Regional Airport, and Greenville/Spartanburg and Charleston, S.C. TWA also reached a codeshare agreement with Chautauqua to begin RJ service this summer.

Northwest, through its Airlink affiliate, on June 1 will introduce its first 50-seat CRJ into its system to serve Memphis, Tenn.-Greenville/Spartanburg, S.C. A month later, CRJs will begin serving Mobile, Ala., from Memphis.

Despite the allure and utility of regional jets, many carriers are limited by pilot scope clauses. American Eagle and Continental Express, for example, currently are restricted to a confined number of jets with more than 67 and 69 seats, respectively. However, with no limits on smaller planes, both will continue taking deliveries each month of more RJs. US Airways, however, is in a more difficult position. Currently, the carrier can fly only 35 RJs. The pilots union had recommended doubling that number before backtracking, a bad sign for an airline with hundreds of RJs on order.