Tiny Regional Jets Fly Toward the Scrap Heap
Small regional jets, with their cramped aisles and small overhead space, flew high for more than a decade. No more. The once-prized 50-seat jets are being culled from U.S. fleets as higher fuel and maintenance bills make them too expensive. The Comair unit of Delta Air Lines (DAL), a pioneer in the use of small jets in the 1990s, said on Sept. 1 it will drop three-fourths of its Bombardier 50-seaters. That will leave it with only 44 by 2012; in 2008, it had 144. And in June, AMR's (AMR) American Airlines said it may divest its American Eagle unit and its 214 planes, mostly tiny jets made by Empresa Brasileira de Aeronáutica (ERJ).
By 2015, U.S. carriers will have only about 200 jets with 50 or fewer seats, down from about 1,200 today, predicts Michael Boyd, president of consultant Boyd Group International. More than 80 have already been scrapped in 2010, he says: "These are litters of aluminum kittens. Nobody wants them."
Regional jets fly twice as fast as turboprops and were affordable when oil was about $20 a barrel. The drawback: spreading costs over about a third as many seats as in a Boeing (BA) 737. With oil averaging $77.93 this year through Sept. 2, up 39 percent from 2009, airlines now favor jets from Embraer and Bombardier that carry at least 70 people.
Operating tiny jets "makes sense if you're focused on share, hub preservation, and other really outmoded concepts," says Richard Aboulafia, an analyst at Teal Group. "But if you're focused on profitability, then 50-seats begin to look awful." Piper Jaffray's (PJC) Douglas Runte says a recent auction of used 50-seat jets posted sales of less than $3 million each for planes appraised at up to three times as much.
The bottom line: Airlines embraced small regional jets when oil prices were low. With costlier fuel, demand for jets with fewer than 50 seats has tanked.