Right size

Although popular in North America and Europe, regional jets have yet to reach the Middle East. However, Gulf Air is now assessing them for operations on intra-Gulf routes.

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By  Neil Denslow Published  February 1, 2004

I|~|luiz_m.jpg|~|Luiz Fuchs, Embraer’s senior vice president for EMEA|~|Regional jets have long been a mainstay for airlines in the United States and Europe, as their economics allow carriers to profitably operate low demand routes or to offer greater frequencies between major markets. However, they are yet to enter the Middle East fleet, as airlines in the region have tended to focus more on major markets and long haul routes. Gulf Air though, may be about to launch a smaller jet fleet as it looks to boost its frequencies within the region. Within Europe and the North America, regional jets are taking on an increasingly important role. In the United States, for instance, figures from the Transportation Department show that scheduled regional jet services have increased from 10% of all flights in 2000 to 25% at the end of last year. This move has been driven by the lower operating costs offered by regional jets — which are usually operated by partner carriers for the mainline operators — as they can profitably be used on routes that have insufficient demand for larger jets. The falling passenger numbers since 9/11 means that an increasing number of routes fall into this category. “The mainline carriers [in America] are realising post-2001 that there are a number of markets they just cannot serve profitably with mainline equipment, so they are handing them over to the lower cost regional partners, who are operating very efficient lower cost regional jets,” says Barry MacKinnon, vice president, marketing & airline analysis, Bombardier Aerospace Regional Aircraft. Regional jets offer lower costs than a Boeing 737 or Airbus A320, primarily due to the fact that they are smaller. They hold between 50 and 100 seats, in comparison to the 177 seats on a 737, and this means they have less fuel burn, cheaper landing and navigation fees, lower maintenance and crew costs, as well as a lower purchase and insurance price. Because of these factors, Bombardier calculates that the trip cost of operating a 50-seat CRJ200 on a 400 mile route in Europe is US $3279. Using a 737 for the same service would cost $8348. Similarly, the breakeven point for a regional jet is significantly lower than that of a mainline jet. According to Bombardier, a CRJ200 in a typical operation in Europe breaks even at just 26 passengers; a 737 on the same route would need 80 passengers before it makes a profit. This all means that regional jets can be profitably used on routes on which a carrier would lose money if it served them with a larger aircraft. “The lower operational costs of regional jets when compared to typical mainline narrowbody jets provide a low risk strategy for regional network expansion, particularly on thin routes,” explains Luiz Fuchs, Embraer’s senior vice president for Europe, Middle East & Africa. Despite these advantages, regional jets are yet to be deployed within the Middle East. Indeed, turboprops are also rarely used on regular services within the AACO region, as well. Instead, the airlines have tended to focus on long-haul routes using larger aircraft rather than building up networks within the region. “There isn’t really a hub structure in the Middle East and the routes tend to be denser than a 50 seat aircraft,” comments Tulinda Deegan Larsen, vice president, Back Aviation Solutions. “It has tended to be major market to major market [in the Middle East], but what the regional jet allows is to be able to go from the secondary market in to the major market and then continue onto to the globe,” she adds. The frequency on existing routes within the region is also limited. Statistics from AOG show that 62% of routes within the region have a less than daily frequency, while only 13% of routes have a more than daily service. These routes are also predominately served by larger aircraft with more than 150 seats. “What’s going on in the Middle East is the exact reverse of what’s going on in Europe and in the United States,” notes MacKinnon. “Most markets [in the region] do not have convenient frequencies or convenient non-stop services, and there is relatively under-developed links between some of the cities in the region... Particularly for some of the smaller and medium sized cities, there are not really convenient levels of service.” “This is what we think regional jets bring to the party, a lot more convenience and a load more service alternatives for passengers in the Middle East. I think this is a region that is crying out for regional jet services to augment the existing services in the market,” he adds.||**||II|~|barry_m.jpg|~|Barry MacKinnon, vice president, marketing & airline analysis, Bombardier Aerospace Regional Aircraft|~|Airlines in the Middle East are now beginning to seriously consider regional jets, including both EgyptAir and Gulf Air. The carriers are investigating them as the changing market dynamics within the region mean they could now be used within the local market. The main change is the sheer growth of the Middle East, especially in terms of aviation, which is creating stronger demand for services from secondary destinations, as well as for more frequencies between major cities. “The traffic growth in this region… [means that] what was right 10-15 years ago is different today,” notes James Rigney, head of strategic planning, Gulf Air. Furthermore, the changing regulatory environment within the Middle East, including the adoption of open skies policies and the introduction of greater competition, will also allow and compel carriers to make greater use of smaller aircraft. “In the main, the regulatory environment in the region has been restrictive, so airlines have been forced to use larger aircraft on short sectors due to a lack of frequency,” notes Fuchs. “Unlike the situation in the EU, where the open skies system is applied, the classical bilateral agreements have been dominant in the Middle East [until recently].” “However, with these positive trends [towards market liberalisation], airlines will become more competitive and start practicing rightsizing and frequency,” he adds. “With rightsizing and frequency comes the need for smaller aircraft with more adequate economics.” Rightsizing means using the right size plane on a route, and it is the challenge Gulf Air is facing as it overhauls its fleet. To do this, the carrier is examining three network options. The first model is to expand the fleet with more A320s. However, this is mainly used as a reference for comparisons with the other two fleet options, which are 70 seat regional jets or 100 seat narrowbodies, such as A318s or 717s. The carrier is not therefore committed to regional jets, but it is actively looking at them “Unless at the end of the day it [a new fleet type] would add benefit over and above what we have got today, we wouldn’t implement it,” explains Rigney. “What I would say though, is that our network modelling says that our customers want smaller jets.” Gulf Air has reached this conclusion as it is the only way to offer the greater number of flights that passengers now want. “We need to thicken up frequencies within the Middle East,” says Rigney. “At the moment, we have got our narrowbodies connecting to our main hubs in banks and waves… [but] in the middle of day there is a requirement for frequency.” “[Furthermore,] on some of the destinations we don’t presently get to on a daily basis, on the softer days, where it is difficult to justify the trip cost of an A320, a smaller jet could make that economical for us,” he adds. “There are also some new destinations we are looking at, where we can’t financial justify the A320, but something smaller should work for us.” If the carrier does opt for a new fleet type, it intends to operate the aircraft in a two-class formation, matching the service level found on its current intra-Gulf routes. Regional jets allow this as they are large enough and developed enough to match the amenities found on mainline aircraft. Air Canada, for instance, recently ordered 90 aircraft, evenly split between Embraer and Bombardier, which will be configured in a two-class configuration. The business class seats will have a 37” pitch, while economy seats will have a 34” pitch. There will also be a full range of onboard services, such as inflight entertainment. “We can offer onboard comforts [on a regional jet] that are quite similar to what can be achieved on an A320 or 737, but do it at much lower trip costs. That’s the appeal,” says MacKinnon. Gulf Air is due to decide which of its three network options — A320s, A318/717s or regional jets — it will pursue by the middle of the year, with the planes due to enter service next year. It isn’t giving any clues as to which of the options it will decide on, but the carrier is clearly edging towards smaller jets of some sort. The questions is whether it will be 100 seaters or 70 seaters, and then which manufacturer will win the order. If it decides to go for 100 seats, then Gulf Air could opt for an aircraft from any of the four big manufacturers, Airbus, Boeing, Bombardier or Embraer, and it has sent requests for proposals to all four. Going for the A318 or 717 would counteract many of the advantages offered by regional jets, as they are heavier than the equivalent offerings from Bombardier and Embraer. However, the A318, unlike the 717, does offer the advantage of commonality with the rest of Gulf Air’s fleet, which is all Airbus aside from the 767s operated by Gulf Traveller. “If you are an Airbus operator, I would think you would be inclined toward the A318/319 family because you do get the commonality,” says Larsen. However, if the carrier is going to buy more than just one or two aircraft, then the cost advantages offered by the ‘true’ regional jets might be enough to sway the deal. In the 70-100 seat market it is a straight fight between Bombardier and Embraer, although the two are offering very different aircraft. While the Canadian manufacturer has stretched its CRJ up to this size, Embraer has started from scratch in designing its ERJ170. This new plane has won a series of orders from the likes of JetBlue, LOT Polish and US Air, but whether it will win out over the CRJ in the long run, or win the Gulf Air order, will depend on local factors and the contractual conditions. “I think it will be highly competitive between Embraer and Bombardier in that [70 seat] marketplace… [and] which one will win will depend on each competition,” says Larsen.||**||

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