The U.S. Regional Airline Industry Is Slowly Shrinking


The U.S. regional airlines play a critical role in the nation’s air transportation system. While a few fly as their own brand, most capacity in this industry flies as feed for a larger carrier like United or Delta. A customer may buy a ticket on Delta, but board a flight operated by Republic airlines, for example. The big airlines pay for this feed by paying the regional airline, often on a “cost plus” basis. Over the last five years, the regionals have flown over 70 million passengers in the U.S.

The regionals are under lot of pressure, however. Water flows down hill, and for the regionals this means that pilot availability issues are most critical here. Mesa Airlines, a large regional flying for multiple U.S. airlines, may need to file for bankruptcy protection and may cancel their agreement with American Airlines. Even while total U.S. airlines fortunes look promising, for a number of reasons this sector of the industry is likely to shrink over the next few years.

It Starts With Pilots

Allegiant Airlines has published a chart showing that a single retirement 0f a pilot of a Delta Airlines wide-body aircraft can generate 18 industry pilot training events and ends with the smallest U.S. regionals needing to hire a new pilot. This visually stunning chart shows how connected airlines are when it comes to pilots. This is why the regionals have quickly been raising pilot pay to levels previously paid to full-size jet carriers.

This all meets economic reality, but it also changes the fundamental value of regional feed for bigger airlines. For most goods or services, less is purchased when prices go up. As the cost of offering regional flights rises, airlines will buy less feed and regionals will have fewer flights. There are ways to potentially avoid this, by having the regionals and majors work together to creative incentives for pilots to be hired at the regional and stay for a while. This could include starting a pilot’s seniority with the big airlines while they are still at the regional. This would reduce the incentive to leave the regional job as soon as possible.

Other Cost Pressures Complicate This

If the only structural cost change happening for the regional airlines was in the pilot ranks, it’s possible this could be absorbed by the major airlines or mitigated in other ways. But this industry is facing labor issues for all kinds of roles, and yet they fly smaller planes that make this especially difficult.


Airlines measure cost efficiency using a metric called CASM, or cost per available seat mile. This unit cost measurement shows the cost for one seat to fly one mile. When a regional airline flies a 50-seat plane 250 miles, they generate 50 x 250, or 12,500 available seat miles (ASMs). Compare this to a low-cost airline flying a 180-seat plane on the same length route. They would generate 180 x 250, or 45,000 ASMs. Both airlines use two pilots, and while the bigger plane burns more fuel, it does not burn 3.6 times more fuel, the difference in seats. Every time any cost for the regional increases, they spread this over a smaller ASM base and it affects their overall cost structure in a more substantial way than the bigger airlines. That’s why the regionals are always passionate about keeping their costs low, but in today’s inflationary economy this is challenging them.

Low-Cost Airlines And Busses Are Both Growing Quickly

The U.S. low-cost industry, led by airlines like Spirit, JetBlue, Allegiant, and Frontier, are growing at a much faster rate that than the higher-cost “big four” airlines. As these airlines grow, a larger percentage of the population gets access to low fares and more nonstop service. This growth makes the product that the regional airlines offer less desirable, due to its higher cost for consumers and almost mandatory connecting nature of its services. As the LCCs grow, the regionals will shrink.

On shorter trips, say 150 miles or less, buses are starting to become a more economic and desirable way to feed a big airline hub. One company, Landline, is already working with several airlines to provide this service. Customers can check-in at their small city, check their bags, and ride on the bus in a comfortable, wi fi equipped cabin. When they arrive at the airline hub, their bags are connected and in some cases they will enter the airport through a gate into a secure concourse. These buses could be changed to a new, electric bus to make this service more sustainable years, if not decades, before electric airplanes could do this.

As buses replace shorter trips and LCCs take more small-city service with lower fares and nonstop service, the value of the regional feed shrinks.

Outdated Essential Air Service Subsidies

Some regional airline service is subsidized by the federal government under the Essential Air Service (EAS) program. This program, established back in 1978 when the U.S. industry was deregulated, was initially designed as a 10-year program, but has continually been extended. This program is highly political, and is just as likely to be expanded rather than shrunk as a result. That said, any airline route that only makes economic sense when subsidized is not long-term sustainable, and subject to changing views and politics of the EAS program.

Without the EAS, or with some changes in amounts or locations of the subsidies, this changes how much regional service will be offered. On its own, this doesn’t mean the industry will shrink but it does mean that some parts of industry are subject to political winds that can shift. This changes investor views of supporting this sector of the industry,

Options For The Regional Industry

The best option for the regional airlines is consolidation. This would allow further cost synergies, and increase the negotiating strength with the buyers of their capacity. It also would help to better absorb the necessary higher pilot wages.

Beyond this, there are a few other strategies available. One is the previously mentioned seniority flow-through that would help keep pilots staying in regional planes a bit longer. This would obviously require support from the large airline unions. Another is further cost cutting through further simplification, be it the fleet, management teams, or customer policies. Mostly, finding a long-term role for the regionals against these threats will require close cooperation between the regional operators and the airlines that buy their services. Without this, the regional industry will shrink even more quickly even as larger airlines continue to grow.


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