Head to Hlead Comparison of Legacy Airlines and LCCs

Market Entry and Exit: Legacy airlines have entered new markets at a reduced rate and have exited markets at an increased rate since 2004, just the opposite of LCCs.

Route structure: Route overlap between the two sets of carriers was 13 percent in 1997 but had risen to 31 percent in 2009, indicat­ing an increasing competitive challenge to the legacy airlines.

Fleets: Legacy airlines reduced their fleets from 1995 to 2009 while LCCs increased their fleets from 257 in 1995 to 911 in 2009. The legacy airlines’ fleet is still about three times larger than the LCC fleet.

Employees: LCC employee numbers have increased and legacy airlines’ have decreased. Fares: The fare differential between legacy carriers and LCCs is lessening, partly due to increased market pressure and competition from the LCCs. Fare premiums due to hub concentrations (hub premiums) by the legacy carriers was 24.9 percent in 1995 but had dropped to 6.6 percent in 2009 (greater N. Y. area) and respectively from 18.6 percent to 6.4 percent in Chicago and Dallas.

Customer Satisfaction: An objective criteria standard called the “Airline Quality Rat­ing” was created in 1991 by Wichita State University (now in cooperation with Purdue University), to report passenger satisfaction levels. It is based on 15 criteria, including on-time performance, denied boardings, mis­handled baggage, and customer complaints. See Figures 35-24, 35-25, and 35-26.

■ Regional Airlines

Regionals are a mixed bag. Regionals can be large or small; they can be independently owned or owned by larger carriers; they can operate jets (30-108 seats) or turboprops (9-78 seats). Most operate under contract to mainline carriers called “pro-rate agreements” or “capacity agreements” and they all serve the function of feeding pas­sengers from smaller airports to larger ones and back. At 498 airports in 2010, regional airlines provided the only service. Stated differently, 72

percent of U. S. communities rely exclusively on regional airlines for all scheduled air service.

In 2012, the FAA said that the U. S. com­mercial aviation industry at the end of FY 2011 consisted of 16 scheduled mainline air carriers that used large passenger jets (over 90 seats) and 68 regional carriers that used smaller piston, tur­boprop, and regional jet aircraft (up to 90 seats). Regional carrier international service is con­fined to the border markets in Canada, Mexico, and the Caribbean.17

Under a pro-rate or revenue-sharing agree­ment, ticket revenues are shared according to a proration formula. All costs incurred in the
regional airline portion are borne by the regional airline, and it is responsible for pricing, scheduling, and ticketing. The regional airline assumes the risk of its operation, but also presumes to benefit from declines in fuel prices and increased passenger counts and ticket prices. While the risks are greater under these agreements, so can be the profits.

Under a capacity purchase or fixed-fee agreement, part or all of a regional’s seat capacity is purchased by a mainline partner. The regional carrier is paid a fixed fee for each block hour of aircraft operation. The mainline carrier assumes the cost of ground support and gate access, as well as operating expenses. The regional airline

is responsible for labor costs, aircraft mainte­nance, and ownership or lease expense. Under this arrangement, the regional carrier is protected from fluctuations in load factors, cost of fuel, and ticket prices.

Under either contractual arrangement, the regional airline is an independent contractor and the mainline carrier assumes no third-party liabil­ity for the regional’s acts, including liability for aircraft accidents.

As the larger new legacy carriers have cut back on route mileage and networks, regionals have increased their percentage of total miles flown. While the number of regionals has diminished from 247 carriers in 1980 to 61 carriers in 2010, they have flown increasing numbers of passengers, longer distances, and in larger aircraft over that period. In 2010, regionals carried over 163 million passengers and operated almost half of all sched­uled airline flights in the United States, a 40 percent increase since 2003 at a time when traffic volumes have remained static. Code sharing with larger air­lines accounts for 99 percent of all regional traffic, and the regional aircraft may fly the livery of its larger contracting carrier or it may fly its own.

1. United/Continental has contractual rela­tionships with Atlantic Southeast Airlines, Chautauqua Airlines, Colgan Airlines, CommutAir Airlines, ExpressJet Airlines, GoJet Airlines, Mesa Airlines, Shuttle American, SkyWest Airlines, and Trans States Airlines.

2. Delta has contractual arrangements with nine regional carriers: Comair is wholly owned. The others are Atlantic Southeast Airlines, SkyWest Airlines, Chautauqua Air­lines, Shuttle American, Compass Airlines, Pinnacle Airlines, Mesaba Aviation, and American Eagle.

3. American has capacity agreements with two wholly owned subsidiaries of AMR: American Eagle Airlines and Executive Air­lines, and also has a capacity agreement with Chautauqua Airlines.

4. Alaska Airlines has a capacity agreement with its wholly owned subsidiary Horizon Air.

5. US Airways has capacity agreements with two wholly owned subsidiaries: PSA and Piedmont. It also has agreements with Air Wisconsin Airlines, Mesa Airlines, Chautau­qua Airlines, and Republic Airways.

Some of the largest regionals are combined in corporate ownership groups.