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Interview: Regional Carriers at Fulcrum of U.S. Airline Industry Recovery
Two U.S. regional carriers are largely prevailing as victors in a battle for survival as airlines globally continue to weather an unprecedented downturn in travel demand. Phoenix-based Mesa Airlines and St. George, Utah-based Skywest Airlines have both posted profits for the last quarter while larger airlines report losses in the millions of dollars per day. This achievement boils down to one contingency for these two regional airlines: contracts.
Air travel numbers are rebounding in the U.S., albeit gradually. As projected by many industry experts and leaders, domestic travel is returning first as many international restrictions remain in place. Smaller regional carriers are at the forefront of this recovery as most of their operations take place in the contiguous U.S.
Mesa Airlines, founded in 1980, is one of the few remaining independent domestic regional operators. It is not a direct subsidiary of any major carrier, nor do any maintain a controlling stake. Mesa operates for both United Airlines — at its Washington D.C. and Houston hubs — and American Airlines — in Phoenix and Dallas.
The regional airline has dived into many unique business ventures over the years, from services in China to plans to operate a fleet of 737 freighters. At the helm of this regional powerhouse is Jonathan Ornstein, the company’s CEO.
“Some of the regionals have had trouble and probably won’t make it,” Ornstein said during a phone interview. “The three big independents — Mesa, Republic and Skywest — we should be okay.”
A few regional airlines have lost this battle already. Alaska’s RavnAir declared Chapter 11 bankruptcy in April 2020, immediately axing all staff and ceasing operations. Also, Compass Airlines — which operated for Delta Air Lines and American on the West Coast — ceased operations in April.
“Owning your own regionals was the flavor of the month,” Ornstein added. “The number of regionals has diminished incredibly.”
Both American and Delta operate their own regional subsidiary.
The Pilot Shortage
U.S. regional operators have been at the forefront of the pilot shortage, offering countless incentives for the onboarding of new-hire pilots.
“It will be a long time before there’s a pilot shortage again,” Ornstein asserted. “This will have solved the pilot shortage for some time. Everybody was chasing pilots. The pipeline was so tight. The 1,500 rule was counterproductive. That dynamic has changed a lot.”
The so-called “1,500 rule,” better known as the “1,500-hour rule,” requires first officers flying for commercial airlines to have at least 1,500 hours of accrued flight time, instead of the previously required 250 hours. The law went into effect in 2013.
Ornstein notes that the demand for pilots is contingent upon when passengers feel comfortable flying again.
Essential Air Service Contracts
Many smaller air carriers earn their revenue purely on Essential Air Service (EAS) contacts with the federal government to provide flights to underserved markets. Mesa Airlines does not have plans to independently do this outside of its work with the major airlines.
“I don’t think that we would pursue that. We are looking at other types of opportunities. There are cheap airplanes around and people want to work,” Ornstein noted after being asked whether Mesa would pursue more of these contracts. “Mesa used to be the biggest EAS operator in the world.”
“The EAS business is not profitable right now,” he concluded. Airlines like Silver Airways, Cape Air and Boutique Air use smaller turbo-prop aircraft to exclusively run EAS routes with little demand.
Mesa Eyes 737 Cargo Operation
Cargo operations are undoubtedly the aviation industry’s bread-and-butter right now, with traditionally passenger carriers such as Sun Country Airlines perusing cargo contracts.
Mesa is looking into this, too, and is actively hiring 737 fleet managers to begin the process of acquiring the jet for freight. The airline is also training pilots on the aircraft, a process that started back in May. “We are moving forward with plans,” Ornstein said. He adds that the cargo realm has “immediate opportunities.”
“The cargo world is one of the few areas where there’s growth,” he said. Demand for air freight has continued to stay strong even as economic activity dwindled around the world, with many passenger-focused airlines picking up some of the slack to transport health supplies around the world.
“Nobody is going to take the business for granted. Everyone will be a little more cautious. Everyone had thought this industry has changed. We don’t have control over everything,” said Ornstein, referring to the road toward recovery in the airline industry.
“We will be a little more cautious and think through things more carefully,” he added. “The airline industry will never be Coca-Cola. There will always be challenges.”
Ornstein notes that there will always be holes to fill for regional operators and that it is prepared to fill them. “Nobody is going to take the business for granted,” he said. “Everyone will be a little more cautious.”
According to the CEO, Mesa is examining a wide-array of opportunities for the future. ”We are looking at opportunities internationally.” He did not say what these plans would look like or where they’d be implemented
Moving forward, Ornstein said he has one main goal: To jump on new opportunities as they present themselves while keeping his workers employed.
Mesa Airlines reported a $14 million profit for the second quarter of 2020.
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