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SkyWest bracing for end of reign of 50-seater jets

Published August 4, 2012 11:53 pm

Airlines • Delta phases out mainstay for newer models.
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It's no secret that Delta Air Lines has been gradually eliminating 50-seat jets from its fleet. Since 2008, the carrier has rid itself of 120 of the inefficient fuel guzzlers that grow more expensive to fly every time oil prices rise.

So it was a surprise when CEO Richard Anderson and Ed Bastian, Delta's president, felt obliged to say last month during a teleconference that the airline was stepping up the pace. Most of the remaining 50-seaters that fly under the Delta Connection banner will be history in a couple of years, they said.

The move will have the effect of cutting capacity by hundreds of seats across Delta's domestic network and keeping upward pressure on ticket prices.

It was as if Anderson and Bastian were saying, enough is enough, that the days of 50-seaters flying between small towns and big airport hubs are over. And although they didn't name names, Delta's Comair subsidiary, Utah's SkyWest Inc. and the other carriers that fly for Delta had to feel the winds of change blow a little harder.

"We will ultimately replace 75 percent of our 50-seat flying with more cost-effective mainline aircraft and [bigger] two-class regional jets," Anderson said during a conference call with analysts and journalists who follow Delta.

"Our 50-seaters peaked at more than 500 in 2008, and we intend to reduce [that number] to 125 aircraft over the next two years," said Anderson, who painted the coming reductions as a key element in the carrier's plan to cut spending by $1 billion over the next several years.

The audience was interested. Anderson and Bastian answered questions from listeners who appeared to be split over Delta's plan. Some wanted details about the financial benefits of replacing cramped 50-seaters with bigger 70-, 76- and 90-seat regional jets, as well as the 117-seat Boeing 717s that Delta is leasing from Southwest Airlines.

"The revenue opportunity is substantial," Bastian said. "We've said any number of times the 50-seaters have been the perfect storm for us, because not only is it a cost [problem for Delta], it's also an airplane our customers don't particularly prefer."

To questions about whether Delta Connection partners such as SkyWest — which has one of the biggest fleets of 50-seat regional jets in the world — would cooperate, Anderson had this message: "It's going to happen."

Until 1989, 50-seaters were a rarity. That year, Canadian manufacturer Bombardier stretched its business jet into a small airliner able to carry 50 passengers. Because the aircraft allowed airlines to replace noisy propeller-driven turboprops with faster and quieter jets, Bombardier's CRJ100s and 200s caught on immediately. SkyWest was the first U.S. airline to place an order. It bought 10 that first year.

Since then, SkyWest has become the largest regional airline in the U.S., with 725 aircraft, including 508 50-seaters that it flies mainly for Delta and United Airlines. Most are CRJ200 jets. The St. George-based parent of SkyWest Airlines and ExpressJet Airlines flies 153 of them for Delta. SkyWest owns some of them; most are leased, said Mike Kraupp, chief financial officer for the Utah airline.

Even though Delta must remove hundreds more of the 50-seat jets to reach its target, Kraupp says he isn't worried.

"We know where we stand in regard to our contract. I believe Delta understands that," the CFO said. "What I think is a bit early is people trying to speculate on the number that Delta has today and the number that they are going to get down to.

"Remember, they said they are going to do that over the next few years. This isn't an immediate effect."

Yet just two days after Anderson and Bastian spoke about Delta's plan, the airline announced it will shut down its 35-year-old regional carrier Comair at the end of September as it switches to bigger jets. Although 1,700 employees will be put out of work, the closure won't have much effect on passengers, Delta said. Comair handles only about 1 percent of Delta's flying and its network has enough flexibility to absorb the shut-down, the airline said.

Others say they see the proverbial writing on the wall, as well. "Based on our research in this area, we made the case a year ago that two-thirds of [the airline industry's] 50-seaters would be gone in five to seven years," said Vaughn Cordle, an airline analyst who advises institutional investors.

"Of course, the reason should be quite obvious. They are old aircraft, not fuel-efficient, and given the weaker economy and what has been higher fuel costs, the 50-seater no longer makes economic sense," Cordle said.

Last Thursday, SkyWest announced an "understanding" that appears to accommodate Delta without harming its bottom line.

The arrangement was announced after Kraupp said earlier in the week that SkyWest was willing to explore options for 50-seaters, as long as that didn't mean parking them until their leases expired.

The deal calls for Delta to provide SkyWest with bigger 34 dual-class regional jets. In return, SkyWest will drop 66 CRJ200s from Delta service. Most will be returned to Delta, which owns them. SkyWest will probably fly the remaining 25 for another airline.

Kraupp won't say where the CRJ700s and CRJ900s are coming from, although two sources seem likely — Comair and Pinnacle Airlines, a Delta Connection carrier that has filed for bankruptcy. He did acknowledge there would be 300 or so fewer seats available to customers in markets where the planes fly.

"This is a positive result for Delta. It accommodates Delta in its plan to reduce its 50-seat fleet and us as a major partner ... I don't know that it ends the issue, but this is obviously a sizeable movement at this time."

SkyWest is making other moves to replace its 50-seat-focused fleet with bigger jets. Last month, the airline announced an agreement to buy 100 regional jets from Mitsubishi Aircraft Corp. in a deal that marks SkyWest's biggest cash outlay for aircraft in its history. The jets will be 90-seaters, although SkyWest has the option to buy a few smaller 70-seat jets.

With 50-seat jets on the way out, expect SkyWest to announce more orders in the next year.

"We have nothing else to announce at this point. But you should stay tuned," Kraupp said.

pbeebe@sltrib.com

Twitter: @sltribpaul