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Regional airlines role today and

in future

Simon McNamara

Director General

European Regions Airline Association (ERA)

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Contents

• About ERA

• What is a regional airline

• Regional airlines today

• Future challenges for the

regional industry

• Conclusions

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Founded in 1980, ERA is a European airline trade association representing intra-European air operators:

50 airline members

19 Airports

98 manufacturers and support industry

The only European airline trade association which represents and brings together the entire aviation

community

About ERA

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Aer Arann

Air Alps Aviation

Air Contractors Ireland

Air Iceland

HOP! Airlinair

Air Urga

Blue Islands

Blue 1

Binter Canarias

Aurigny Air Services

Air Nostrum Sky Work Airlines

Eastern Airways

Etihad Regional

operated by Darwin Airline

Danish Air Transport

CityJet

Cimber

HOP! Brit Air

BMI Regional

Malmo Aviation

Luxair

KLM Cityhopper

Braathens Regional

Eurolot

Estonian Air

Sky Express

Sata Air Acores

HOP! Regional

PGA Portugalia

Wideroe

West Atlantic Cargo Airlines

Trade Air

Welcome Air

Amapola Flyg

Astra Airlines

Atlantic Airways

Avanti Air

Avion Express

Belavia

Denim Air ACMI DOT

Farnair Switzerland

Mistral Air

Montenegro Airlines

Titan Airways Adria Airways

Hahn Air Lines

VLM Airlines

Tyrol Air

Ambulance BAE Systems

Corporate Air Travel

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Atlantic Airways Air Iceland

Wideroe

Blue 1

Estonian Air

Belavia Aer Arann

CityJet

Air Contractors

Ireland

Eastern Airways

KLM Cityhopper

Denim Air

Braathens Regional

West Atlantic Cargo Airlines

Eurolot

Astra Airlines

Sky Express

Montenegro Mistral Air

Air Nostrum

PGA

Sata Air

Acores

Binter Canarias

HOP! Regional

HOP! Brit Air

Blue Islands

Aurigny Air Services Tyrol Air Ambulence

Air Alps Aviation

Welcome Air

Etihad Regional

Sky Work

Luxair HOP!

Airlinair

BMI Regional

Titan

BAE Systems

Corporate Air

Travel

Malmo

Farnair

Amapola

Avanti Air

DAT

Trade Air

Air Urga

DOT

Avion Express

Adria

Hahn VLM

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What is a regional airline?

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Let‟s look at an example

Which airline is this?

• 20-22 aircraft fleet

• Serving 38 airports

• 1.25m passengers per year

• 45% of flights connect to another flight

• Average flight time 29 minutes

• Average sector length 170 km

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Let‟s look at an example

Which airline is this?

• Operate from short runways – out of 42 airports

served, 21 have 800 meter strips

• Operations with steep terrain and with

contaminated runways

• Don‟t really care about competition from Ryanair

and Easyjet

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Let‟s look at an example

A few other facts:

• Norway's oldest airline

• Norway's most profitable airline

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Wideroe….

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Another example

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Stobart Air – Aer Lingus Regional

• Serving a recognised brand

• Mature distribution network

• Synergies in customer service, ground handling,

fuel hedging, marketing

• Sustainability for investors

• Connecting feeder and connecting traffic

• Correct capacity on market with right aircraft

allows frequency increases

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….and of course Eurolot

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Regional Airlines Today

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Who flies short haul anyway?

Source: ATR

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Sector Time & Aircraft Size

71 Minutes

Average Sector Time

67 Seats

Average Aircraft Size

Source: ERA reporting airlines

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Passengers & Routes

45 Million

Annual Passengers

Carried

Source: ERA reporting airlines

1200

Routes

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twitter.com/eraaorg Source: ERA reporting airlines – year to year % change by month

A difficult period….

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Our Fleet

Source: Flightglobal

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Market Share - flights

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Two decades of development …

Regional airline characteristics

1992 2014

Mostly independent Many franchise/partner

Mostly entrepreneurial development in new deregulated markets

Policies often determined and/or influenced by ‘larger partners’, the market and regulatory constraints

Many new route opportunities in EU

More limited opportunities in EU but some new opportunities outside EU

‘Full’ service, reasonable yield Reduced service, low yields

Relatively simple management structure

A more complex business environment

Many low volume niche routes

High proportion of business and transfer traffic

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The arrival of „low fare‟ airlines …

• Regionals no longer the “new guys”

• Companies compelled to adjust their business models

• Progressive convergence of „low fare‟ and other business models

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Business Models

Wholly Owned subsidiary

Franchise

Capacity Purchase Agreements/Wet Lease/ACMI

Independent

Characteristics of members

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Strengths

Stability of major airline affiliations for some

More concentrated in developed countries

Strong local or niche franchises

Less susceptible to international shocks

More resilient performance in industry cycles

Weaknesses

Less well known names for independent carriers

Often poorly capitalised operators

Many poorly managed & weak small start-ups

Several unproven niche business models

Regional Operator Characteristics

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Worldwide in service, in

production regional, narrow &

wide-body Aircraft

8%

6%

5%

66%

15%

TP

JET 61-90

JET 91-120

NB

WB

Source: Ascemd

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Future challenges for the regional

industry

ERA Monthly Market Analysis, June 2014 27

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Regional carriers higher frequency profile differentiates them from competitor models

Note: Intra-European market operated by European airlines only.

Source: Innovata, June 2014 load, surface transportation excluded.

Regionals capacity share in 2013

Finding a niche - shorter, thinner routes

ERA Monthly Market Analysis, June 2014 28

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Between 2013 and 2022, the European economy is forecasted to grow at 2% Compounded Annual

Growth Rate (CAGR); the fastest growth is expected in Eastern Europe

Note: Belarus GDP CAGR has been calculated based on 2013 - 2015 and Luxembourg and Iceland CAGR based on 2013 – 2018 available data.

Source: EIU - Real GDP (US$ at 2005 prices) forecast of 2013 - 2022.

GDP CAGR (2013 – 2022)

Finding growth

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Finding a niche or competing?

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Business Models

Wholly Owned subsidiary

Franchise

Capacity Purchase Agreements/Wet Lease/ACMI

Independent

Spreading the risk

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Fighting compexity

Europe now develops a wide range of technical

and non technical regulation

Much of it is beneficial to the industry, but much of

it adds complexity and cost and limits the

flexibility of operators to be entrepreneurial

Over the last 20 years in Europe we have seen a

gradual “re-regulation” of the industry on non-

technical issues

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An initiative started today

may not actually impact an

airline‟s business for as

much as 3-4 years

The process of

consultation, debate and

decision making is slow

and involves different

stakeholders with diverse

interests

The process of regulation…

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Compromise is inevitable

owing to the diverse

interests of the

stakeholders

ERA‟s role as a trade body

is to protect the interests of

our members and requires

proactive and informed

actions at every step of the

process

But we are just one part of

the debate

The process of regulation…

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Major Stakeholders

Non-EU states and regulators

European Parliament

European Council

European Commission

Airports

Airlines

Air Navigation Service Providers

Unions

Flight Crew

Passenger groups

Manufacturers

Member States

Ground handlers European Civil Aviation Conference (ECAC)

National Regulatory Authorities

National Safety Authorities

The “green” lobbyists

European Aviation Safety Agency (EASA)

ICAO

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Europe – the reality

The pace of regulation Number of policy papers requiring ERA’s review, assessment and response

710

Air Transport Policy

Infrastructure & Environment

Technical Services

European Commission 13 52 200

European Parliament 8 8 0

EU Council of Ministers 7 6 0

Eurocontrol 0 71 100

EASA 0 1 126

ECAC 12 1 60

Industry 2 23 0

Social dialogue 36 2 0

All external sources 78 164 486

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Technical issues

• Contingency planning

• Security developments including LAGs

• Eurocontrol activities

• SESAR developments

• Flight Time Limitations, Flight Crew Licencing and Fatigue Risk Management

• EASA Advisory Board developments

• EASA Flight Standards

• European Aviation Crisis Coordination Cell

• Winter operations developments

External relations

• DG COMP (Competition Directorate) relationship building

• DG MOVE (Transport Directorate) relationship building

• European Economic and Social Committee & Committee of the Regions

relationship building

• Pro-active lobbying of the EU Parliament and Member States

Policy issues being monitored

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Industry Affairs issues

• Passenger rights including bankruptcy protection

• Revision of the EU Ground handling Directive

• Slot allocation

• Carriage of Persons with Reduce Mobility (PRMs)

• Delivery of new Airport capacity in the EU

• EU and national Taxes & Charges

• State aid/illegal subsides at European airports

• Review of the “EU Third Package” legislation

Infrastructure issues

• Single European Sky

• EU Airport Observatory activities

Environmental issues

• EU Emissions Trading Scheme developments (EU ETS)

• Revision of the EU Noise Directive

• ECAC Abatement of Nuisances Caused by Air Transport (ANCAT) group

• EASA related issues on the environment

Policy issues being monitored

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Conclusions

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The future of the industry

• Continued strong competition

in the sector

• Yield will remain low

• Pressure on costs will

continue to be strong

• Price will remain a strong

driver for competition

• The airline sector will remain

the weakest financial link in

the value chain

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• Regulatory burdens will

continue to complicate the

business

• Consolidation in airline

business models will continue

• The “low fare” market will

continue to mature and will

consolidate

• Politicians will continue to

perceive the industry as a

“negative” force

The future of the industry

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A major regional airline CEO‟s

outlook on the future of the

industry:

“The air traffic market in Europe

is moving to a situation

dominated by a mix of 3-4

legacy carriers, 3-4 low cost

carriers and a variety of regional

airlines exploiting specific niche

markets”

The future of the industry

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Conclusion

• Regionals have had to adapt and change to

survive

• There remains a long term market that needs to

be filled by flexible, niche operators that are

neither pure low cost operators or network

carriers

• The market in Europe is around 15% of flights

• “Regions” fill that marketplace……

• …..and have a bright future….

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