Another Regional Airline Falls to the Covid-19 Recession

(Bloomberg) -- The Big Three U.S. airlines are unlikely to dismantle the regional carrier model any time soon, so long as they rely on massive hubs to generate profits. This outlook is from the CEO of ExpressJet Airlines, one of the largest regional carriers in America, and one which plans to shut down this year.

ExpressJet is the fourth U.S. regional airline to collapse since the Covid-19 pandemic decimated air travel. Through a subsidiary, United Airlines Holdings Inc. owns 49.9% of the airline, which it acquired from SkyWest Inc. in late 2018 to bolster its regional flying. United has decided to end its flights with ExpressJet as part of the carrier's broader, pandemic-induced retrenchment.

At one time, the regional airline—formerly Continental Express—was among the world's top 10 by fleet size, with more than 400 aircraft. It also operated as an independent and charter carrier at various points in its history. But those days are over.

“It's a proud old company that's had more life than a cat,” Chief Executive Officer Subodh Karnik said Monday, pledging an orderly transition for the airline's 131 Embraer SA 145 jets and the “mountain of parts” it has subleased from United.

It's unclear how many of ExpressJet's 50-seat E145s may be transferred to CommutAir, another regional airline operator in which United holds a stake, or how many United will choose to park. Those decisions could also affect how many pilots and flight attendants keep working: Atlanta-based ExpressJet has 2,800 active employees.

United warned last month that it would consolidate its 50-seat Embraer business with just one airline, causing ExpressJet and its labor groups to quickly devise proposals for retaining the business. On Thursday, a United spokesman said CommutAir “will operate a fleet that matches the current demand environment.” Before the pandemic struck, more than half of United's daily departures were flown by regional carriers.

“An airline that has been flying for 33 years comes with a mature pilot group and contract,” Joe Mauro, chairman of the ExpressJet chapter of the Air Line Pilots Association, said in a memo to members. “While this is something we are proud of, it must have been seen as a negative to the decisionmakers at UAL.” CommutAir pilots are also members of ALPA.

Karnik, who said each ExpressJet E145 is associated with staffing of as many as 11 pilots and six flight attendants, argued that even with sudden reversals tied to the pandemic, regional carriers are likely to survive because of the operating advantages they give large airlines on fleets and costs.

“If there are airlines that have to have hubs, there is no way that the small-airline model is going to die,” said Karnik, a former senior executive at Continental and Delta Air Lines Inc. “The adage in the airline industry that I buy into is that presence drives preference drives profits,” meaning that travelers in smaller cities value airline choice and service frequency.

As recently as late February, United and ExpressJet had announced plans to consolidate

News of ExpressJet's demise prompted the Regional Airline Association to renew its call for greater federal financial assistance from Washington to avoid a loss of air access in smaller markets.

“Congress did not intend to leave smaller carriers behind. However, Treasury has declined to exercise the flexibility granted under the CARES Act to work with smaller carriers,” the RAA said Friday, referring to the $3 trillion Congressional bailout package. Only one regional airline, SkyWest, has been able to reach terms for a potential loan, RAA President Faye Malarkey Black said. The Utah-based carrier said last week it could borrow $497 million from the government if needed.

Treasury officials are asking carriers seeking less than $300 million to prove that they've been declined by the Federal Reserve's Main Street Lending program for small and medium-sized businesses before they can request airline loans, Black said. A Treasury spokeswoman on Monday confirmed that the agency is requiring some smaller companies to apply first with banks in the Fed program.

“This eleventh hour reversal of eligibility came after carriers spent over three months of negotiation with Treasury, and spent money on Treasury-requested appraisals,” Black said in an email. “If Treasury continues to deny smaller carriers this vital, Congressionally-passed assistance, the consequences for air service in rural America could be dire.”

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