Expressjet flies solo: Will secondary routes and dollar beer spell success?

ByUSA Today

— -- If you've flown into Albuquerque, Jacksonville or San Diego lately you might have noticed a new airline in town: Expressjet. But despite the new branding and livery, Expressjet isn't really a new airline at all. Previously a regional carrier operating 37- and 50-seat regional jets under the Continental Express and Delta Connection brands, Expressjet decided to strike out on its own earlier this year, flying select routes under its own brand name.

For the most part, regional airlines have enjoyed a period of unprecedented prosperity in the post-9/11 world, even while their mainline network airline partners struggled and downsized their domestic operations. Regional airlines receive guaranteed revenue for feeding passengers from smaller cities into the larger network airline hub airports, while network airlines bear the costs for marketing, reservations and ticket sales. As network airlines reduced domestic capacity they offloaded many unprofitable routes to these burgeoning regional players who stand a better chance turning a profit by flying smaller aircraft between those city pairs.

With a guaranteed revenue stream and a successful business model, one may wonder why Expressjet decided to pursue a new course. Business travelers don't have to dive too far back in history to recall the saga of Independence Air, which ceased operations in early 2006 less than two years after the airline's transition from a regional feeder carrier at United Airlines' Washington Dulles hub to an independent airline. While the jury was still deciding the fate of Independence Air, I wrote a column questioning the airline's long-term survival. But I also predicted it was only a matter of time before other regional airlines struck out on their own and that one would eventually be successful as a standalone regional airline. Could that airline be Expressjet?

Trish Winebrenner, Expressjet's vice president of marketing, is determined to avoid the pratfalls that precipitated the demise of Independence. Independence's greatest mistake was that they tried to be a hub-and-spoke airline, Winebrenner told me. With the carrier's entire operation at Washington Dulles, one of United's biggest hubs, Independence Air was thus competing directly with United in many markets. "We chose to go a different direction," says Winebrenner, citing Expressjet's strategy to identify underserved markets capable of filling a 50-seat jet.

Although the Expressjet branded airline operates in some large population centers like Kansas City, San Antonio and San Diego, none of the 24 airports it serves are major hub airports for any other airline. Business travelers will also be pleased to know that all Expressjet routes offer non-stop service between city pairs that had no non-stop service previously.

Since Expressjet began flying, other airlines, including American Eagle, have upped the ante by initiating their own competing non-stop service in some Expressjet markets, such as Raleigh, N.C. But for the most part, Expressjet has avoided the type of major backlash Independence Air incurred when it went head to head with United in their hub airport.

Independence made several other fatal mistakes: growing too fast, adding a second major aircraft type (the Airbus 319) that increased their cost structure, and betting their entire operation on their branded airline product. In contrast, Expressjet has put less than 20% of the airline's capacity into the branded product initially (50 of Expressjet's 274 airplanes fly under the new name) and the bulk of Expressjet's revenue is still derived from their feeder operations for Continental and Delta Airlines.

Business travelers will also be glad to know that Expressjet has inaugurated several new features that were not part of the Independence in-flight product. Although flights are aboard small, regional aircraft, Expressjet offers 100-channel XM radio at every seat, complimentary snacks and meal service on longer flights and "dollar beer" according to Kristy Nicholas from Expressjet's Corporate Communications Department – yes that is not a misprint: $1 buys a 12-ounce beer on Expressjet.

Despite these desirable amenities and a well-planned route system to maximize aircraft utilization and minimize competition, Expressjet still has some major obstacles to overcome to assure its long term viability. Flying solo, Expressjet must provide its own marketing and computer systems for reservations and ticket sales. Building awareness of a new brand in a new town isn't easy. Expressjet filled less than 40% of its seats during the first few months of branded flying, while its contractual flights for Continental and Delta flew 80% full. Expressjet also paid a steep premium for fuel in the first few months of its branded product launch, presumably because a small airline cannot command the volume discount given to much larger carriers like Continental or Delta.

All of this resulted in a $26-million net loss for the second quarter as compared with a $23-million net profit during the same period last year. Expressjet says the loss is temporary while the airline transitions its operation for branded flying. But for branded flying to be profitable, those load factors or percentage of seats filled must move much closer to that 80% number soon.

Expressjet appears to offer a superior product and has avoided most pitfalls encountered by Independence Air, but it remains to be seen if 80 people want to fly from places like Sacramento to destinations like Colorado Springs aboard Expressjet's two 50- seat regional jet departures on any given day. Long term survival or not, Expressjet isn't the first regional airline to attempt solo flying and it certainly won't be the last.

But one thing is clear: Business travelers will benefit every time a new player enters the market.

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Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every other week on topics of interest and concern to business travelers. E-mail him at travel@usatoday.com.

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