2003 Northwest Mountain Region

Airports Conference
Seattle, April 9th, 2003

THE FUTURE ROLE OF

REGIONAL AND MID-
CAPACITY JETS IN
COMMERCIAL AIR
TRANSPORT

James R. Kendall
Sr. Analyst, Airline Marketing Analysis
EMBRAER AIRCRAFT MARKETING CORP.
FLL - USA
Contents

 Commercial Airline Industry Review

 Current Airline Business Model Evolution

 Opportunities Beyond
the Current Airline Business Model
 US Domestic RPM Evolution
(Billions)

50

45

40 2000
2002

35 1999
2003 1998
2001
30

25

20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source:
 US Domestic Fare Evolution
Average Domestic Fare (1,000 st. mile trip)

$160

$150 2000

$140 1999

1998
$130

2001
$120

$110 2002

$100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source:
 US Domestic Fare Evolution
Average Domestic Fare (1,000 st. mile trip)

$160

$150 2000

$140 1999

1998
$130

2001
$120

$110 2002

$100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source:
An Industry in Transition

 Fundamental Correction – Not a Traditional Cycle

 Decreasing Average Fare Values
 Decreasing Capacity (USA)
 Increasing Low Cost Carrier Critical Mass
 Increasing Regional Jet Critical Mass

 Pressure on Existing Worldwide Airline Model

 Major USA Airlines re-inventing themselves

 Regional affiliates being used as defensive tools

(point-to-point X hub and spoke)

Airline Market - USA

71%
Domestic ATA Regional RAA
RPM Growth - Yr/Yr % Change

41%
37%
34%
32% 34% 31%
27% 29% 28%
23%
18% 20%
17% 15%
13% 14% 13% 14%
9% 7%
5% 6% 5%
2%
-1% 2% 1%0% 3% 2% 2%

-3% -1% -3% -2% -2% -2%

-6% -7% -7% -7%
-10% -7% -11% -8%
-13% -12%
-18%
-21%
-23%

-33%
Apr

Year 2001

Apr

Year 2002
Aug
Aug
Mar

Jul

Jul
Jun/01

Mar

Oct
Oct

Dec/01

May

jun/02

Nov
Jan/01

May

Nov

Dec
jan/02
Feb

Sep

Sep
Feb

Source: Top Regionals, RAA, ATA

Components of Current Airline Model

Full Service

65 years old

Regional Jets Low Cost

Carriers
10 years old 35 years old
Sustaining Regional Jet Growth

1. Turboprop Substitution
 Productivity improvements
 Passenger jet preference

2. Frequency, Frequency . . .

1.Optimisation of Old and

Inefficient Narrowbody Services
 Rightsizing aircraft capacity with
demand
 Long & thin routes
 New market opportunities
 Profit potential
 Larger, new generation RJs
Regional Jet Network - USA

Jan 1995 – 76 Routes

Jan 2003 – 1874 Routes

Source: Back OAG (ERJ-145/140/135, CRJ-100/200, 328Jet routes)

Regional Jet Network - USA

Jan/2003

< 2 hours
2 - 3 hours
> 3 hours

Source: Back OAG (ERJ 145/140/135, CRJ-100/200, 328Jet routes)

ERJ 145 Family Market Evolution
Dec 1996
May 2002

First Delivery

Dec 1998

Dec 1999

Mar 2001 Sep 2001

Aug 2000
700
2003 Q3
ERJ 145 Family Orderbook

Firm Options Deliveries Firm

Total
Backlog

ERJ 135 122 6 128 92 30

ERJ 140 174 45 219 61 113

ERJ 145 583 301 884 479 104

Total 879 352 1,231 632 247

(as of January 31st, 2003)

 25
50
75
100
B737
MD80

Seat Capacity
A319
A319

125
A319 B737 B737
B737 B737
A320

MD80 MD80
150
B737 B737
A320
A320 B737 B737
Widening Seat Capacity Gap - USA

A320
175+

B757 B757
B757 B757 B757 B757
Market Opportunities - Global
Replacement of Ageing Aircraft
Fleet in Service (61-120 seat segment - Dec/2002)
500

689 aircraft with more than 20 years

400
(34 % of total fleet in service)
Number of Aircraft

300

453
200 372
330
304
277
100 208

108

0
0-5 6 - 10 11 - 15 16 - 20 21 - 25 26 - 30 >30
Aircraft Age (Years)
Source: Fleet PC (Scheduled Airlines, Active in Service and All Passenger Configuration)
Market Opportunities - Global
Rightsizing and Frequency Increase
Average Daily Frequency by City-pair
Routes operated by Jet Aircraft from 91 – 175 seats up to 2000 nm

5150 city pairs with less than

2 average daily frequency

Source: OAG (Jan/2003)

The Need for 70-110 Seat Jets
Opportunities for Optimizing Capacity UNITED
38% of flights depart Mainline Network
with loads appropriate Domestic USA

}
for 90-110 seat aircraft November 2002

19% of flights depart

with loads appropriate 13 13
12
}
for 70-seat aircraft
Percent of Flights

10
9 9
8

6 6
5
4
3
2

<50 50 60 70 80 90 100 110 120 130 140 150 >150

Passengers per Departure

Source: United Airlines (The-Mechanic.com)
The Next Step in Industry Transition

Introducing a 4th Component...

 Natural Evolution of
Mid 50 seat market
Full Service Capacity Jets  Tapping an existing gap
 Replacing old & inefficient
65 years old (70-110 seats) narrow bodies
 New markets opportunities
(range)

Regional Jets Low Cost  Enhancing services

(frequency)
Carriers
 Blurring the line between
10 years old 35 years old regional and mainline
operations
Right Sizing Markets
“Maximize Profits by Right-sizing your Fleet
in the Untapped 70-110 Seat Market”

1. Use the right aircraft for the mission:

 Minimize spill and spoil
 Maximize yield and load factor
 Improve network deployment

2. Provide mainline service operating aircraft with mainline

characteristics at RJ operating cost and flexibility
 Minimize DOC through use of new technology/ family concept
 Optimize comfort, range and performance
 Right economics to match local yield
EMBRAER 170/190 Family

70 Seats

78 Seats

98 Seats

108 Seats

All seats picth @ 32 inches