Wednesday, November 20, 2019

Placing the CRJ-550

A few weeks ago, United rolled out its latest new-ish aircraft: The Bombardier (soon to be Mitsubishi)  CRJ-700 CRJ-550. Unnecessarily confusing? Ya, we are just getting started.

If you are in one of the Midwest or the East Coast cities which has the new CRJ-550 service, I can almost guarantee your local news agency has reported about this "new" aircraft. I have to hand it to United's press team, I personally have not seen this much positive coverage about a reconfigured aircraft. Granted, they are selling it as a "new" aircraft. But is it really?


Even though the aircraft is a variant of the CRJ-700, technically, yes. In the FAA's speak, the aircraft is technically a CL-600-2C11. The FAA classifies the CRJ-700 as CL-600-2D15. So if the aircraft is not the same, what changed?

While all systems and the build of the CRJ-550 and CRJ-700 are the same, the CRJ-550 has lowered a certified max gross takeoff weight of 65,000lbs from the 75,000lbs available to the CRJ-700. In addition to a max certified weight reduction, the aircraft gauge is also certified at a max of 50 seats. The certification of the weights and gauge as well as the new aircraft type all have to do with United's scope agreement. As defined in United's pilot agreement signed in 2013, a 50-seat aircraft is any aircraft with 50 seats or fewer AND a max gross takeoff weight of 65,000 or less. It simply was not possible for Bombardier to offer the 75,000lbs CRJ-700 with fewer seats to United. Both the weights and gauge had to be certified lower.

In terms of deployment, to understand how I believe United decided which markets to launch the aircraft with, we have to understand exactly what parameters the aircraft can operate. First, the consideration of distance has to be addressed. To best understand what type of mission distance the CRJ-550 to fly, it is best to compare the against the CRJ-700 mission profile.


Bombardier is currently marketing the CRJ-550 to have a maximum distance of 1,000nm, roughly a 30% mission distance reduction compared to the CRJ-700. This can be traced back to the max takeoff weight. If the aircraft were to offload 20 passengers at standard weights and with their associated baggage, you can expect to offload 4,000lbs in weight. However, the other 6,000lbs has to come from somewhere and it appears to be the fuel that took the hit.  With less fuel, less mission mileage. For the November routes, the CRJ-550 maximum mission distance appears to be in the 700-mile range or roughly 70 percentile of the CRJ-700. Future schedules continue to show this trend.

Next, the United has announced the aircraft would be within the Chicago hub and later expand to EWR and IAD. We can also assume the CRJ-550 will only replace other express flying, which given they are in the middle of contract negotiations, I'd say this is a safe bet. This allows us to start to build a list of possible cities and their pairings which may be eligible for the aircraft. Based on these conditions, 200 markets appear to be eligible targets to receive the new routes.


When we start to dig deep into the initial launch routes, we see a pretty clear pattern at first. The routes that were selected to launch the aircraft are typically markets that are performing double-digit above system RASM performance. On average, these markets outperform the 2018 system average by 18% in RASM performance. This makes sense as higher-performing markets may be indicative of higher customer loyalty or higher yieldable demand.


Now, call me a cynic, but I do have to wonder if these markets were selected due to their higher performance to help with messaging. What do I mean? Let's assume for a moment that the new flights do not stimulate incremental revenue performance as expected. These higher-performing markets would still allow United to claim the new fleet type is profitable, even with the up to 10% CASM penalty they will incur.

If we dig a little deeper into these markets, clearly they are being yielded pretty high. On the load factor front, each of these markets has plenty of room to still take additional demand. The softer loads make for one great argument why United would not want to swap service out to a larger gauge aircraft to put higher service classes in the market. Another similar theme with the routes, most of them are missing a significant amount of higher class service.


The CRJ-550 has 20% of its seats dedicated to first class with a configuration of 10 first-class seats, 20 Economy Plus, and 20 economy seats. This is a significant upgrade compared to other regional jets operating within the markets.

With the premium first-class product on the regional aircraft, United does have the opportunity to further increase the yields within the markets. In these markets, United has seen the potential to increase fares in the locally as high as 50% compared to economy fares. That said, the sample size of first class tickets on the routes is limited, given the limited ability to book first class seats. I do think one of the most unspoken revenue generators on the flight could actually be the Economy Plus product. Depending on how the product is managed, each Economy Plus fare could generate more ancillary revenue for the carrier.


As United continues to grow its CRJ-550 fleet, currently at 10 aircraft to 54 aircraft by fall 2020, other high potential markets can be quickly identified. Assuming no operational and scheduling constraints, I suspect we will continue to see United target expansion markets with low premium penetration cabins and high revenue performance.

It is impossible to use public information to gather other likely drivers for United's selection process.  I strongly believe United would have access to data on its customer segmentation and behavior data to help them identify routes with the highest upgrade potential. Additionally, network planners and corporate sales teams would have access to corporate sales information which might also help them target potential upgrade opportunities as well.

I would be remiss if I did give my two cents on the CRJ-550 approach. I have to hand it to United, given their pilot contract constraints, this does appear to be an aircraft which would deliver superior service versus a traditional regional jet product. However, this feels like a bandaid to a larger issue with United and their scope clause. Currently, United is locked in contract negotiations with their pilots and at least publicly it does not appear like they have made much progress recently as their scope clause continues to come into focus.


Taking a closer look at scope, when it comes to fleet deployment, United is at a significant disadvantage compared to other legacy carriers. Within the domestic network, United dispatches 35% of their domestic flights on 50 seat aircraft. This is a full 15pts more of small regional jet deployment compared to American. In the 60-70 seat category, United has 5-10pts fewer regional jet deployments versus American and Delta. This is the scope "limitations" which United continues to focus on.

Increasing CASM to swap out the ERJ-145 might be the right call in a lot of markets, however, with the jet only planned to operate out of ORD, IAD, and EWR with a limited 700-mile range, United will likely hit a diminishing rate of return on the aircraft relatively quickly. What United needs, but likely will not get in their next pilot contract, is to increase gauge within their regional operation, regardless of which pilot group operates it.

I do have to wonder what the fate of the CRJ-550 would be if tomorrow United received their must desired scope relief. Would United keep receiving the CRJ-550, or would they convert all orders to the CRJ-700? What would be the fate of the CRJ-550s that already have been delivered? Could a supplemental type certificate raise the max takeoff weight and recertify the max passenger configuration?

These are all questions for individuals with higher paygrades than me, but I suspect someone already has most of these answers worked out in the unlikely event United's scope world changes tomorrow.


Edit: Online it was correctly pointed out to me that the current airframes are in fact old CRJ-700 airframes. I had assumed, incorrectly, these were new deliveries from Bombardier to their regional partner. If someone has an actual fleet plan with born on dates of the current and future CRJ-550s, I will edit and update the post.

4 comments:

  1. Scott Kirby is driving this CRJ 550 and it is a shot across the bow to United's pilots scope. I previously flew the e145 for almost a decade and while we always got the passenger there safely it almost always ended up being a negative experience due to the plane. The United pilots can't have a poor product doing 50% of their domestic lift. They created this "scope choke" by correctly predicting that the 50 seat product would become uneconomical and obsolete. You can't run a 50 seat rj to a Delta hub and expect to win passengers over. United management is still learning that lesson and I doubt Scott Kirby or Oscar Munoz has flown as a passenger on a true 50 seat rj in a long time. The product is horrendous and should have been gone 5 yrs ago.

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    1. he did fly on the crj700...basically the same plane..it is much more hospitable than the erj145 and while the current scope is in place why not? Also a much better airplane than the crj00 might as well go for it..right?

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  2. Another factor to consider is that converting the 700s to 550s allows UA to bring more E175s into the fleet. While the mainline pilot union is unlikely to be pleased passengers will. It is a MUCH better RJ option than anything else flying regional in the USA today.

    And I generally agree that the E+ segment is going to be a significant revenue boost for the company (https://paxex.aero/2019/10/united-airlines-crj550-review/), the the early numbers on F selling look good. Also consider connecting traffic. Getting a long haul J fare from a customer who might have otherwise booked DL or AA because the feeder had the F cabin would be a significant win for UA and more than make up for the CASM jump.

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    1. You are hitting where the next post will be going. I erred in this article assuming all of these planes were in fact new since that is the way they were presented. I was able to go into the FAA database and find 11 of the 550s. The youngest is 10 years old.

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