Watch CBSN Live

SkyWest Starts At-Risk CRJ Flying for United

I saw an interesting thread over on that says SkyWest will be starting at-risk CRJ flying for United this summer. I don't believe that's been done before, and it shows just how desperate the regionals are to place their excess CRJ aircraft into service.

Traditionally, regionals have entered into cost plus agreements with their overlords (the majors). The major agrees to take on all the risk in the arrangement. They pay a set amount to the regional which generally covers all costs and gives a slight profit. The variable costs, like fuel, are passed through to the major so the regional has no real risk at all. This arrangement worked great for the regionals, but it left the majors saddled with capacity that they couldn't make money on.

The 50 seat jets have been particularly hard hit as the airlines ordered way too many of them before realizing that they can't actually make money with that many in the fleet. So while the majors want fewer and fewer of the 50 seaters, the regionals are still stuck with these airplanes and they can't do anything with them.

Now SkyWest is getting creative. They're going back to the old-style method of at-risk flying that is still used with some turboprops today. In this model, the regional takes on all the risk of the flying itself. It sets pricing in the local market and keeps all the revenue. It still, however, flies the route under the name of the major and the major sells tickets from around the system over that segment. The revenue is prorated and the regional gets to keep its share, hoping it makes money.

In this case, United should be happy. My guess is that these CRJs will be flown on routes that United saw as marginal at best. So if they don't think there's much upside to be gained, then they'll be happy to avoid the downside risk. SkyWest, meanwhile, probably isn't thrilled about this, but they have to do something with those airplanes. This is likely the best they can do right now.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.