Regional Jets

2003 Northwest Mountain Region Airports Conference Seattle, April 9th, 2003

THE FUTURE ROLE OF REGIONAL AND MIDCAPACITY 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 35

2000

2002 1999 1998 2001

2003

30 25 20 Jan Source:

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

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

$160 $150

2000 1999

$140

1998

$130

2001

$120

2002

$110 $100 Jan Source:

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

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

$160 $150

2000 1999

$140

1998

$130

2001

$120

2002

$110 $100 Jan Source:

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

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

RPM Growth - Yr/Yr % Change

Domestic ATA

34%

17% 5%

9%

2% -1%

-3% -1%

2%

15%

14%

13% 7%

6% 1%0% 3%

5%

-3% -2%

71%

Regional RAA

23%

29%

27%

-6% -13%

31%

28%

20% 14%

13% 2%

2%

-2% -18% -21% -23%

18%

32% 34%

41%

37%

-2%

-7% -7% -7% -10% -7% -11% -8% -12%

Source: Top Regionals, RAA, ATA

Year 2002

Dec

Nov

Oct

Sep

Aug

Jul

jun/02

May

Apr

Mar

Feb

jan/02

Year 2001

Dec/01

Nov

Oct

Sep

Aug

Jul

Jun/01

May

Apr

Mar

Feb

Jan/01

-33%

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

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

Jan 1995

–

Jan 2003

– 1874 Routes

76 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

Aug 2000

Mar 2001

Sep 2001

700 2003 Q3

ERJ 145 Family Orderbook

Firm

Options

Total

Deliveries

Firm 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 75 100 125

Seat Capacity 150

B757

A320

A319

175+

B757

A320

MD80 B737 A320

A319 B737

B757

B737

MD80

B737

B757

A320

B737

A319

B757

B737

MD80

B757

B737

B737

B737

Widening Seat Capacity Gap - USA

Market Opportunities - Global Replacement of Ageing Aircraft Fleet in Service (61-120 seat segment - Dec/2002) 500 689 aircraft with more than 20 years

Number of Aircraft

400

(34 % of total fleet in service)

300 453

200 330

372 304

277

208

100

108

0 0-5

6 - 10

11 - 15

16 - 20

Aircraft Age (Years) Source: Fleet PC (Scheduled Airlines, Active in Service and All Passenger Configuration)

21 - 25

26 - 30

>30

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 with loads appropriate for 90-110 seat aircraft

}

Mainline Network Domestic USA

13

13

Percent of Flights

}

19% of flights depart with loads appropriate 12 for 70-seat aircraft

November 2002

10

9

9

6

8 6 5

4

3

2

<50

50

60

70

80

90

100

110

120

Passengers per Departure Source: United Airlines (The-Mechanic.com)

130

140

150

>150

The Next Step in Industry Transition Introducing a 4th Component... Mid Full Service 65 years old

Regional Jets

Capacity Jets

Natural Evolution of 50 seat market



Tapping an existing gap



Replacing old & inefficient narrow bodies



New markets opportunities (range)



Enhancing services (frequency)



Blurring the line between regional and mainline operations

(70-110 seats)

Low Cost Carriers

10 years old



35 years old

Right Sizing Markets “Maximize Profits by Right-sizing your Fleet in the Untapped 70-110 Seat Market” 1.

2.

Use the right aircraft for the mission: 

Minimize spill and spoil



Maximize yield and load factor



Improve network deployment

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