JetGo Australia????

[THE ORACLE]

Grr,

You have made a really good statement and asked a very fair question concerning the limited success of 50 seat RJ's.

The CRJ 100,200 and EMB 145, 140 and 135 had huge sales success in the 1990's due to the very cheap price of avtur at that time, coupled with a few nasty turboprop incidents including the terrible ATR fatal accident at Roselawn Indiana, which, with the aid of clever RJ marketing caused american passengers in particular to shy away from RPT turboprops for the next few years. Since then the regional aircraft market has adjusted accordingly.

As the price of avtur exponentially increased and particularly post 9/11, airline accountants retired their 50 seat RJ's in favour of similarly sized turbos and larger 70 to 90 seat RJ's in order to make, rather than lose money.

Unlike RPT, FIFO operations are essentially 'closed charters', where the customer hires the entire aircraft regardless of the number of passengers carried.

I think the challenge for JetGo will be to secure RJ airframe lease rates that are cheap enough to offset the very high fuel burn (compared with the same sized turboprop) and secure continuing FIFO work that sits in the 400 to 600 nautical mile 'sweet spot'. Over this distance the 50 seat RJ costs can become competitive with the turpoprop (depending on finance arrangements, etc), due to the shorter sector cycle time afforded by the jet. I am also assuming here, that JetGo will pay at least market rates for their skilled labour force (pilots and engineers particularly).

Over distances shorter than 400 nautical miles, however, any jet loses the price/time advantage over a turbo and over distances longer than 600 nautical miles larger RJ's, such as the Fokker 70LR's recently acquired by Alliance, gain the pricing advantage when it comes to quoting for the job.

Although the passenger ride quality may be better above the weather in an RJ rather than through the weather in a turboprop, FIFO management accountants will always focus on the price cost/benefits of service due to the high frequency of FIFO crew change cycles. Any 'ride quality' improvements afforded by jet operations probably wouldn't be gven too much consideration by a mining company on short sector operations of less than 400 nautical miles, unless the job quote was comparable with turboprop prices.

Although Embraer made over 800 airframes in the EMB 145,140,135 RJ series and many of these are 'mothballed' around the world, lessors drive hard bargains on lease prices in order to sustain the residual values of their investment stock and I don't think JetGo will find too many real airframe 'bargains'. They might negotiate a spares package, simulator time and an initial deferral of some lease rental payments to get to start up, but in order to competitively 'buy' business other operators have historically traded at a consistent loss during the start up period and ultimately become insolvent when the inevitable full lease rental agreement start to 'bite'. The most recent high profile failure in this regard was Sky Air World.

So despite JetGo's website advertising "Jet Comfort at Turboprop Economies" and assuming as a speculative business, they don't have the millions in excess cash to buy their airframes and thus save all leasing costs, I doubt JetGo's ability to otherwise deliver on their advertising slogan.

However, as stated in the chinese proverb "be careful of what you wish for........"

The Oracle