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Why Airplane 3 Was Started




THIS VENTURE IS ALL ABOUT COMMERCIAL AIR SERVICE TO RURAL AND SMALL COMMUNITIES.

QUICK DISCLAIMER Some of the content on this page may be common knowledge to a lot of people who read it however, I have included it because it provides a generalized and extremely compressed history of the market Airplane 3 aims to serve, and why I believe opportunities exist in that market.

IN THE BEGINNING... Since U.S. commercial air service began in the 1920s very many communities, members of industry, and government have wrestled with the problem of providing air service to rural and/or small communities. There have been varying degrees of success with these initiatives, all of which assumed/required that air service to rural and/or small communities would be extensions from the trunk (or national/mainline) routes. The structure of this network was actually born in the early airmail routes and serves as the basis for the eventual passenger service hub-and-spoke networks that persist to current day.

THE CIVIL AERONAUTICS BOARD AND SUBSIDIES

Before Airline Deregulation in the 1980s, the Civil Aeronautics Board (CAB) wrestled constantly with the problem of ensuring sufficient air service to rural/small communities while simultaneously mitigating the pressures of controlling subsidies from the federal government. When the Airline Deregulation Act went into effect, the Essential Air Service (EAS) program was created to provide subsidies for ten years to air carriers that served qualified markets. Almost four decades later, those subsidies still exist and payouts to carriers have risen drastically. This is not an entirely American problem; other nations have faced similar conundrums. Years later, the Small Community Air Service Development Program (SCASDP) would join EAS as a federal means of bolstering air service to rural/small communities. Where EAS provides reimbursements to air carriers, SCASDP provides direct grants to selected communities. Typically, 20 communities are selected each year and the maximum grant to communities is currently capped at $1.0M US. On an annual basis, SCASDP allotments represent a much smaller portion of the federal budget than EAS disbursements. I have included SCASDP and EAS here because, at the launch of this blog and website, I specifically reference personas associated with these communities as a primary outreach group for Customer Discovery Interviews w/in Alex Cowen's Venture Design Process. https://www.airplane3.info/current-efforts

3rd LEVEL OPERATORS

In the U.S., from the 1930s and onwards, to include the lead up to airline deregulation, the CAB used such terms as "Feeder," "Local," and "Pick-up," among others, to define the routes that served rural and small markets. These terms were also applied to the operators that flew the routes. In the 1950s and the 1960s the term "3rd Level Operators" came into use by the CAB. From the various articles and documents I have found, the CAB used the term '3rd Level Operators' to:

  • Provide a single and more definitive term than the terms mentioned in the preceding paragraph.

  • Separate the market from, and to make it subordinate to, the evolving Trunk/Mainline markets (hub-and-spoke operations).

Hence, 3rd Level Operators provided scheduled commercial air service to rural/small markets and they did so using various route structures and timetables.

EVOLUTION OF THE FLEET

Third Level operators flew a wide range of aircraft makes and models, but from the 1950s through the 1970s, the fleet was dominated by reciprocating (piston) twin engine aircraft. As the 1980s and Airline Deregulation approached, twin engine turbo prop aircraft gained a foot hold that would last for two decades when their decline was brought on by the proliferation of 50-70 seat regional jets. Since January 1st of 1985, when the Airline Deregulation Act went into effect and the CAB was dissolved, the industry has experienced vast changes that have had a profound impact on all industry players. Primarily, and with specific regard to commercial air service to rural/small communities, and the operators who serve them, we have witnessed the evolution of the Fixed Base Operator (FBO) to Commuter Operator to Regional Carrier. Driving this progression has been the previously mentioned shift from piston twins to twin turboprops to regional jets. Looking back we can make a general historic correlation that looks something like this:

  • FBO = Piston Twins

  • Commuter Operator (CO) = Twin Turboprops

  • Regional Carrier (RC) = Regional Jets (stretched business jets)

Since 9/11 the industry has seen continued mainline (CAB = trunk) consolidation and, with it, Regional Carrier consolidation. In many cases, the mainline operators have integrated their affiliated, or whole-owned, Regional Carriers to cover their smaller markets and, as a result, the Regional Carriers in effect are no longer purely hub-and-spoke operators. In my opinion, they have become mainline 'augmentees' and their focus on small/rural markets is ever diminishing.

AUGMENTATION

This 'augmentation' and subsequent diminished focus on rural/small markets goes hand-in-hand with operators flying larger and more complex aircraft. No longer do these operators fly FAR 23 (Normal/Commuter Category) certified aircraft; they fly FAR 25 (Transport Category) certified aircraft and with that, they assume Cost per Available Seat Mile (CASM) models closer to their mainline (trunk) masters than their FBO roots. Added to this are other cost and revenue factors that are influenced by various market and non-market mechanisms. COVID-19 pandemic factors aside, as cost and revenue factors squeeze operator earnings into asymptotic (or even loss) realms, I expect additional rural and small markets will lose service. Additionally, the 50 seat regional jet fleet is getting old and legacy regional jet airframers have no plans to produce replacement aircraft at this time. I believe this also will add to the combination of abandoned U.S. domestic markets. To be sure, the markets will still exist but their service providers, as they currently operate, will have little choice but to walk away from those markets.


DON'T FORGET ABOUT TURBO PROPS While the preceding paragraphs focus on regional jets, turbo prop commuter aircraft need mention as well. While there are a number of operators still flying a variety of turbo prop aircraft, the number of the aircraft in that active fleet has been drastically reduced over the last 10-15 years. Many of the routes that were previously served by this fleet are now served by regional jets, while other routes have been abandoned entirely.

NEW OPPORTUNITIES

Regional jets and turbo props aside, I believe, with the right aircraft, opportunities exist to recapture the 3rd Level market, and to an extent that could be more prolific than previous levels. Because of this belief, I started Airplane 3 and the 3rd Level history provides the impetus for the company name: Airplane 3 aims to build aircraft that meet the 3rd Level market by achieving the following:

  • Safety for everybody

  • Sustainable, unsubsidized returns for operators, lessors, and financiers

  • Deliver "value" to customers and communities for:

    • Personal travel

    • Business travel

    • Parcel movement

Please see the Current Efforts tab on the web site to learn what we're working on to achieve that goal.

 
 
 

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