Jens Flottau Frankfurt and Cathy Buyck Brussels and Paris

Air France has just revealed its new regional division with great fanfare. But it could be its last attempt to retain a serious presence in that segment. Experience in other parts of Europe has shown that matters could become much worse in the sector.

A combination of macroeconomic factors such as little or no growth combined with high fuel prices, rampant taxes and pressure on yields is threatening a growing number of Europe's regional carriers. Those under the umbrella of a larger group have some certainty of survival at least in the short to medium term. But the number of regional airline collapses is also on the rise, particularly in Germany. And even large and formerly successful regionals such as Flybe are forced to launch restructuring programs while stretching the business model to include contract flying.

The latest figures released by the European Regions Airline Association (ERA) show a contracting industry. Demand as measured in passenger miles was down by a massive 6.1% in the first nine months of 2012, the number of passengers carried decreased by 4%. The only good news is that overall the industry reacted aggressively in cutting capacity by 8.1%, thus managing to at least keep load factors in the high 60% range.

Airlines also tried to counteract the trend by using significantly larger aircraft. The average aircraft size including turboprops rose to 86 seats from 78 within a year, reflecting the broader use of types such as the Embraer 190 and Bombardier CRJ900. But even though there has been some fleet renewal activity, a more fundamental replacement cycle is nearing, particularly for turboprops: Their average age has now reached 15.8 years. But given the dire overall situation: How will airlines fund the investment?

Air France, struggling to reduce losses in its short-haul network, is trying a fundamental relaunch of its three regional French airlines under a single management and one brand, HOP! The merger of Regional Compagnie Aerienne Europeenne (Regional), Brit Air and Airlinair will result in the loss of 190 jobs. Lionel Guerin, formerly CEO of Transavia.com France and Airlinair, has been appointed CEO of HOP!

The group's Irish regional subsidiary, CityJet is not part of HOP! “because its main operating base is outside of France, at London City Airport, and the airline is proceeding with its own restructuring program,” Air France Chairman/CEO Alexandre de Juniac tells Aviation Week. But he adds that “we are still considering all options for CityJet.” Options include a possible sale.