Airlines slashing capacity at rate unseen since WWII
Delta Air Lines Inc. and the other big U.S. carriers are poised to make more cuts in available seats as the summer travel season ends this weekend, capping the industry's deepest retrenchment since World War II.
Capacity at the six largest carriers, led by Delta, will shrink 6.8 percent by year's end from 2008 levels, according to data compiled by flight information firm OAG Aviation Solutions for Bloomberg News. That's equal to erasing the domestic network of US Airways Group Inc., the No. 6 U.S. airline by traffic.
The analysis by OAG and a separate assessment by the Air Transport Association trade group show the scope of U.S. carriers' pullback to counter slumping business travel in the recession and the usual end-of-year decline in leisure fliers. Some analysts say the reductions aren't done.
"There's no point putting seats in the air if people don't want to fly," said David Swierenga, president of aviation consulting firm AeroEcon in Round Rock, Texas. "A double-digit cut, more than 10 percent, in capacity is called for."
The six biggest U.S. carriers may post a 15th straight month of declining traffic on their main jet operations, based on miles flown by paying passengers, after Delta releases August results later today.
Drop in Traffic
AMR Corp.'s American Airlines, UAL Corp.'s United Airlines, Continental Airlines Inc., Southwest Airlines Co. and US Airways reported a collective 4.8 percent drop in August traffic.
Capacity is measured in available seat miles, or the number of seats multiplied by the number of miles flown. Airlines' benefits from flying less are lower costs and fewer tickets for sale, a move intended to lead to higher fares.
OAG and the Washington-based Air Transport Association examined different groups of airlines in estimating the industry's full-year contraction. Carriers don't report their planned reductions the same way and usually don't announce what routes or flights they're discarding.
OAG, based in Downers Grove, Illinois, reviewed post-Labor Day schedules to compute how much 2009 flying will be chopped in the U.S. and overseas by Delta, American, United, Continental, Southwest and US Airways. The ATA said industrywide seating capacity would fall 6.9 percent on domestic routes in 2009.
1942 Benchmark
That would be the most since a 12 percent drop in 1942, the first full year of U.S. involvement in World War II, according to ATA data. Based on available seats, the U.S. industry is about 450 times larger now than 67 years ago.
The ATA's analysis means that the 2009 capacity cuts would dwarf airlines' 3.9 percent pullback in 2002, the year after the Sept. 11 terrorist attacks, and the 4.4 percent drop in 1974 amid the oil-price shock.
"As far as I'm concerned, they can't cut enough capacity," said Hunter Keay, an analyst at Stifel Nicolaus & Co. in Baltimore. "Every little bit helps."
Airlines have filled seats in the recession by offering cheaper tickets. Houston-based Continental, one of the few carriers to report monthly financial data, said revenue from each seat flown a mile tumbled as much as 18 percent in August for an eighth straight monthly decline.
"If you have less capacity, that generally allows a bit more pricing power," said Kevin Krone, the marketing chief for Dallas-based Southwest. "It got trumped this year because the economy was so bad. Those sort of offset each other."
No Pricing Power
Major U.S. carriers have pushed through 3 broad fare increases in 2009, down from 15 in 2008 and 17 in 2007, according to Rick Seaney, founder of Dallas-based ticket- research firm FareCompare.com. Yield, or average fare per mile, fell each month this year through July, according to the ATA.
Airlines aren't seeing pricing strength in coming months, according to online travel agency Travelocity.com. Average fares for domestic flights from Sept. 7 through Nov. 17 dropped 2.8 percent between mid-July and mid-August, Southlake, Texas-based Travelocity.com said. International prices fell 1.1 percent.
Business fares, usually airlines' most profitable source of revenue, are at the lowest levels in six years, based on data from American Express Co.
"They have no idea how business bookings are going to hold up, and you've got to assume the worst at this point," said Michael Derchin, an analyst at FTN Equity Capital Markets Corp. in New York. "More capacity needs to come out."