United, Delta, American trim flights to avoid 'big, empty planes'
Delta Air Lines Inc., American Airlines and United Airlines are cutting seats on some routes to London, Tokyo and other overseas business centers by as much as a third in response to plunging international-travel demand.
AMR Corp.'s American chopped seating capacity between Chicago and London's Heathrow airport by 33 percent, while UAL Corp.'s United cut 25 percent, according to a Bloomberg News analysis of data from schedule-planning service apgDat. Delta dropped a route between Mumbai and New York's Kennedy airport, and United pared Tokyo-Chicago flying by a third.
The analysis shows how dwindling traffic is forcing the biggest U.S. carriers to unwind some of this decade's global growth. Because discount competitors don't fly to Europe and Asia, such flights have typically been more profitable than domestic service.
"International has gone from the bread-and-butter to the weakest part of the business," said Michael Derchin, an analyst at FTN Midwest Research Securities in New York. "They're cutting to keep fares from completely collapsing. It would hurt more to fly big empty airplanes over the ocean."
Delta, American and United, the largest U.S. airlines, have announced trims of 3 percent to 6 percent of international seats in 2009. Investors may hear about more pullbacks tomorrow at a JPMorgan Chase & Co. aviation conference in New York as travel shrivels further with U.S. joblessness at a 25-year high.
"Significant capacity cuts, particularly of the international variety, remain at the top of our wish list," Jamie Baker, a JPMorgan analyst in New York, wrote in a March 3 note.
The biggest U.S. carriers pared flying by about 10 percent last year, most of it on domestic routes, as jet fuel rose to a record. Job reductions since the start of 2008 now total about 29,400, and carriers have parked more than 500 jets.
Putting more overseas service on the chopping block is a painful step for airlines, especially on flights favored by corporate fliers buying first- and business-class fares, said Hunter Keay, an analyst at Stifel Nicolaus & Co. in Baltimore.
"That's the gold part of the golden goose," Keay said.
Keay said he was "shocked" by the scope of the London reductions in the Bloomberg analysis, which found that American and United both trimmed about 8 percent of seats to that city this quarter from a year earlier. Carriers often don't say when they're switching to smaller jets or flying less frequently.
To preserve 2009 earnings, the airlines need to cut about 5 percent deeper than they have announced so far, said Keay, who projects a total operating profit of $2.3 billion this year for Delta, AMR, Chicago-based UAL and Continental Airlines Inc.
Industry revenue will probably drop 15 percent in 2008 as carriers shrink seating further, UBS Securities LLC analyst Kevin Crissey said today in a note to clients. He previously estimated the decline at 10 percent.
Worldwide, passengers buying first- and business-class tickets on international flights fell 13 percent in December from a year earlier, the most recent data available, according to the International Air Transport Association, a Geneva-based trade group.
The slump persists for U.S. carriers. United reported a 22 percent drop in international traffic in February, measured in miles flown by paying passengers. American was down 13 percent and Continental slid 8.5 percent. Delta and Northwest Airlines, which merged in October, fell a combined 10 percent.
To cushion the blow on earnings, airlines are trying to fine-tune their capacity changes. For example, Delta plans to trim Atlanta-Shanghai flying by 40 percent in the second quarter by operating that flight 4 days a week instead of 7, keeping its foothold in the world's most-populous country.
"By and large, Delta is managing necessary capacity reductions through fewer weekly frequencies, and in some cases smaller aircraft," spokeswoman Betsy Talton said. United is taking a similar approach, spokeswoman Robin Urbanski said in an e-mail.
Carriers also are shuffling flights to find the strongest demand. Delta started flying to Mumbai from its Atlanta hometown as it dropped service from New York's Kennedy to take advantage of connections at its biggest hub, and it is tripling New York capacity to Amman, Jordan.
"You tweak both domestic and international depending on what demand you're seeing," said Julie King, a Continental spokeswoman. While cutting seats to Amsterdam by 15 percent from New Jersey's Newark airport, Houston-based Continental will add daily flights there to Shanghai this month.
The challenge is ferreting out profitable markets amid a global recession, said Henry Joyner, senior vice president of planning at Fort Worth, Texas-based American.
"There doesn't appear to be a lot of variability in performance and economic strength in the world," he said.
FTN's Derchin said U.S. carriers should have begun shrinking international schedules "a few months ago" before the recession worsened and forced them to act. Instead, they're working from a position of weakness.
"The airlines aren't competing with each other right now," said Roger King, a debt analyst at CreditSights Inc. in New York. "They're just trying to manage their own revenues and survive."