A Slump in Travel Pushes Some US Airlines To Cut Seat Capacity

Some US airlines like Delta Air Lines Inc., American Airlines and some others may need to trim capacity by as much as 5 percent after the summer travel season to increase fares.

photo credit: Andrei Dimofte

A 12-month slide in traffic among the biggest U.S. carriers means there are still too many seats to support higher prices. A new round of cuts would build on the elimination of 10 percent of U.S. airlines’ capacity since the start of 2008, including the parking of 500 jets.

“Something in the 3 percent to 5 percent range is probably what we’ll see, and the more the better,” said Crissey, who is based in New York and recommends buying Delta, the world’s biggest airline.

American Airlines bowed even more deeply to the reality of high fuel prices and travel slowdoan by announcing steep cuts in flights. The reductions will likely mean elimination of at least 300 flights a day from the 4,300 that it and its regional affiliates offer. That will also likely lead to elimination of more than 6,000 jobs. The company plans to retire at least 75 mainline and regional aircraft.

Global airline revenue may fall 15 percent to $448 billion this year amid the “most difficult situation that the industry has faced,” the Geneva-based International Air Transport Association said on June 8. North American carriers will probably lose about $1 billion, the trade group said.

“I wouldn’t expect to see any bottoming or pickup until the first quarter of 2010 at the earliest,” Becker said. “Most companies have cut travel budgets and they’re not reinstating any money until they see signs of improvement.”

For three of the past four months of 2009, traffic slid 10 percent or more as travel cutbacks deepened.

Delta may be in the “best position to cut more” because it has some redundant routes and extra planes from its purchase of Northwest Airlines last year, Keay said. He recommends buying Delta and holding Continental, UAL, AMR and Dallas-based Southwest Airlines Co.

Source: Bloomberg