Struggling Airlines Plan to Cut Flights, Plane Sizes to Survive -BYLN- by Joshua Freed Associated Press
Like most businesses, airlines want to grow. But during these difficult economic times, their survival depends on their ability to shrink, as they try to match how much they fly with the number of travelers willing to pay for a ticket.
Just like Detroit shutting factories rather than building more cars than people want to buy, airlines are reducing the number of available flights to avoid flying empty seats around the sky. That saves them money on fuel and labor costs. Airlines also hope it will tip the supply-and-demand equation back in their favor and allow them to raise fares.
What the industry calls capacity cuts began last year as oil prices spiked. At one point fuel amounted to 40 percent of an airlineAEs costs, said Morningstar equity analyst Basili Alukos, who covers airlines. Cutting flights was one way to reduce that expense.
Last yearAEs fuel prices were the first blow of a one-two punch for airlines. The other has been the recession, which has cut business travel sharply. Airlines rely on business travelers for profits because they generally buy higher-priced last-minute tickets and front-of-the-plane seats.
UBS analyst Kevin Crissey estimates that American Airlines will cut flying by 10.4 percent in August, and that United will fly 6.3 percent fewer seats. The biggest carrier, Delta Air Lines, will reduce capacity by 3.9 percent in August.
Even Southwest Airlines, which has never planned a capacity cut, plans to reduce flying by 6 percent this year.
"After summer I expect most of the major airlines to be more aggressive with capacity cuts, simply because the economics are not
working for them right now," said Jim Corridore, an
airline analyst at Standard & PoorAEs.
Here are some questions and answers about capacity cuts.
Q: What is airline capacity, anyway?
A: Capacity is the amount of space available on an airlineAEs flights. Airlines measure it in "available seat miles." ThatAEs one seat flown one mile, whether or not someone paid to sit in it. A reduction in seat miles equals less capacity.
Q: How do airlines cut capacity?
A: Two big ways: smaller planes and fewer flights.
Airlines can put smaller planes on a route that used to be served by a bigger jet. Often, this is done by assigning the route to a regional carrier, which can operate anything from propeller-driven planes with a couple of dozen seats to 76-seat regional jets. So maybe the airline keeps just as many flights between two cities, but on a regional jet instead of, say, a 120-seat jet. …