For the first time in recent aviation history, the financially troubled U.S. airline industry is shrinking domestic flying capacity in the face of strongly growing public demand for its service.
If the capacity reduction is the beginning of a long-term trend toward less domestic flying -- and it's not certain that it is -- the implications could be profound. For consumers, diminished capacity could mean higher average fares, fewer choices, fuller flights and fruitless searches for mileage upgrades and award travel. For communities, it could mean deteriorating or disappearing air service. For the airlines themselves, it could mean a fighting chance to regain profitability.
Meanwhile, the number of air travelers has been growing strongly since the collapse of the travel industry after the Sept. 11 attacks. The Federal Aviation Administration projects 19% more domestic air passengers in 2006 than traveled in 2002.
Frequent-flier Kevin Kruke of Park City, Utah, says he's been feeling the pinch of more travelers chasing fewer seats. He believes airline capacity cutbacks are rippling back into airports. "Fewer flights are putting more people in terminals at the same time. Lines are longer for Starbucks, food, shoeshines," he says.
For some carriers, the cutbacks are "a matter of survival," says John Heimlich, economist for the Air Transport Association, the airlines' main trade association. Capacity reduction cuts expenses and improves airlines' pricing power by constricting the supply of airline seats.
Heavy losses weigh
U.S. airlines have lost $32.3 billion in the last four years and are expected to lose $10 billion more this year. Top executives such as American CEO Gerard Arpey have long argued that excess flying capacity needs to be trimmed if the industry is to regain its financial health. Airline executives often make such arguments when talking about the demise of the weakest players within the industry.
Different dynamics explain the capacity reduction measured by the USA TODAY analysis of OAG (formerly Official Airline Guides) flight schedule data from Back Aviation Solutions. What's behind the reduction:
*Strategy. In the last year, some big traditional airlines such as United and Delta have been shifting more of their capacity to international flying. Those routes command higher fares and help the beleaguered carriers escape fierce domestic competition from low-cost competitors.
*Bankruptcies. To cut costs in bankruptcy reorganization, airlines such as Delta and Northwest have trimmed their fleets. Discounters Independence Air and ATA, also in bankruptcy reorganization, have also jettisoned planes.
*Fuel costs. The run-up in jet fuel prices after Hurricane Katrina accelerated the capacity reduction by forcing airline executives to examine the cost effectiveness of many of their routes. Costly fuel erased profit on many routes, prompting cuts.
Even profitable discounter JetBlue made fuel-related cuts. It eliminated two round trips a week between its New York John F. Kennedy base and Buffalo, Tampa, Fort Lauderdale and Fort Myers, Fla.
According to the USA TODAY analysis, Delta, which has been in bankruptcy reorganization since September, has cut the deepest among U.S. airlines. The Atlanta-based carrier and its regional partners are flying 19% fewer domestic seats this month than in December 2004.
Delta eliminated seats mainly by cutting the number of daily flights on many of its routes, and by shifting to smaller planes.
Delta significantly shrank a major hub, Cincinnati. As a result, Cincinnati lost non-stop service to 12 U.S. airports.
Delta frequent-flier Jay Zollicoffer is adjusting to the airline's cuts. The airline flies less frequently between Atlanta and Zollicoffer's Greensboro, N.C., home. As a result, he says the flights are often oversold and crowded.
"I've been flying Delta fairly heavily for the past 12 years, and this is the first time through all the changes that I've really noticed a difference," Zollicoffer says.
Northwest, also in bankruptcy reorganization since September, and its regional partners have shed 11% of U.S. capacity in much the same way as Delta -- less frequent service on many routes and smaller jets.
The analysis shows clear trends that are affecting how and when Americans travel this holiday season:
*Frequency of service. Most of the reductions came by scaling back the volume of service on routes rather than by eliminating them.
For example, Delta reduced the number of daily non-stop flights from Atlanta to Philadelphia to eight from 15. Delta's Atlanta-Dallas/Fort Worth service saw a similar cut. Northwest now flies one rather than three daily flights from Minneapolis to Albany, N.Y.
*Length of route. Capacity on flights of less than 750 miles has been trimmed more than on longer flights. For example, Independence Air cut nearly two-thirds of its seats between Washington Dulles and Raleigh-Durham, a 229-mile route.
*Time of day. Capacity on flights scheduled for 8 p.m. or later took deeper proportionate cuts than earlier flights. One in five flights between 10 p.m. and midnight have vanished since December 2004.
Cutbacks ripple out
High-mileage air travelers are seeing the effects.
Delta frequent-flier Teresa Colson of Lexington, Ky., says she's flying more on small 50-seat jets.
"We're all fighting over the exit row," she says.
Tink Wilkinson, a consultant based in Mobile, Ala., says he quit Delta for US Airways when it cut Atlanta-Mobile flights at 9 p.m. and 10 p.m. Delta ultimately reinstated one of the flights, but Wilkinson has stuck with its competitor.
"When you can't depend upon an airline to have consistent flight schedules, what's the point?" he says.
Since Northwest cut late-afternoon flights from Detroit into Flint, Mich., Dan Tunnecliffe says he's left with a difficult choice: miss business opportunities or face extended evening airport waits as he tries to get home to Flint.
Because Delta eliminated a night flight from Cincinnati to Ken Coker's home airport, Oklahoma City, getting home from the East Coast now requires connecting in Atlanta. Planned changes will soon add 90 minutes to a trip he makes about once a week. "Major inconvenience," says Coker, an automotive industry consultant.
Delta frequent-flier Rich Marcus of Fort Lauderdale says that since the reductions, he's noticed flights are fuller, which makes it difficult for business travelers such as himself to make last-minute changes. After a business trip to Greensboro last week required him to fly stand-by, he says he watched two planes depart before finally getting on the third. All were overbooked.
Route maps relatively stable
Despite the reductions, the USA's biggest airlines, which serve hundreds of cities, so far have kept their route maps mostly intact. Delta, for example, has ceased service in the last year to just four of about 200 U.S. airports. Nonetheless, some cities have seen airlines pull out completely, and airport directors in many places are feeling vulnerable to future cuts.
Delta and Independence Air recently ceased flying to the Newburgh, N.Y., airport, roughly an hour and a half's drive from Manhattan. Independence Air's exit meant the loss of non-stop service to Washington, D.C., and Delta's departure meant the loss of non-stop service to Cincinnati.
"A small airport like ours is always one of the first that goes, because it's not as important as the larger ones," says Tanya Vanasse, the airport's marketing manager.
Indianapolis-based discounter ATA quit flying to its hometown. When ATA pulled out of Grand Rapids, Mich., the community received a double blow. It meant the loss of non-stop service to Chicago Midway, and it also caused fares for the remaining carriers to climb, says airport marketing manager Bruce Schedlbauer.
New Orleans lost two thirds of its capacity -- about 25,000 seats a day -- because airlines reduced service after Hurricane Katrina. Greenville, S.C., Appleton, Wis., and Aberdeen, S.D., have also seen deep cuts in service in the last year. In Aspen, Colo., airport director Jim Elwood is looking for backups to Northwest's feeder airline, Mesaba, one of the major airlines serving the resort town. Both carriers are operating in bankruptcy protection. Northwest has assured him that the schedule will stay intact for this ski season, Elwood says. Nonetheless, he says, "If you're looking for guarantees, the airline industry is not a good place to look these days."
Shrinking to continue?
Whether the year-over-year reduction in domestic airline capacity is the beginning of a long-term trend that will boost prospects for industry profits is a matter of disagreement. Some argue that aggressive discounters will move quickly to increase their supply of seats, negating any long-term business benefits for struggling big airlines.
Lehman Bros. airline analyst Gary Chase projects that domestic capacity, on a full-year basis, will fall by about 3% in 2006 vs. 2005. It's all good news for a profit-starved industry, Chase says. "Small changes in the supply/demand balance can create large amounts of pricing leverage," he wrote in a recent report.
But Terry Trippler, airline expert at Cheapseats.com, doubts the reductions will last long. "As long as we have an unregulated industry in a free-enterprise system, capacity cuts will never be permanent," he says.
JetBlue, AirTran and Southwest are closely watching the reductions for new opportunities that might arise.
Southwest has already started filling in gaps, and will fill more next year. In January, the discounter will start flying into Denver, where United scaled back service. Discount airlines are expected to take delivery of 210 jets this year and next, according to Michael Allen of Back Aviation.
Allen says it's possible the traditional carriers will bring back U.S. capacity at some point, but they first must clean up their balance sheets. Some of the big airlines have a rare shot at becoming profitable in 2006, he says. "Hopefully, the lesson will last for a while," he says.
Where the changes are Airlines have scheduled 5% fewer domestic seats this December compared with last year. Percentage change for large U.S. airlines and their regional partners: Percentage change from Dec. 2004 Airline American -3% Continental 6% Delta -19% Northwest -11% United -3% US Airways -7% AirTran 24% America West 1% ATA -74% Frontier 10% Independence Air -49% JetBlue 29% Southwest 3% Note: US Airways and America West Airlines have merged but reported data separately. Analysis based on domestic service in lower 48 states. Source: USA TODAY analysis of OAG data provided by Back Aviation Solutions.
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