Airlines Cram More Fliers into Fewer Seats and Flights

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.

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, 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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