Airlines Could Face Cutting More Flights in '09

Jan. 7 — If anyone doubted that U.S. airlines were serious about cutting their capacity, the carriers are offering convincing proof from December and for all of 2008.

Last year, Southwest Airlines Co. grew at its slowest rate in two decades, American Airlines Inc.'s flying capacity in 2008 was its lowest since 2001 and all the major carriers that have reported so far flew less capacity in December than a year earlier.

U.S. carriers reacted to soaring fuel prices last spring and summer by announcing plans to reduce their capacity in available seat miles. The cutbacks began in late summer and continued through the end of 2008.

Now some industry consultants have raised questions about whether airlines may need to implement more capacity cuts in 2009 on top of the drastic reductions they have already imposed.

The goal is to keep filling airplanes at profitable fares, and falling demand in early 2009 may prompt the elimination of more flights.

In October, Boyd Group International estimated that U.S. airlines would carry 7.8 percent fewer passengers in 2009 than in 2008.

"As of today, we should be so lucky," the Evergreen, Colo., consultancy said this week. "Since then, the economic and political pictures have completely changed."

As a result, it is now predicting that enplanements will drop 10.2 percent in 2009.

American spokesman Tim Smith said the carrier originally decided to reduce flying in reaction to the fuel prices, which now have fallen to their lowest levels in several years.

However, the reductions "ultimately seem to have been a good strategy to better position American to deal with a severe economic downturn and less demand for travel," Smith said.

"What we, and others, don't know for sure at this time is exactly where or when the bottom of the recession will be," he said. "Accordingly, we're watching the economy as well as demand trends very closely to determine whether any further capacity changes will be necessary in the months ahead."

In a report Monday to investors, airline analyst Gary Chase of Barclays Capital said the industry "continues to show discipline on the capacity front." He expects 2009 domestic capacity to decline about 7.5 percent from 2008 on top of last year's 4 percent drop from 2007. Including international routes, he's looking at about a 6 percent reduction in capacity in 2009.

"We continue to see the potential for further reductions by the industry as carriers adjust schedules and react to the recent weakening in demand," he said.

For American, its 2008 capacity fell to its lowest levels since 2001, when the Sept. 11 terrorist attacks disrupted its operations and prompted it to cut capacity.

However, the 3.8 percent reduction in capacity from 2007 helped it record its second-highest load factor for a full year, 80.6 percent, despite a 4.8 percent decline in traffic. Only in 2007 did American fill a greater percentage of its seats during a year — 81.5 percent.

Southwest reported Tuesday that its traffic increased only 1.6 percent last year on a 3.6 percent increase in flying capacity. Those numbers represent its most modest growth since its traffic declined 1.5 percent in 1988 on a 0.2 percent reduction in capacity.

Despite that, the Dallas-based carrier is expected to be one of only a handful of U.S. carriers to report any growth during the year.

Southwest spokeswoman Beth Harbin said 2009 "will be another exciting year" with service to begin in March at Minneapolis-St. Paul and later this year at New York's LaGuardia Airport.

"For 2009, we're continuing to watch the competitive moves brought about by the dip in the economy and will continue to focus on getting the most out of our flying schedule and making the most of revenue opportunities," she said.

Among other big carriers, Continental Airlines Inc. said its traffic last year declined 1.8 percent as it reduced its flying by 0.6 percent. United Airlines Inc. saw a 6.5 percent decrease in traffic as its capacity fell 4.5 percent.

Only AirTran Airways Inc. and Alaska Airlines Inc., two of the smaller major carriers, joined Southwest in reporting 2008 increases in traffic.

AirTran was the biggest gainer, saying its 2008 traffic jumped 9.6 percent, outstripping its 4.9 percent increase in capacity. Alaska Air's traffic increased 1.4 percent, with its capacity essentially flat.

While AirTran outpaced Southwest when all of 2008 is included, AirTran outshrank Southwest in December. AirTran's capacity fell 6.9 percent, compared with Southwest's 1 percent decline.

For the month, Southwest's traffic grew 1.1 percent despite the drop in capacity. Its load factor, or percentage of seats filled, increased 1.5 points to 69.7 percent. December marked the first time in seven months that Southwest's loads increased over the same month in 2007.

For many carriers, the biggest reductions are coming on domestic routes. In December, American reduced its capacity overall by 8.6 percent but cut its domestic capacity 11.8 percent compared with December 2007. Continental's capacity fell 9 percent overall, but 12.1 percent domestically.


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