Airlines hang on by cutting flights
Just like Detroit shutting factories rather than building more cars than people want to buy, airlines are reducing flights to avoid flying with empty seats. 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. Last year’s fuel prices were the first blow of a one-two punch. The other has been the recession, which has cut business travel. Airlines rely on business travelers for profit 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 next month and United will fly 6.3 percent fewer seats. The biggest carrier, Delta, will reduce capacity by 3.9 percent next month. Even Southwest, which has never planned a capacity cut, plans to reduce flying by 6 percent this year.
Here are some questions and answers about the cuts.
What is airline capacity?
Capacity is the amount of space available on a flight. Airlines measure it in "available seat miles." That’s one seat flown one mile, whether or not someone paid to sit in it fast cash loan. A reduction in seat miles equals less capacity.
How do airlines cut capacity?
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. Or, they can cut a flight altogether.
This is tricky in big markets because travelers — especially lucrative business travelers — often shop by flight time. So if one carrier drops its 5 p.m. flight from that city, the traveler may fly on a competitor.
Is it working? By flying less, have airlines managed to raise fares or become profitable?
Profitable? No. And fares are down this year. But it could have been even worse for the airlines.
The International Air Transport Association expects North American airlines to lose $1 billion this year, but notes that those airlines lost $5.1 billion last year in part because of fuel prices. The group said capacity cuts are one factor preventing airlines from losing even more this year.
Filed under: term by Specialist