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Airlines Cut Capacity 0305
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Latest Target of Airline Cuts: Number of Seats. By MICHELINE MAYNARD March 29, 2005
NYTimes.com. . ig airlines have complained over the last few years that the industry was awash
in seats. But despite deep financial losses, none of them wanted to reduce capacity, given the
heavy demand for travel. . Now, rising fuel prices - up 25 cents a gallon since just mid-February
- are forcing airlines to act, even though planes are as full as ever. Along with raising fares, the
big airlines are beginning to retire less efficient planes and reduce domestic service.. Passengers,
who have enjoyed extraordinary bargains on tickets this decade, are paying as a result, both in
higher fares and in fewer seats, as the airlines rethink service on routes that are especially
unprofitable. . The situation is putting even more airline jobs at risk, on top of more than 100,000
lost this decade. But the airlines say they have no alternative. . "We don't have a choice in the
way we react to this economic stress," John P. Tague, executive vice president for marketing and
sales at United Airlines, a unit of UAL, said yesterday.. Philip A. Baggaley, an airline industry
analyst with Standard & Poor's Ratings Services, said the cuts were indicative of the pressure
that the airlines are under. . "I think we are going to see some pretty grim first-quarter results,"
Mr. Baggaley said.. The exception is among low-fare airlines, including Southwest and JetBlue,
which have aggressive growth plans despite the spike in fuel prices. Those two airlines are
somewhat sheltered because of hedging contracts. . But several big airlines - including United,
Northwest Airlines, Continental Airlines and American Airlines, a unit of AMR - have
announced plans to freeze or reduce the number of seats available on domestic flights this year,
which is the way the industry defines capacity.. The overall capacity of some airlines will still
rise, because they are shifting aircraft to overseas flights. . For example, United, which has been
in bankruptcy protection since December 2002, is cutting seats within the United States by 12
percent, even as it expands its flights overseas with new routes to Asia and Latin America. . Still,
United has cut its fleet by 69 planes since last summer and shifted some to its low-fare airline,
Ted, and its regional carrier, United Express. . Meanwhile, American and Continental have each
said they would cut domestic seats by about 1 percent, although both plan to grow
internationally.. Northwest, which planned to expand its capacity by 2 percent to 3 percent this
year, instead said earlier this month that its 2005 capacity would be flat with 2004. The airline
said it planned to retire 30 aircraft, including 24 of its aging McDonnell-Douglas DC-9 jets,
some of which are more than 30 years old. That announcement meant the loss of 130 mechanics'
jobs in the Minneapolis area, where Northwest is based; the airline said it could cut another 800
jobs later this year.. Delta is retiring 24 of its Boeing 737 planes, but its seat capacity will grow 5
percent to 6 percent this year, largely because it is also expanding its overseas flights. Delta has
also restructured its domestic schedules and operating procedures to wring more out of its
remaining aircraft.. Still, American's chief executive, Gerard J. Arpey, recently predicted that the
industry would be forced to cut more seat capacity because of high fuel prices, which have
already prompted three rounds of fare increases.. Airlines paid a record $1.62 a gallon for jet fuel
during the week of March 24, according to the Energy Department. That is up 25 cents since
mid-February and is a third higher than the airlines paid at this time last year. The airlines used
18.7 billion gallons of fuel last year.. Raymond Neidl, an airline industry analyst with Calyon
Securities USA, said the higher fuel prices were forcing airlines to rethink their route structures.
"You can't justify marginal flying at these fuel prices unless you can get it in ticket prices," Mr.
Neidl said, "and that's never going to happen.". Passengers are already finding themselves flying
on smaller planes, like regional jets, as airlines reduce seats between some cities. . For example,
Northwest has cut seats from Minneapolis to Kalamazoo, Mich., by 29 percent in 2005 compared
with last year, according to an estimate by Back Aviation Solutions, an industry consulting firm.
Northwest is offering 28 percent fewer seats from Memphis to Louisville, Ky., and 27 percent
fewer seats from Detroit to Kansas City, Mo., than it did last year.. Meanwhile, United has
reduced seats between Denver and Indianapolis by 58 percent in 2005. It is offering 46 percent
fewer seats between Buffalo and Chicago O'Hare and 37 percent fewer between Miami and
O'Hare, Back Aviation's numbers showed.. "Passengers will find that in certain markets, there
will certainly be less seats available," Michael Allen, the chief operating officer at Back
Aviation, said.. Yet, some analysts wonder if the cuts will be temporary. Airlines significantly
reduced seats after the September 2001 attacks, parking hundreds of planes on desert storage
lots. Many of those planes returned to use when passengers returned.. And the airlines could
have acted much sooner, given that jet fuel prices hit previous records last year, Mr. Baggaley
said. But he said the carriers thought one or more of their rivals might fail, which would take
care of the capacity problem.. Since that has not happened, airlines are being forced to begin
attacking capacity issues themselves. Said Mr. Tague: "We're not holding our breath that
someone else's failure is going to lead to our success.". Even as the big airlines cut, the low-fare
companies are expanding. Southwest plans to grow by about 10 percent this year, including
service to Pittsburgh that starts next month, while JetBlue will take delivery late this year on the
first of dozens of new 100-seat regional jets.. Said Mr. Baggaley: "It's too soon to declare victory
yet" over excess seats.. .
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