Air Travelers' Woes Likely to Worsen This Year
July 29, 2009
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    The miserably full flights of 2007 might seem like a good reason for airlines to roll out a few more planes and ease the crowding.

    But passengers should expect just the opposite: some big airlines are planning to reduce domestic capacity in 2008 with the hope of driving fares higher to offset rising fuel costs. Barring a recession that reduces demand for air travel, travelers can expect flying to be more crowded and more expensive than it was in 2007.

    Because full flights cause airlines all sorts of operational problems, travelers should also brace for continuing problems with delays and misplaced bags. That means the chance of being bumped from an oversold flight could be greater, and finding a seat on a later flight will take longer.

    “It’s not a good thing,” Paul S. Hudson, executive director of the Aviation Consumer Action Project, a group affiliated with Ralph Nader, said about the prospect of the airlines reducing capacity. “You’re going to degrade the reliability of the system.”

    In 2007, travelers saw the fullest jets ever and the highest percentage of late arrivals – 23.5 percent through the end of November – in the 13 years the Transportation Department has collected such data.

    The expected shrinking of domestic capacity this year comes after two years of industry profits. That is far different from the abrupt shrinkage after Sept. 11, 2001, when demand for air travel declined sharply and airlines had no choice but to reduce fleets.

    The current trend of reducing capacity is aimed at pushing fares up. Among the top seven carriers, all but Southwest Airlines and Continental Airlines reduced domestic capacity during 2007. Some carriers expanded aggressively in international markets where there is less low-fare competition.

    Now, United Airlines expects to reduce its domestic flights this year by 3 percent to 4 percent, while Delta Air Lines plans to cut domestic flights 4 percent to 5 percent.

    Northwest Airlines and American Airlines are planning 2008 flights roughly equal to those of last year.

    But Jamie Baker, an analyst at JPMorgan, said in a recent report that those two carriers were well positioned to idle planes if high fuel prices made some flights unprofitable. That is because they both have a lot of planes that are paid for, meaning the aircraft do not need to be flying to retire debt.

    Mr. Baker expects the hub-and-spoke airlines to shrink collectively by 2.5 percent this year. Even with growth at Southwest, Continental, JetBlue Airways and AirTran Airways, the industry would grow over all by less than 1 percent under Mr. Baker’s outlook, and it would shrink domestically.

    Airlines are eager to raise fares because of higher fuel costs. Each $10 increase in a barrel of oil requires the airlines to raise round-trip fares an average of $18, Mr. Baker estimated. About a year ago, oil was as low as $52 a barrel; on Wednesday, it traded at almost $96.

    Airlines have been busy raising fares since Jan. 1 and are expected to continue doing so. But it will not be clear until the first quarter is over how successful that effort has been, since the mix of seats sold – how many for $100, how many for $400 – is more important than the price of any one fare.

    Last year, airlines raised fares repeatedly, but got little for the effort as smart-shopping leisure travelers and large businesses that negotiate fare discounts kept average fares paid to airlines from rising much. Southwest’s average one-way fare through the first nine months of 2007 rose just 1 percent, to $105.57. Delta’s yield – a measure of fares – rose just 3.7 percent during that same period.

    “I think they’re going to just keep raising prices,” said Roger E. King, an analyst at CreditSights. “They’re going to have to keep at it.”

    Mr. King doubted that flights could get much fuller. At roughly 80 percent full for 2007, that means that on most flights on popular routes at convenient times every seat was sold.

    Shrinkage among traditional hub-and-spoke carriers could be good for consumers over the longer term as discount airlines and others offering new service rush in to fill the void. For example, Virgin America started flying last year from San Francisco and Skybus Airlines, operating from Columbus, Ohio, brought ultracheap fares to the United States by offering at least 10 seats on each flight for $10 one way.

    But in markets dominated by traditional airlines, fewer flights will just mean higher prices and more crowding and all the other service problems that go with packed planes.

    Date: 2008-01-10