Jet-fuel prices soar 79%
NEW YORK (CNNMoney.com) — Delta Air Lines said it plans to cut overall flight capacity by 6% to 8% next year due to “the global economic recession and weaker demand for air travel.” As result, passengers can expect flights to be crowded and fare deals to be scarce.
Delta (DAL, Fortune 500), an Atlanta-based carrier that merged with Northwest Airlines in October, said it will eliminate its least fuel-efficient flights in order to meet that goal. Delta intends to trim domestic capacity by 8% to 10% while only paring international seats by 3% to 5%.
“I think the action taken by Delta is a clarion call for the others to reduce their capacity,” said Harlan Platt, a finance professor and airline expert at Northeastern University College of Business Administration.
This summer, the other leading U.S.-based carriers, including AMR Corp.’s (AMR, Fortune 500) American Airlines, UAL Corp.’s (UAUA, Fortune 500) United Airlines, Continental Airlines (CAL, Fortune 500) and US Airways (LCC, Fortune 500), all said they would reduce capacity in 2008. Since then, the airlines have all discussed extending those cuts into 2009, but Delta was the among the first to give specifics, according to Ray Neidl, airline analyst for Calyon Securities.
He anticipates industry-wide capacity cuts of 4% to 5% for 2009, compared to industry-wide cuts of 10% to 11% in 2008. His estimates include domestic and international flights for the major U.S.-based carriers.
Neidl expects American Airlines to be the next company to announce cuts resulting from the recession that has dogged the economy since December 2007.
Platt agreed: “I think that American, as a consequence of never going into bankruptcy, never cut quite as deep into the bone [as competing airlines].
American Airlines chief Gerard Arpey outlined some of the company’s 2009 plans in its most recent earnings teleconference. Arpey said that domestic capacity is expected to decline about 8.5% in 2009, compared to the prior year; international capacity is expected to slip less than 1% in 2009.
A spokesman for American called the 2009 cuts an extension of cuts that began in 2008.
For 2008, Delta has said it would cut 8% to 10% of domestic flight capacity, but it would add 14% to 16% capacity for international flights, which are considered more profitable. In fact, Delta said it was continuing to invest in the Pacific Ocean, Africa, India and the Middle East.
Platt estimated that industry-wide domestic capacity cuts for 2008 could reach 20%, while Neidl believes they will be capped at 12%.
The airlines blamed soaring fuel prices for the 2008 cuts. They also added a plethora of new fees for extra luggage, pet handling, over-the-phone ticket purchases, frequent flier mile redemptions, and other services that were once included in the ticket price. Fuel costs have since dropped, though the fees remain in place.
Airlines are also cutting jobs. Delta, which employs about 75,000 workers, previously announced it would eliminate 4,000 jobs through voluntary severance packages. American Airlines announced in July that it was cutting 7,000 jobs, or 8% of its total staff, through the end of 2008. 