Image: Tough times for fliers
Joshua Lott  /  Reuters
As airlines reduce flights and park planes in an attempt to stem losses, passengers this fall could be in line for more inconveniences, fewer options and less service.
By Travel writer
msnbc.com contributor
updated 8/26/2008 9:48:10 AM ET 2008-08-26T13:48:10

25,200,124.

If you’re thinking of flying this fall, you may want to keep that number in mind. Why? Because, according to data compiled by OAGback Aviation Solutions, that’s how many fewer seats will be available on domestic flights during the last four months of the year compared to the same period a year ago.

The data represent an 8.1 percent drop in domestic seat capacity and an 8.9 percent decline in flights. Together, the numbers represent the biggest contraction in the industry since 2001 and a potentially game-changing challenge to both the airlines and their passengers.

For the airlines, it’s all about parking planes, cutting flights and slashing unprofitable routes in an effort to raise fares. For passengers, it comes down to whether they’re willing to pay more for fewer services and greater inconvenience. And with the unofficial end of the summer travel season just a week away, the calculus for fall travel could hardly be any more convoluted.

Depending on your preferred metaphor, it’s either the air-travel equivalent of a massively multiplayer online (MMO) game — air travel really is its own universe — or just one big game of chicken.

Death by a thousand cuts?
“There are all these thousands of changes all over creation, but it’s not clear to the public what the changes are,” says industry consultant Bob Harrell. “People are used to choices — flights, timing, number of stops — and they’re finding that those choices are no longer there.”

The first to go were flights to vacation destinations, such as Las Vegas and Orlando, where intense competition kept leisure fares artificially low. Now, cuts are being implemented nationwide, as airlines trim service to small and medium markets. On September 2, ExpressJet will cease its branded operations altogether (while continuing to fly Continental Express routes), eliminating service to Sacramento, San Antonio and 22 other cities. On September 8, Midwest Airlines will stop flying to 11 cities, ranging from San Diego to Baltimore, and scale back its West Coast service from non-stops via MD-80 to Boeing 717 flights with a stop in Kansas City.

Other airlines are implementing similar, albeit less extreme, cutbacks. Based on previous announcements, the Big Six legacy carriers will likely cut anywhere from 10 to 14 percent of available seats on domestic flights by the end of the year, and even Southwest and JetBlue have scaled back their expansion plans. Whether the airlines can shrink their way to profitability remains an open question, but it’s all but certain that they’ll continue to rewrite the nation’s route map until they figure it out.

“It’s like a chess game,” says David Beckerman, OAG’s vice president of analytical  services, and travelers will have to scramble to keep up with the changes: “As the cost-demand landscape changes, it influences the planes the airlines operate and where they can use them. They’re trying to find that sweet spot.”

Tough times — but good deals
That spot, however, is a moving target, and while the airlines are desperate to hit it, they also run the risk of overshooting it. Tighten the supply too much, raise prices along the way — be it through higher fares or add-on fees — and, at some point, buyers sour on the whole proposition. With fares already 15–20 percent higher than they were a year ago, that may already be happening.

Last week, the airline industry trade group Air Transport Association (ATA) released its Labor Day forecast, projecting that air travel over the eight-day period between August 27 and September 3 would decline by 5.7 percent from last year. A few days later, AAA released its own forecast , predicting a 4.5 percent drop over the holiday weekend.

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Faced with clearly softening demand, “the airlines’ knees are knocking,” says Tom Parsons, publisher of BestFares.com. Surfing his site, he reels off fall (non-holiday) fares — San Francisco-Fort Lauderdale for $250 roundtrip, Boston to Dublin for $567 roundtrip, including fuel surcharges and taxes — that suggest the airlines are starting to get worried about flying with empty seats.

Needless to say, you won’t find such deals for every date and destination — and none during the holidays — but they do suggest that finding the sweet spot between the supply of seats and the demand from those who’d fill them is more challenging than ever. (Oil prices that have gone from $80 a barrel to $145 to around $115 over the last year certainly don’t help.)

“I’m not sure we’re out of the woods yet,” says Parsons, citing the possibilities of both more cutbacks and more deals. “Some destinations will have great airfares; some will have reasonable airfares; and some you’ll just want to avoid.”

Where do we go from here?
Although the airlines always pull down service in the fall, the current situation is, in the words of industry observers, “extreme,” “unprecedented,” and a sign of a fundamental shift in the industry. Often considered the unofficial end of the summer travel season, September 2 may also signal the start of a new era. Among the changes:

  • Fewer options, more inconvenience: In addition to fewer flights overall, many travelers will find that non-stop service is either prohibitively expensive or non-existent. Instead, the prognosis is for more connecting flights — and the long layovers and lost luggage that come with them.
  • Less service: Fewer flights mean fewer employees — and the job cuts go beyond pilots and flight attendants. According to ATA, the U.S. airline industry will shed 36,000 jobs this year, a drop of between 12 and 15 percent, and second only to the cuts made after September 11. Most of this year’s cuts will take place post-Labor Day, which means even less service in the terminals, on the phone and in flight.
  • Fewer delays: Maybe it’s irrationally exuberant, but with fewer planes in the sky, on-time performance will likely improve (at least until winter weather kicks in). Unfortunately, there’s a flip side: when things do go bad, and flights get canceled, there will be fewer options for rebooking.
  • No relief from à la carte fees: Despite continuing concerns, there are indications that the airline industry is actually reaching an equilibrium vis-à-vis oil prices and profitability. Lower oil prices ($115 this week), previous fare increases and the proliferation of add-on fees for every service and amenity are all helping staunch the flow of red ink. Even so, and regardless of where oil prices end up, the airlines aren’t about to give up the billions they expect to bank from à la carte pricing.

Whether all of the above constitutes a new era or merely another turn in a highly cyclical industry is ultimately a matter of degree. On the one hand, the idea of frequent flights to diverse destinations at mass-market prices will probably go the way of free meals in coach. On the other, and despite the increased cost and inconvenience, millions of people will continue to fly, wincing as they pay more to fly in a smaller, potentially more stable industry.

“The airline industry has always been very cyclical,” says Dick Gruentzel, vice president of administration and finance at Tucson International Airport. “It’s easy, in the short run, to say, ‘Wow, this [situation] is never going to change,’ but it always does.”

In other words, the chess game — and the game of chicken that goes with it — will continue.

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