Airline passengers will see fewer nonstop flights, less convenient travel options and possibly higher ticket prices and fees in the coming months as major carriers make big capacity cuts this fall season for the second year in a row.
Earnings reports for the April-June quarter this week showed airlines are desperate to raise revenue as they head into their traditionally slow period.
Six of nine major U.S. airlines reported profits in the quarter, but sales were down for most thanks to weak demand and lower fares. For seven U.S. airlines and their regional affiliates, the June yield — or average price a person pays to fly one mile — was almost 19 percent lower than a year earlier, according to the Air Transport Association.
"I think you're really going to see overall less service, but you'll still have service," said Bob Jordan, Southwest Airlines Co.'s executive vice president of strategy and planning.
U.S. domestic carriers provided 14.2 billion available seat miles a week in the fourth quarter of 2007. The figure two years later is expected to drop to 12.4 billion, rivaling post-9/11 numbers, ATA data shows.
The hits coming are broad-based. In the U.S., some parts of the Midwest and leisure points in Florida and Nevada will see reduced service. Overseas, parts of Europe and Asia will see big cuts.
Getting there ... eventually
In most cases, travelers will still be able to get from Point A to Point B, but they may have to take another carrier or connect through another airport, which means layovers and longer trips. That could be a hard sell for business travelers who rely on being able to get to their destination at a certain time.
Southwest, for example, among other changes is eliminating service as of Nov. 1 from Columbus, Ohio, to Philadelphia, and from Oakland, Calif., to Nashville, Tenn.
In St. Louis, American Airlines regional affiliate American Eagle, as of Aug. 25, will end nonstop service to Charlotte, N.C., Philadelphia, Tulsa, Okla., Cedar Rapids, Iowa, and Springfield-Branson, Mo. American will eliminate nonstop service from St. Louis to Las Vegas and San Diego on Nov. 19. American and American Eagle are units of AMR Corp.
US Airways Group Inc. will cut service between Pittsburgh and San Francisco, and Pittsburgh and Los Angeles, after Aug. 18. The carrier will suspend daily service from Philadelphia to Milan, Italy; Brussels, Belgium; and Zurich, Switzerland, this fall, though the service is expected to return in March 2010.
Delta Air Lines Inc. will suspend nonstop service from Atlanta to Seoul, South Korea, and Shanghai, China, and from Cincinnati, Ohio, to Frankfurt, Germany, and London-Gatwick. JetBlue Airways Corp. is suspending service from Salt Lake City to San Diego beginning Nov. 1.
Besides cutting routes, airlines are shrinking capacity by reducing flying by day of the week, time of day or by using smaller planes on certain routes. Southwest is shedding flights before 7 a.m. and after 7 p.m. on some routes.
It's not all bad news. Some airlines, even ones that are cutting overall, are adding service in some places. AirTran Airways, a unit of AirTran Holdings Inc., is adding service in Milwaukee. Southwest will start flying to and from Boston and Milwaukee.
Pricing power grab
The big unknown for travelers is how much extra money they may have to shell out.
Capacity cuts can allow airlines to raise fares because of less competition on some routes and because fewer flights means the remaining flights should be fuller, giving airlines more pricing power.
But the economy is so weak that airlines have had to offer steep discounts at times just to lure passengers onto planes during the summer, which is usually a busy time. Executives have offered different views on what fares will look like this fall, when air travel is usually down but could be more so this year.
Delta President Ed Bastian said this week as the carrier reported a $257 million second-quarter loss that several recent fare increases by major carriers have been successful, and Delta hopes the industry is gaining some traction on that.
US Airways chief Doug Parker tried to strike an upbeat tone as his carrier reported a $58 million second-quarter profit. He said leisure bookings have increased since Memorial Day, allowing the airline to raise some fares, and the carrier even saw some improvement on the business traveler side.
But Stuart Klaskin of KKC Aviation Consulting in Miami said the economy likely won't recover enough in the next few months to allow for a "significant upward impact on pricing." And Southwest executives think fare sales will continue to be plentiful in the fall.
Eye on road warriors
One point the executives at all the airlines seem to agree on is the need to do something to raise revenue. If they don't raise fares, they may need to raise fees.
Barclays Capital analyst Gary Chase said in a research note Friday that there is a great deal of uncertainty for the airlines about the fall.
"Business travel will be the linchpin for any potential recovery and nearly all the companies pointed to trends getting slightly better," Chase said. "The risk remains that July, in retrospect, will appear like April as a short-lived uptick on peak-travel demand."
Even Southwest, which bills itself as having an aversion to charging fees to check bags and for other amenities its competitors charge for, isn't ruling out adding fees.
"It's our strong desire not to nickel-and-dime you, not to charge you for services we have historically provided free," Southwest's Jordan said. "But it is also our desire to enhance our revenue production."