Airlines plan to reduce flying next year
Wednesday, September 14, 2011
Airlines are putting next year’s growth plans on hold, with high fuel prices and a sluggish economy forcing them to reconsider which flights make money and cut the ones that won’t.
Delta Air Lines Inc. said it will reduce 2012 flying by 2 percent to 3 percent. The company that runs United and Continental airlines said it will hold next year’s flying flat at 2011 levels. Southwest Airlines Co. won’t grow next year and probably not in 2013 either.
The plans announced Tuesday suggested that airlines will match the supply of seats to the number that passengers are willing to buy.
Investors loved the pragmatic approach, and airline shares soared.
The biggest flying cuts came from Delta. Besides reducing next year’s flying, it will cut operations in this year’s October-to-December quarter by 4 percent to 5 percent compared with the same period last year. It will also reduce flying to Europe by up to 12 percent, with smaller cuts of 1 percent to 3 percent in the United States and across the Pacific to Asia.
Airlines often make money over the busy summer months and struggle the rest of the year. They always run a reduced scheduled in the fall, but Delta’s post-summer cut of 20 percent will be much larger than usual, said company President Ed Bastian.
“It’s what you need to do,” Bastian said. “For us to make money in the summer and give it back in the winter — we’re done doing that. We need to make money year-round.”
United Continental Holdings Inc., which is combining United and Continental into the world’s largest airline, said it will trim U.S. flying next year but increase international offerings.
President and CEO Jeff Smisek told an investor conference in New York that his plan is to increase international flying as much as demand will support, and to make the domestic network as big as needed to supply passengers to international flights. Smisek said the airline can adjust 2012 flying levels depending on demand and the moves of competitors.
Southwest Airlines Co. said it will hold off on expanding its fleet because of the weak economy. It bought AirTran earlier this year, which expanded Southwest’s size by one-fourth.
Southwest had previously said it expected capacity to be flat or down slightly next year. On Tuesday, Laura Wright, its chief financial officer, said it may not grow in 2013, either.
American Airlines said it would cut fourth-quarter flying a half-percent more than it had previously planned. In late August, it began reducing Tuesday, Wednesday and Saturday flights by about 4 percent.
Cutting capacity, as American promised Tuesday, can help airlines save money on fuel and crews by running fewer flights. It also can help push fares higher by reducing the supply of seats.
JPMorgan airline analyst Jamie Baker noted that Delta’s capacity cut was bigger than other airlines promised.
Among airline executives, “only Delta is (thus far) taking the threat of weakening global economic trends seriously and adjusting its business plan accordingly, in our view,” he wrote in a research note.
In addition, US Airways president Scott Kirby said September revenue for each seat flown one mile would rise 13 percent. That’s a strong showing for a key revenue measure. He also said demand remains strong.
Airline shares all rose sharply. Chicago-based United Continental Holdings Inc. rose $1.32, or 7.4 percent, to close at $19.28. Delta Air Lines Inc., based in Atlanta, was up 61 cents, or 8.3 percent, to $7.99. American parent AMR Corp. in Fort Worth, Texas rose 18 cents, or 5.5 percent, to close at $3.45. Dallas-based Southwest rose 35 cents, or 4.4 percent, to close at $8.31. Shares of US Airways Group Inc., based in Tempe, Ariz., rose 79 cents, or 16.3 percent, to close at $5.64.