United Airlines will cut domestic capacity by 2 percent to 3 percent in fiscal year 2007 and shift more capacity to international flights, the airline announced Thursday.
The reduction is in response to excess capacity and slow revenue growth in the domestic market, according to a statement by United chief revenue officer John Tague. United expects international capacity to increase by 3 percent to 4 percent in the fiscal year, aided by new service between Los Angeles and Hong Kong and between Washington, D.C., and Rio De Janeiro, Brazil. Overall mainline capacity for the year either will be flat or decrease by up to 1 percent, according to United.
Scott Gillespie, TRX's Travel Analytics vice president and general manager, said United already had been moving in the direction of decreasing domestic capacity. From May 2006 to May 2007, United's domestic available seat miles decreased by 2.6 percent, contrary to the industry's 2.2 percent increase in domestic available seat miles, he said.
"Directionally, United is definitely shrinking relative to domestic capacity," Gillespie said. "Only Delta shrank by more."
Both American and US Airways also decreased domestic capacity during that period, while Northwest, Continental and Southwest all increased capacity. Some airlines have seen significant jumps in domestic capacity in the past year, including AirTran, which increased domestic capacity by 20.3 percent, and JetBlue, which did so by 10.6 percent. "Despite the recent trips through bankruptcy, the lower-cost carriers are expanding, and carriers that have residually high costs are contracting," Gillespie said.
Cutting domestic capacity could be a preemptive move against anticipated softening in demand. Even though some airlines recently have attempted published fare increases, corporate travel buyers already are seeing the signs in their negotiations
(BTN, May 7).
"The airlines are discounting a little more aggressively for business accounts, so I think United's view of drawing down capacity is an effort to head off a decrease in fares," Gillespie said.