U.S. carriers next
year likely will further cut capacity following an estimated 2 percent
year-over-year decline in the last quarter of 2011, according a late November research
note from Morgan Stanley analyst Bill Greene. That outlook didn't account for
AMR's plunge into bankruptcy, which another analyst estimated could result in a
10 percent reduction in American Airlines' available seat miles.
Such supply declines
combined with the steady demand projected by several airline analysts could come as bad news to travel
buyers in the form of higher fares, more crowded plans and, potentially, fewer
travel options.
Prior to AMR's
filing, Morgan Stanley estimated full-year aggregate mainline available seat
miles from Alaska Airlines, American Airlines, Delta Air Lines, United Airlines
and US Airways would decline 0.6 percent in 2012, after this year's 0.7 percent
growth. Frontier Airlines, JetBlue Airways and Southwest Airlines, meanwhile, aggregately
are estimated to grow capacity by less than 1 percent next year, following
nearly 5 percent growth this year, according to Morgan Stanley estimates.
Combined, Morgan Stanley is expecting a net 0.4 percent decline among majors for
full-year 2012.
"Despite
several consecutive months of accelerating capacity cuts, January schedules
show even greater year-over-year declines at some carriers than in
December," according to Greene.
Among the "significant"
January cuts, Delta will slash year-over-year available seat miles by an
estimated 8 percent "led by cuts in the Middle East, Africa, Europe and
Central America"; United would be down 5 percent "led by cuts in
Latin America, Australia and the U.S."; and Southwest—once a bastion of
nonstop growth—is expected to shrink available seat miles between 2 and 3
percent "led by cuts in Las Vegas, Philadelphia and Orlando,"
according to Morgan Stanley research.
Rodman & Renshaw
analyst Daniel McKenzie noted that American this past weekend "uploaded
meaningful capacity cuts," drawing down January capacity levels by 2
percent year over year and pulling down capacity for the first quarter by 0.5
percent.
Modest for now, those
cuts likely are just the beginning, according to analysts. JP Morgan aviation
analyst Jamie Baker is "modeling for a 10 percent AMR capacity cut"
during AMR's restructuring. Meanwhile, Deutsche Bank airline analysts this week
claimed a cutback of "as much as 5 percent is a reasonable starting
point" for the company, adding that capacity reduction is "typical of
most airline reorganizations in which fleet and network rationalization are
part of the process."
"AMR's likely
drawdown of aircraft will lead to fewer seats flown industrywide, which should
be beneficial to pricing in 2012," added UBS analyst Kevin Crissey.
Although American
management thus far has committed to a "cornerstone" strategy, in
which AA centers service around Dallas, Chicago, Miami, Los Angeles and New
York, some analysts see opportunity for the carrier to de-emphasize a couple of
those markets.
Dahlman Rose &
Co. analyst Helane Becker noted American "will probably" reduce
capacity in Los Angeles and Chicago, "where we believe the airline is
unprofitable."
Wolf Trahan analyst
Hunter Keay similarly suggested those two markets "should be
de-hubbed," due to American's "marginalized competitive position in
Chicago" following the merger between Continental Airlines and United and,
in the case of Los Angeles, to what he called American's "weak"
Pacific network.
A dissenting voice,
Boyd Group International president Michael Boyd, claimed that American's
cornerstone strategy "is not directly affected by the filing."
"Comments by
some financial analysts that bankruptcy is 'typically' used by airlines to drop
unprofitable flying are flat ignorant," Boyd proffered. "Airlines can
drop flying without any need for bankruptcy court assistance. The AMR filing
has no utility whatsoever for reducing flying."
Boyd did note that AMR's
bankruptcy restructuring allows the company "to shed the burdens of a
financially obsolete [American] Eagle fleet in a more expeditious manner."
He noted that would "affect some flying to smaller points on the route
map," but concluded, "these changes were coming eventually
anyway."