Major U.S. airline capacity growth continued to moderate in September ahead of planned service reductions in the coming months and throughout 2006, according to traffic reports issued this week. United and US Airways decreased systemwide capacity by 5 percent and 7 percent, respectively, as American, Delta and Northwest each grew capacity by 5 percent or less year over year.
J.P. Morgan Securities analyst Jamie Baker expects an overall 2 percent domestic capacity decline for next year, including a 6.6 percent reduction among the eight largest carriers and a cessation of service at financially strapped Independence Air. "Put differently, mainline legacy operators are expected to remove more capacity next year than JetBlue will operate in total," Baker said. "Driving the charge towards less capacity are the recently bankrupt, though with jet kerosene topping $100 per barrel, we explicitly anticipate further declines in planned legacy capacity once reporting seasons begins."
These trends likely will result in higher fares, higher load factors and less-convenient schedules for some travelers. One positive, however, could be fewer delays.
In fact, domestic system ontime performance in September improved to 84 percent--a 7 percent month-over-month change--while the average delay was 11 percent shorter, according to recent data compiled by Portland, Ore.-based FlightStats. "The end of the summer travel season, the reduction of flights to offset high fuel costs and reductions due to bankruptcy reorganizations appear to have relieved congestion throughout the system," FlightStats said, noting a 15 percent month-over-month reduction in total scheduled flights.
In particular, Delta from August to September reduced flight operations 20 percent, improved ontime performance 13 percent and reduced average delay 28 percent to 41 minutes, FlightStats reported. Similarly, Northwest trimmed operations by 18 percent, improved ontime performance 7 percent and cut its average delay 9 percent to 49 minutes.
The bad news for some business travelers is that airlines are eliminating some routes and reducing frequencies. Both American and Northwest recently announced cutbacks in their domestic and international operations
(BTNonline, Oct. 3), while Delta reportedly is canceling unspecified, lightly booked flights with as little as two days notice.
"This raises the specter of flight schedule integrity, or lack thereof, across the entire Delta schedule," said Scott Gillespie, CEO of Cleveland-based Travel Analytics. "If business travelers perceive that the Delta schedule cannot be relied upon, Delta's business base would crumble. If others follow suit, it would be a disaster."
Another inconvenience stemming from capacity reductions is increased load factors, which impact airfare availability and inflight comfort. Load factors for months have been rising across the industry
(BTNonline, Sept. 22) and last month were again higher at every major U.S. carrier except America West.
For buyers, reduced capacity--combined with high fuel prices--already has meant higher corporate travel costs, with more of the same expected this winter and throughout 2006. "We estimate that airfares were up by approximately 10 percent in September," said Helane Becker, analyst with The Benchmark Co.
For years, capacity reductions have been seen as one of the more likely solutions for the floundering airline industry. Now, with cuts finally taking hold, some airlines slowly are beginning to see relief. "Reduced domestic capacity is expected to have an attendant upward pressure on unit revenue production, even before figuring in continued efforts to boost published fares," said J.P. Morgan's Baker.