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Airlines Cut Capacity to Reduce Empty Seats

Cuts to flights also in offing as carriers struggle

By Mark Huffman
ConsumerAffairs.com

January 22, 2009

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In the early months of 2008, U.S. airlines were crowded with passengers but losing money because of skyrocketing fuel costs. In 2009, fuel prices are much lower, but carriers continue to struggle as the recession discourages people from flying.

To cope, both United and American have announced plans to cut capacity in the face of falling demand. United announced its plans as it reported a fourth quarter pre-tax loss of $547 million.

"Our industry continues to be challenged by a volatile fuel and revenue environment, and against that backdrop, we are delivering strong cost results even as we reduce capacity and improve quality," said John Tague, executive vice president and chief operating officer.

United said it would cut an additional 1,000 jobs beyond the 1,500 previously announced layoffs. When all is said and done, United will have trimmed its workforce by 30 percent.

Both United and American said they would announce reductions in flights later in the first quarter, and throughout the rest of 2009. United said it expected to remove 100 aircraft from its fleet this year, meaning a reduction in the number of flights available to consumers.

American also reported fourth quarter earnings, showing a loss of $340 million. A year ago it lost $69 million in the same period.

The company said it expects its full-year mainline capacity to decrease by more than 6.5 percent in 2009 compared to 2008, with a reduction of domestic capacity of approximately 9 percent and a reduction of international capacity of more than 2.5 percent compared to 2008 levels. On a consolidated basis, American said it expects full-year capacity to decrease by nearly seven percent in 2009 compared to 2008.

AMR expects mainline capacity in the first quarter of 2009 to decrease by more than 8.5 percent compared to the first quarter of 2008, with domestic capacity expected to decline by more than 11.5 percent and international capacity expected to decline by nearly 4 percent compared to first quarter 2008 levels. AMR expects consolidated capacity in the first quarter of 2009 to decrease by more than 8.5 percent compared to the first quarter of 2008.

"Our fourth quarter and full-year 2008 results reflect the difficulties all airlines faced last year, but we believe our steps to reduce capacity, bolster liquidity, and improve revenue helped us better manage the challenges of record fuel prices and a weak economy," said AMR Chairman and CEO Gerard Arpey. "We believe these actions and our fleet renewal efforts have put us on sounder footing as we face continued economic uncertainty, slower travel demand, and fuel price volatility in 2009. We intend to continue managing our business — from capacity and fleet planning to balance sheet repair, fuel hedging and revenue initiatives — conservatively and with discipline. I want to thank employees for their commitment during a difficult 2008. While significant hurdles remain, I am guardedly optimistic we can regain momentum in 2009."

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