2 Airline Trends That Will Make 2008 Worse

Here are two things we should be paying more attention to: 1. Flight cancellations. 2. Plans by U.S. airlines to further reduce domestic seating capacity next year, in a system in which all domestic flights are already full.

First, flight cancellations:

Since the start of the Thanksgiving holiday, the airlines have been able to avoid a lot of bad publicity – the kind that comes from stranding passengers for many hours on planes parked idly on tarmacs – by canceling flights in advance when conditions start going south.

Obviously, weather is a factor. The Midwest has been hammered with ice and snow. But hey, it’s December. Weather is always a factor. What’s different now is that many airlines have cut domestic flights and seating capacity, and the system has no slack.

The airlines have learned that massive flight delays create very picturesque scenes in airports that resemble Red Cross camps and draw in the media cameras, and could lead to unwanted Congressional attention (assuming Congress is capable of paying attention to anything).

Not to mention Kate Hanni and her vigilant army of about 20,000 volunteers working for federal legislation to force the airlines to treat stranded passengers better. Kate has been advising passengers stuck on planes to take pictures.

So for the airlines, you could argue that it’s a lot more expedient to cancel flights in advance -- and hope that the media doesn’t notice beyond those lame AP bad-weather reports that usually just note that “hundreds of flights were cancelled.” As if the real number doesn’t count or is too hard to find out.

It isn't, by the way.

Let’s look at Chicago O’Hare from last Saturday. Hobbled by bad weather, O’Hare struggled to get 30 percent of its flights in and out on time. But the flight-cancellation figures (from FlightStats.com) were something else: Of 1,120 scheduled departures that day, 354 were cancelled. Of 1,187 arrivals, 337 were cancelled.

That’s nearly 700 flights that simply did not take off, either from Chicago or from other airports with Chicago as the destination.

Because O’Hare has a high percentage of regional-jet flights (many with about 50 seats), let’s be very conservative and say that each cancelled flight represents, what, 80 passengers? That’s probably a low average, but even then it represents over 55,000 people who didn’t make a flight last Saturday – in a system where all flights are already full, meaning it can’t readily handle tens of thousands of displaced passengers.

Let’s return to O’Hare today (figuratively, because it’s again not a good day to be flying there). More bad weather. And another very high cancellation rate.

Today, as of 1.30 p.m. Central time, 370 flights have been cancelled at O’Hare. [Update, Dec. 6: The total number of cancellations at O'Hare was 508 yesterday.]

For the flights that did fly, the on-time performance during the morning was well under 30 percent -- and the vast majority of late departures and arrivals were at least 45 minutes behind schedule.

That’s just a snapshot. But it’s a picture of things to come.

We’ll soon be seeing another round of those excitable media stories about record numbers of travelers taking to the skies for the Christmas and New Year holidays.

But record numbers of travelers have been taking to the skies all year. And in a system where nearly every seat is already full, an influx of holiday travelers doesn’t mean all that much, beyond misery as usual. In fact, most of them merely replace the business travelers who back out of the system during the holidays.

Barring a big airfare increases to offset oil prices (and the airlines have so far been able to do much more than push through a series of small incremental increases of $5 or so each), demand is likely to continue rising, in already known patterns. The weather is likely to disrupt flying a lot more than it did at Thanksgiving, again in known patterns.

So stand by for heavy rolls, as they say in the Navy when the seas get rough.

Meanwhile, as predicted here, the airlines are further reducing capacity for next year, meaning the squeeze gets even tighter.

Delta, for example, said this week that it would (further) reduce domestic capacity by up to 5 percent in 2008, while adding capacity to lucrative international expansion routes. Sometime in 2008, Delta says, international flights will account for 40 percent of its overrall seats. Southwest Airlines -- which recently started a new focus on luring more business travelers -- said this week is was further reducing growth plans for next year and planning to mothball some older 737s.

United Airlines -- which has already announced a 3-4 percent reduction in domestic capacity next year -- also is looking at a big international expansion in 2008 and the following two years.

According to this AP report, Jake Brace, the chief financial officer, told an investors' conference in Chicago yesterday that United "can carry out its next round of international expansion by reconfiguring or shifting planes from its domestic operations" -- but may also buy some new long-haul planes. (My question: Yeah, you and whose wallet?)

If you're a domestic airline competing with all of those fancy international airlines, you can maybe foist some Boeing 767s onto your international customers, but I wouldn't do it with the fierce competition flying better airplanes. The current long-haul workhorses, the Boeing 777-ERs, cost about $270 million each, a little more than a 747.

Assuming its uncle doesn't die and leave it about five billion dollars to buy new long-haul airplanes, how does United really propose to beef up international operations by 15 percent?

Hey, I can answer that! Shift more big planes to overseas routes and fly more crummy little regional jets on ever-longer domestic routes. And cut service in smaller markets that don't cough up enough dough per passenger.

As Michael Boyd keeps pointing out, when domestic airlines cut capacity, the first places they put the screws to are small and mid-sized markets where the economics don’t work well because they don’t have well-established business-travel feeds into airline hubs, especially feeds into international routes.

So look out Small Town U.S.A.!

And keep an eye on those cancellation figures to get an idea of how the system is tottering.

The latest report from the Bureau of Transportation Statistics shows that 132,632 domestic flights were cancelled in the first 10 months of this year, compared with 94,282 in that period in 2006, and 117,393 in 2005.

Yes, flight operations are up slightly, given the increased relilance on small-payload regional jets. But remember, each cancellation represents x-number of passengers thrown into a system that, by definition, can't readily accommodate them.

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