Thursday, June 11, 2009

Air Travel: More Capacity Cuts Loom

[Above: Airliners stored at Evergreen Aviation site, Pinal Air Park, Marana, Az.]

We are witnessing the slow but inexorable shrinking of our air-travel system, and it's going to be a long-term phenomenon.

Delta's announcement today of further capacity cutbacks, as oil prices rise and passenger demand (and revenue) refuse to improve, is merely the latest indication that the air-transportation system is shrinking. Look for further cutback announcements industry-wide as airlines fret over selling enough seats on their already reduced fall and winter schedules.

Look at it from an airline's point of view: You can't keep losing money indefinitely. This year's fare sales, some of them drastic in nature, have not primed the pump. The cost of fuel is on an alarming rise, and several indicators suggest that it may keep going up.

If you're an airline, with an understandable desire to remain in business, your options are fairly clear and limited: Reduce capacity, raise prices. And maybe devise new strategies, short of outright corporate mergers, to work with competitors to better divvy up markets, and hope the feds let you do it without going all anti-trust on you. An iffy proposition.

As airline forecaster Mike Boyd points out on his blog this week, airlines in general have a fairly extensive flexibility in removing airplanes from their operating fleets and parking them in the desert. In fact, the sprawling Evergreen Aviation aircraft storage and maintenance site in the Sonoran desert at Marana, Arizona, is near capacity, with more than 300 airliners parked. Other desert storage sites in the Mojave desert California are too. But there is a lot of desert out there.

Boyd sees these developments ahead:

--With a bad economy and with all those U.S. job losses, air travel demand has been fundamentally altered. This only gets worse as the job losses in the auto industry, and related businesses, kick in harder.

--Cities that depend on regional-jet service (mostly in the form of connecting flights to hubs) will lose even more capacity, especially in the longer-haul RJ connections. These will be "adjustments," meaning reduced flying, rather than outright service eliminations.

--International routes to secondary markets are increasingly vulnerable.

--Despite the surplus of good used airplanes sitting on the desert tarmacs waiting for some dreamer to kick the tires, further expansion opportunities are scant for existing low-cost carriers because of the "fundamental evaporation of demand." And forget start-ups, which will have all the market potential "of the beer concession at a Baptist revival," Boyd says.

My own prediction is that we will see more charter operations filling in some high-yield gaps in domestic markets, especially low-fare leisure destinations like Las Vegas and Orlando. In this scenario, passenger flexibility will be gone. You'll leave when the plane is full. Travel habits will change -- but maybe that isn't such a bad thing.



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