Fri, Jul 17, 2009 - Page 9 News List

Airlines brace for more woe

Airlines have been slashing fares to attract fliers, but passenger demand continues to fall faster than the carriers can cut capacity

By Michelle Higgins And Gerry Shin  /  NY TIMES NEWS SERVICE , NEW YORK

The airline industry is in the midst of one of its most wrenching summers ever. And the fall and winter may be even worse — unless people start to fly again.

While the airlines have been struggling for more than a year as leisure travelers pulled back on spending, the industry has been battered from all directions since the financial system nearly collapsed last September.

Business and international travel, which had been a relative bright spot until then, dropped precipitously. Fuel costs have also been difficult to manage, as carriers first struggled to pay record high prices last summer and now have to contend with extraordinarily volatile prices. And the credit markets, which the airlines have turned to in previous tough times, are particularly reluctant to lend now, giving some carriers little choice but to pay high interest rates.

For the time being, analysts agree that the airlines, by cutting routes and employees, grounding planes and imposing fees, can weather the downturn. In fact, when the latest round of capacity cuts takes effect in September, the number of seats on domestic flights will drop to 66.5 million — down from a peak of about 84 million in 2001 and the lowest September figure since 1984, said OAG Aviation, which tracks flight schedules. But if conditions continue to deteriorate, analysts say, some airlines may not survive.

“There are too many airlines and too much capacity and really no pricing power,” said Hunter Keay, an airline analyst at Stifel Nicolaus in Baltimore. “This is as bad a crisis as the industry’s ever seen.”

Giovanni Bisignani, chief executive of the International Air Transport Association, told airline chiefs much the same thing last month.

“Today’s situation is unprecedented, the most difficult ever,” Bisignani said. “I am a realist. I don’t see facts to support optimism.”

For travelers, this means that airlines will continue to cut flights in the fall — not by eliminating service outright as they did last year but by reducing the frequency and using smaller planes on certain routes. Passengers may also see new fees.

A bit of good news for travelers is that airlines, worried about keeping the passengers they still have, are continuing to offer low fares, which are often further discounted. Southwest Airlines ran a 48-hour sale last week that slashed one-way fares below US$100 on many shorter routes for travel this fall, and other carriers quickly matched the cuts.

But a fare sale is not enough to counter the overall trend of passenger demand falling faster than the airlines can cut capacity.

The industry has also been cutting jobs. In April, the total number of employees at US carriers was 583,030, down from 624,372 in 2007 and more than 24 percent below the peak in May 2001.

Globally, airline employment is also down significantly. The world’s carriers employed 1.48 million people last year, the latest figure available from the air transport association, down from 1.71 million in 2000.

British Airways chief executive Willie Walsh recently lamented that his airline was in a “fight for survival,” asking staff members last month to consider working up to 30 days without pay. Air France said last week that the airline was considering temporary layoffs later this year, on top of a planned 3,000 job cuts it announced in May.

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