June 10, 2008
NEW YORK - BY the time United States airlines are done cutting capacity and shrinking to survive record fuel costs, the US commercial airline network will look a lot leaner and, for some consumers, a lot meaner.
That is because fares, especially on less crowded routes, are rising fast, and some flights may just disappear.
Analysts say that for the airlines, the new pricing power is long overdue - and consumers will just have to accept that cheaper air fares have disappeared for now.
'The days of affordable flying are over for now, and leisure travel could become a luxury,' said Ms Vicki Bryan, a bond analyst at Gimme Credit.
In a note to clients, Ms Bryan said routes to as many as 30 cities across the country have been cut, citing statistics from the Bureau of Transportation.
United Airlines parent UAL said last week it will slash its work force and domestic fleet, following similar cuts by rivals as the industry grapples with a weakening economy and oil prices that have doubled in the past year.
Over this year and next, UAL will reduce its mainline domestic capacity at least 17 per cent.
UAL's downsizing is consistent with recent steps taken by rivals.
AMR's American Airlines has said it will cut domestic capacity 11 percent or 12 percent in the fourth quarter and eliminate more than 1,000 jobs.
Delta Air Lines, which plans to merge with Northwest Airlines, has said it will cut 2,000 jobs through voluntary retirement and reduce domestic capacity by 10 per cent this year.
'As the airlines cut capacity and drive fares up, some people will be priced right out of the market and the airlines will go more for the business travel than the leisure travel,' said Mr Patrick Murphy, principal of aviation consulting firm Gerchick Murphy Associates.
Danger
Travellers flying between two noncompetitive markets over 1,500 air miles now pay at least US$340 (S$464) round-trip more than they did last December, according to Mr Tom Parsons, chief executive of Bestfares.com, an Internet travel website.
Another airline analyst, Mr Ray Neidl of Calyon Securities, said in an interview: 'There is the danger that some very small markets may lose their commercial airline service, and that's something the government has to address.'
Amid the unprecedented fuel costs, airline experts generally agree that US airlines must cut capacity 20 per cent and raise fares 20 per cent just to stabilise.
Lehman Brothers analyst Gary Chase said the US airline industry is undertaking a restructuring twice as large as it did in the years following the attacks of Sept 11, 2001.
In a recent note, Mr Chase wrote that he expects the airline industry will need to raise almost US$3 billion in new equity over the next 12 to 18 months to shore up liquidity.
Mr Murphy added that major carriers will now focus on their hubs, international routes and business travellers.
'For them, it's just hunker down and hold on and hope they can hold on to their cash longer than their competitors,' said Mr Murphy. 'Most of them feel they have enough cash to get through the year but if fuel continues to climb and doesn't let up, even the major carriers at some point could run out of cash.' -- REUTERS
[Airbus went with the Hub-to-Hub concept and created the super-Jumbo A380 to work the H2H strategy, whereas Boeing betted on the Point-to-Point strategy and so the Dreamliner was conceived and will be born soon. But with flights being cut, and smaller destinations looking to be cut out of air routes, the H2H seems to be winning out over the P2P. Then again, maybe people won't want to fly so far. The Boeing strategy seems to be Amerigo-centric. Most US residents won't fly beyond their part of the world.
Whichever strategy wins, both new airliners will be more fuel efficient and that's good.]
NEW YORK - BY the time United States airlines are done cutting capacity and shrinking to survive record fuel costs, the US commercial airline network will look a lot leaner and, for some consumers, a lot meaner.
That is because fares, especially on less crowded routes, are rising fast, and some flights may just disappear.
Analysts say that for the airlines, the new pricing power is long overdue - and consumers will just have to accept that cheaper air fares have disappeared for now.
'The days of affordable flying are over for now, and leisure travel could become a luxury,' said Ms Vicki Bryan, a bond analyst at Gimme Credit.
In a note to clients, Ms Bryan said routes to as many as 30 cities across the country have been cut, citing statistics from the Bureau of Transportation.
United Airlines parent UAL said last week it will slash its work force and domestic fleet, following similar cuts by rivals as the industry grapples with a weakening economy and oil prices that have doubled in the past year.
Over this year and next, UAL will reduce its mainline domestic capacity at least 17 per cent.
UAL's downsizing is consistent with recent steps taken by rivals.
AMR's American Airlines has said it will cut domestic capacity 11 percent or 12 percent in the fourth quarter and eliminate more than 1,000 jobs.
Delta Air Lines, which plans to merge with Northwest Airlines, has said it will cut 2,000 jobs through voluntary retirement and reduce domestic capacity by 10 per cent this year.
'As the airlines cut capacity and drive fares up, some people will be priced right out of the market and the airlines will go more for the business travel than the leisure travel,' said Mr Patrick Murphy, principal of aviation consulting firm Gerchick Murphy Associates.
Danger
Travellers flying between two noncompetitive markets over 1,500 air miles now pay at least US$340 (S$464) round-trip more than they did last December, according to Mr Tom Parsons, chief executive of Bestfares.com, an Internet travel website.
Another airline analyst, Mr Ray Neidl of Calyon Securities, said in an interview: 'There is the danger that some very small markets may lose their commercial airline service, and that's something the government has to address.'
Amid the unprecedented fuel costs, airline experts generally agree that US airlines must cut capacity 20 per cent and raise fares 20 per cent just to stabilise.
Lehman Brothers analyst Gary Chase said the US airline industry is undertaking a restructuring twice as large as it did in the years following the attacks of Sept 11, 2001.
In a recent note, Mr Chase wrote that he expects the airline industry will need to raise almost US$3 billion in new equity over the next 12 to 18 months to shore up liquidity.
Mr Murphy added that major carriers will now focus on their hubs, international routes and business travellers.
'For them, it's just hunker down and hold on and hope they can hold on to their cash longer than their competitors,' said Mr Murphy. 'Most of them feel they have enough cash to get through the year but if fuel continues to climb and doesn't let up, even the major carriers at some point could run out of cash.' -- REUTERS
[Airbus went with the Hub-to-Hub concept and created the super-Jumbo A380 to work the H2H strategy, whereas Boeing betted on the Point-to-Point strategy and so the Dreamliner was conceived and will be born soon. But with flights being cut, and smaller destinations looking to be cut out of air routes, the H2H seems to be winning out over the P2P. Then again, maybe people won't want to fly so far. The Boeing strategy seems to be Amerigo-centric. Most US residents won't fly beyond their part of the world.
Whichever strategy wins, both new airliners will be more fuel efficient and that's good.]
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