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Reshaping air capacity: carriers cut flight schedules to offset crippling jet fuel costs.

Article Excerpt
Major U.S. airline capacity growth continued to moderate in September ahead of planned service reductions in the coming months and throughout 2006. With the price of jet fuel running at unsustainably high levels (see charts, page 8), some operators are concluding that a more cost-effective strategy simply is to ground certain aircraft rather than fly them.

For years, capacity cuts have been considered one of the more effective remedies for the floundering airline industry. Now that they are beginning to take hold, reductions are expected to help struggling carriers survive the leaner winter months by providing a degree of pricing power and stronger revenue performance. That does not bode well for some corporate buyers constrained by tight T&E budgets.

For business travelers, service reductions can be both beneficial and problematic. On one hand, they help to mitigate air traffic congestion and relieve operational delays. On the other, capacity cuts combined with still-strong travel demand translate to higher load factors and a less comfortable inflight experience. Moreover, service cutbacks can mean less convenient schedules for many business travelers.

"There are draconian changes that have to occur," said one airline executive.

Delta Air Lines, for example, during a recent two-week period cancelled lightly booked flights as part of an "emergency fuel conservation effort." After jet fuel supplies stabilized in the southeastern United States, the carrier resumed its full schedule. Cancellations generally...

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