Airline Downsizing: High Fares and Packed Flights


To cut costs, carriers will be offering 20 million fewer seats in the fourth quarter, boosting fares and limiting flight options

Ah, the end of the summer travel season. That means cheaper airfares, more seats to choose from, and room to spread your paperwork out on the plane—not! The end of this year's Labor Day holiday marks the beginning of the sharpest downsizing in the airline industry since the 2001 terrorist attacks. Faced with sky-high fuel costs and a weak economy, big airlines such as Continental (CAL), Delta (DAL), United (UAUA) and American (AMR) are cutting their flight schedules as much as 14% this fall. Even perennial growth machine Southwest Airlines (LUV) is eliminating nearly 200 flights in January. For air travelers this will mean higher fares, fewer flight options, and planes that will still seem as crowded as sardine cans. "This is the new economics of $100-a-barrel oil," says Mike Boyd, an airline industry consultant.

Airlines will be offering 20 million fewer seats in the fourth quarter, according to data from the research firm OAG Travel Solutions. Some cities are losing a big chunk of their flights. Among the hardest hit: Kansas City, Mo., with scheduled flights down 27% in October; Cincinnati, down 23%, and Oklahoma City, down 22%. Vacation stalwarts Orlando and Las Vegas aren't immune. Service there is expected to be down 19% and 14%, respectively. In all, some 400 routes are being cut nationwide. "If you're going anywhere for Thanksgiving, Christmas, or even the school break in February, you'd better book early," says George Hobica, founder of Airfarewatchdog.com, a travel site.

Be prepared to pay more, too, particularly for business fares. Rick Seaney, who tracks airline prices for the Web site farecompare.com, figures the cost of a nonstop, three-day advance ticket from New York to Los Angeles will be $850 this fall, up from $550 last year. Because they are less price-conscious than leisure travelers, business customers are getting disproportionately socked with fuel surcharges that can run as high as $180 per ticket. Airlines are also imposing more overnight or Saturday night stays to qualify for cheaper fares. For business travelers this means more time waiting for connecting flights or an extra night in a hotel after a meeting.

What's going on? The airlines are in survival mode. Since the end of last year a dozen carriers have shut down or declared bankruptcy. And even though oil prices have eased somewhat in recent months, the industry still expects to spend 50% more on fuel this year, leading to a record loss estimated to be $10 billion for 2008. The airlines' main lobbying group, the Air Transport Assn., has been calling for more regulation of energy traders, investments in alternative energy, releases from the Strategic Petroleum Reserve, and just about anything that might rein in fuel costs. Small towns, subsidized by the federal government's Essential Air Service program, will still see some flights. Larger markets are searching for creative ways to keep the airlines flying. Puerto Rican tourism officials saved several American Airlines flights to San Juan by offering $3 million in new advertising to promote the flights. The Port Authority of New York & New Jersey is waiving terminal rents and landing fees to keep flights at Stewart International Airport, 60 miles north of Manhattan. The Port Authority had hoped to use Stewart to relieve congestion at the New York area's three largest airports. Instead, it expects a 21% decline in passengers at Stewart this year as Delta and AirTran (AAI) cut flights to the airport.

All this explains why online booking site Travelocity.com is suggesting customers learn the art of "defensive travel." That means checking with the airline frequently prior to departure for any schedule changes. The site recommends picking flights with layovers at major hub airports so there will be alternatives if a connecting flight is canceled. Build enough room into your travel schedule so you can cope with delays. And pack lightly, both to avoid baggage fees and to make it easier to hop on another flight.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.

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