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United cuts mean more bad news for fliers

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Associated Press / June 5, 2008

CHICAGO - First it was soaring ticket prices and vanishing bargain fares, then baggage fees. Now air travelers are facing dwindling choices for when they can fly and where - even to such popular destinations as Las Vegas and Orlando.

The squeeze, a byproduct of record oil prices that are pushing airlines toward financial disaster, accelerated yesterday when United Airlines disclosed plans to take 70 more jets out of service and cut domestic capacity by 17 to 18 percent in 2008-09. Its discount unit Ted will be shut down and 1,100 additional jobs eliminated, with more to follow.

That came two weeks after a similar move by AMR Corp.'s American Airlines, the only US carrier larger than United, which said it would slash domestic capacity 11 to 12 percent after the peak summer travel season. American already has begun eliminating flights, as have number three Delta Air Lines Inc. and others.

That's bad news for travelers, especially those who fly out of smaller regional airports that are losing flights and service, and it's almost certain to get worse unless oil prices drop and take the pressure off airlines. "For the next year or so, it's going to be gloom and doom" in terms of fares and flight options, said air travel expert Tom Parsons.

While United didn't specify routes or flights to be trimmed, the airlines already have begun targeting less profitable flights even if they are to leisure destinations with strong demand. Several carriers have cut back on service to Las Vegas, Honolulu, and elsewhere; Delta's service to and from Orlando, Fla., is down 45 percent from a year ago.

While demand for tickets to those destinations remains solid, the airlines say they have to focus on higher-priced and more profitable routes in the face of sky-high fuel prices.

Airline consultant Robert Mann said the tourism and travel industries as a whole are subject to "serious collateral damage," with a likely drop in air travelers to hotels and resorts in places that have flourished with the proliferation of low air fares.

The outlook may be grimmest of all for airlines that don't cut back enough to survive oil prices trading at $122 a barrel even after a decline from $135. That's still well more than double the $50-a-barrel price that United pegged its business plan to after emerging from bankruptcy in 2006.

"Some airlines will likely go bankrupt and cease operating," Lehman Brothers analyst Joseph Campbell said in a note to investors yesterday.

That might help the bottom lines of those that manage to keep flying, but would only speed up a trend of paring US flight options that has been building for months.

The largest airports may see only a small decline in flight options, but smaller cities such as Lancaster, Pa., and Ithaca, N.Y., already have lost all service. Experts say others in the East, Midwest, and beyond are likely to see individual carriers depart or also lose service completely.

"If you're in a small city you're going to have less opportunities, and the leisure markets are going to be priced out," said Parsons, chief executive of the discount travel site Bestfares.com.

UAL Corp.'s United said it plans to cut an additional 900 to 1,100 salaried, contract, and management employees by year-end, in addition to 500 previously disclosed reductions. The combined reductions mean the airline is cutting nearly 3 percent of its 55,600 workers worldwide.

A look at US airline cutbacks


A breakdown of recent downsizing and prospects for more cutbacks among the seven largest US airlines:

American The nation's biggest airline said last month it would cut domestic capacity 11 to 12 percent after the peak summer travel season, but already has begun trimming flights. It is ending short-lived service from New York to London's Stansted Airport and dropping a daily nonstop flight from Chicago to Honolulu. The carrier also is pulling out of Oakland, Calif. It plans to retire 45 to 50 planes, most of them gas-guzzling MD-80s, and its American Eagle sister carrier will retire 30 to 35 jets.

United Said yesterday it is removing an additional 70 planes from its 460-aircraft fleet beyond the 30 it said it would remove earlier this year, including its entire fleet of 94 single-aisle 737s. The carrier is cutting mainline domestic capacity 14 percent by year-end and another 11 percent in 2009. Also scaling back international capacity 4 to 5 percent.

Delta More domestic capacity cuts likely to be disclosed on top of the 10 percent reduction announced in March, which was 5 percent more than previously planned. Delta also said in March that it plans to use some aircraft less and park 15-20 mainline aircraft and 20-25 regional jets. Still expanding international flying - plans to increase international capacity by more than 15 percent this year.

Continental Still expanding its international network but plans to cut US capacity 5 percent this fall because of concern about record-high fuel prices and a weakening economy. Plans to drop service at Chicago's Midway Airport.

Northwest Plans to reduce domestic flights, beginning in September, by 5 percent more than previously planned, and has said further domestic capacity reductions are likely. In April it said overall capacity would still rise 2 percent to 3 percent, although that might change because of fuel prices. Northwest has also accelerated the retirement of its old DC-9 aircraft, planning to operate 61 by the end of the year, down from 94 that it owned at the end of 2007. Northwest is also parking five to 10 Boeing 757s and Airbus A320s and A319s this year.

Southwest Unlike the rest of the big carriers, Southwest has been adding flights. Airline said yesterday that it had nothing to add to chief executive Gary Kelly's comments last month that "I would love for Southwest to grow modestly next year and in 2010, but at this point we're not making any announcements."

US Airways Plans to trim capacity 2 to 4 percent in the second half and also will replace older aircraft, letting leases run out on 28 planes, including four Boeing 757s and 24 Boeing 737s. Those aircraft will be replaced with 14 Embraer 190s and five Airbus A321 aircraft. Morningstar analyst Brian Nelson says US Airways must make more cuts because of its financial position, which he says is "among the least attractive" of the big US carriers.

ASSOCIATED PRESS

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