Are capacity cuts really the key?


For the past couple years now, as airlines have teetered on the brink of bankruptcy with more than a couple tipping over, the common refrain heard across the industry is that the US commercial aviation industry needs to lose one more big player to bankruptcy. There is simply too much capacity and that is artificially keeping fares low, preventing the airlines from making money. Over the past 16 months or so we’ve been hearing over and over again how airlines are going to be cutting 10% here and another 10% there. And they have been cutting to some extent. So where are the profits? And were are the cuts?

The first quarter on 2008 saw approximately 261 billion Available Seat Miles (ASMs) flown. In 2009 the first quarter saw only 237 billion ASMs flown in the United States. In that same window US Airways only flew 17 billion ASMs. Continental flew 26.3 billion in that time frame and Southwest flew 24.2 billion ASMs. So we’ve seen a drop in capacity the equivalent of losing a major carrier. And it still isn’t helping.

asms

Load factors are up. Way up. Carriers are reporting loads as high as 90% lately where 75% used to be considered pretty full. So with all those seats full and fewer planes flying around – precisely the recipe that was called for with the shuttering of a carrier – why aren’t the airlines seeing profits? Why aren’t yields going up?

Apparently there is actually more needed than simply cutting capacity out of the industry. Or there was WAY too much capacity to begin with. Do we still need to lose another carrier? I suppose that might be the solution. That would bring the US air travel industry back to levels last seen in early 2002. And those were particularly dire days.

But I’m also starting to wonder if there isn’t something else going on. Are the pressures on fares from the younger carriers too great for the legacy carriers to endure? Would losing any one of the legacies to bankruptcy actually change that fact? Certainly a carrier won’t just disappear. Even if they go Chapter 7 and cease operations the (profitable) remnants will be picked up in a hurry and put back to work, so the total capacity loss isn’t going to happen.

I’d love for the airlines to come up with some way to be profitable, but it seems that the common wisdom thus far actually isn’t playing out the way they all said it would. Methinks it is time for a different solution to come to the front. Anyone have any bright ideas?

Stats above from http://www.bts.gov/xml/air_traffic/src/datadisp.xml and airline 10-Q filings.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .
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