Major airlines cut their losses
Despite the burden of record fuel prices, major U.S. airlines are staging a recovery from five years of brutal losses, something many analysts and airlines didn’t think possible as recently as six months ago.
The improving financial results posted by seven of the nation’s 10 big airlines in recent months reflect a fundamental shift in strategy that goes beyond the efforts of older network carriers to wrest billions in concessions from their unions. The big carriers, which for decades have doggedly pursued market share at any cost, now are focusing just as aggressively on the profitability of each route and flight.
The so-called legacy carriers — those like American Airlines and Delta Air Lines, with big pension and other obligations that predate the industry’s deregulation in 1978 — have abandoned many of the tactics that have led to their cyclical weakness. They are increasingly unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks. Though their recovery is still in its early stages and could be derailed by a further run-up in oil prices or other factors, the airlines’ new emphasis on profitability appears to be paying off.
The six largest legacy carriers — AMR Corp.’s American, Continental Airlines, Delta, Northwest Airlines, UAL Corp.’s United Airlines and US Airways Group — are putting far fewer planes in the sky these days, streamlining their fleets and pushing up prices where they can. New statistics for 2005 show those airlines had a combined mainline operating fleet of 2,747 aircraft, down 21 percent from the 3,469 they had at the end of 2000, according to the Air Transport Association.
American, the world’s biggest carrier by passenger traffic, recently decided to ground 27 MD-80 aircraft, which it had used for years to help meet peak summer travel demand. It concluded that the cost of operating the older, gas-guzzling aircraft during the rest of the year outweighed the benefit of having the extra summer capacity.
Delta and Northwest, both operating under Chapter 11, shrank their fleets by getting bankruptcy-court approval to return dozens of their aircraft to the leaseholders. Ed Bastian, Delta’s chief financial officer, said that until Delta was allowed to break the aircraft leases, it continued to operate many planes on unprofitable routes simply because parking the aircraft was even more expensive than flying them at a loss.
Meanwhile, thanks to a strong U.S. economy, demand for the industry’s smaller number of available seats has remained robust. Last year, U.S. airlines filled an average 77.6 percent of their seats on domestic and foreign flights, up from 75.5 percent in 2004 — the highest levels since 1946, according to the ATA. The industry group’s chief economist is predicting that the percentage will rise to around 85 percent this summer, potentially the highest ever recorded. That means that many more planes will be flying completely full.
In the first two months of this year, domestic available seat miles, a measure of U.S. industry capacity, dropped 2.8 percent to 113.2 billion from 116.5 billion a year earlier, while U.S. airlines filled more seats — 74.3 percent, up from 70.7 percent.