More cuts in airline schedules may await travelers after the holidays amid early signs that the usual after-Christmas falloff in travel could be deeper than airline managers had expected.
With conventional fare sales and an overall 10 percent reduction in domestic flying capacity already in place for the December holidays, U.S. airlines aren’t worried that the sliding economy will produce the kind of bah-humbug Christmas season retailers fear.
But come Jan. 5, when all the family vacationers, New Year’s revelers and college football fans have gone home, and corporations’ austere 2009 travel budgets take effect, all bets are off.
Signs of weakening demand are visible:
— Continental Airlines last week sharply reduced its forecast for a key benchmark of revenue growth for November. It now expects a 4 percent to 6 percent increase from a year ago in revenue per seat per mile flown instead of growth in the “low to mid-teens.” Continental is the only U.S. airline that publishes such a forecast, but history has shown it to be a reliable gauge of industry trends.
— A Southwest Airlines official says Continental’s outlook conforms with her airline’s. Tammy Romo, the airline’s vice president of financial planning, says trends have worsened in the month since Southwest announced a 5 percent cutback in January flying capacity — a big reversal for an airline that’s grown steadily for 34 years.
“We have seen signs of weakness in our recent booking and revenue trends,” Romo says.
— American Express, one of the largest corporate travel agencies, forecast three weeks ago that 2009 coach fares typically paid by business travelers could range from down 3 percent to up 5 percent, depending on the length and severity of the U.S. economic downturn. Now it looks like the lower end of that forecast will prove most accurate because business travelers increasingly are seeking cheaper fares aimed mainly at leisure travelers, says AmEx spokeswoman Tracy Paurowski.
So how will airlines react?
In the past they turned to widespread price cutting. But this year’s fare and fee hikes, along with recent drops in fuel prices, put profits in sight in 2009.
During earnings conference calls with analysts and reporters last month, executives at several airlines hinted their bias is toward further capacity cuts if demand weakens more. Officials at Delta, now the world’s biggest carrier, have dropped the strongest such hints.
“Managing your capacity is critical to controlling your revenues,” spokeswoman Betsy Talton says.