Airlines set '08 cutbacks

Four major U.S. airlines cut their 2008 domestic-capacity plans yesterday on mounting concern that rising oil prices and a weakening economy would erode earnings.

One of them, Delta Air Lines Inc., the third-largest U.S. carrier, also forecast that higher fuel costs would wipe out a fourth-quarter operating profit.

A 48 percent surge in the price of jet fuel this year and the prospect for curtailed U.S. travel demand prompted the changes even as several carriers said traffic and unit revenue rose last month.

"We see no business case to grow domestically," Jake Brace, chief financial officer at United Airlines parent UAL Corp., said at an airline conference in New York.

The climb in fuel prices and potential for a drop in demand threaten the financial recovery of U.S. carriers, most of which posted profits in 2006 after five straight years of losses.

The impact of high oil prices "remains one of the top challenges facing the industry today," American Airlines chief financial officer Tom Horton said at the conference. American was not one of the four carriers that announced plans to cut the number of seats it offers next year.

United, the world's second-largest carrier, said capacity in its main U.S. jet operations would fall between 3 percent and 4 percent in 2008. Delta plans to pare its number of seats between 4 percent and 5 percent.

Southwest Airlines Co., the largest low-fare carrier, cut its 2008 capacity growth for a third time, to between 4 percent and 5 percent. Continental Airlines Inc. said it would slow growth in its main jet operations to between 2 percent and 3 percent from between 3 percent and 4 percent.

U.S. carriers have boosted ticket prices seven times since Sept. 1 to combat the rising price of jet fuel. The latest attempt by five of the largest airlines was rolled back Monday after one competitor decided against an increase.

"We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices," Southwest chief executive officer Gary Kelly said in a statement.

Delta and other network carriers continue to focus on international routes, where fares are higher and there is less competition from discounters such as Southwest.

United has a satisfactory ability with its current fleet to add 15 percent to international flying over the next few years without buying new planes, Brace said. The carrier may consider ordering a handful of aircraft for overseas routes once that expansion is complete, he said.

Operating profit at Delta will be zero to negative 2 percent of sales, down from an Oct. 16 forecast of 3 percent to 5 percent, chief financial officer Ed Bastian said at the New York conference.

"Domestic capacity cuts are prudent," said Jim Corridore, a Standard & Poor's Corp. analyst in New York. Delta's move and slowing domestic growth at competitors are likely to help airlines boost prices next year, he said.

Delta said it was seeking $400 million in 2008 savings to compensate for the decline. Measures will include a partial hiring freeze, job cuts, reduced spending for marketing, and the installation of lighter seats and winglets on some aircraft to improve fuel efficiency.

The carrier will also cut U.S. seating capacity considerably by returning some leased planes, Bastian said.

Southwest, which also slowed its expansion plans in October and June, now will receive seven to nine new aircraft in 2008, down from original plans for 34.

At Continental, chief financial officer Jeff Misner said that, even with the decision to pare expansion, the carrier was "not quite prepared to declare a downturn here."

Four major airlines plan to change their seat capacities next year to use less fuel.

Continental:

Increase seats by 2 percent to 3 percent instead of the planned 3 percent to 4 percent.

Delta:

4 percent to 5 percent decrease.

Southwest:

4 percent to 5 percent increase, but a third reduction in its forecast.

United:

3 percent to 4 percent decrease.

SOURCE: Inquirer wire services