Airlines ready for fewer travelers in 2009

The airlines expect to have fewer customers in 2009, and they seem well-positioned to deal with that.

Hammered first this year by staggering fuel costs and now experiencing a reduction in passenger demand, the major carriers are preparing to downsize even more next year to regain profitability.

A formula of dramatically lower fuel prices and capacity adjusted downward because fewer people are traveling in a brutal economy should result in a better bottom line in 2009.

Thus, industry executives are almost upbeat about the coming year, making them rare creatures in the world of commerce these days.

Airlines had their own tsunami - staggering fuel prices - earlier in the summer. They reacted aggressively, by slashing flying capacity - seats and flights - by 10 percent industrywide. Those actions serve now to mitigate the effect of a decline in passenger travel because of a different crisis: a recession.

With oil now below $50 a barrel, U.S. carriers say they believe they can counter a significant drop-off in demand and still come out better than when crude peaked at $147 in July.

Airlines say they stand ready to shed more flights and seats, either by curtailing schedules or flying smaller planes, if passenger demand weakens further.

"We remain optimistic on 2009 for the airline industry as a whole," analyst Bob McAdoo at Avondale Partners L.L.C. said in a research note yesterday. "If a weaker economy continues to reduce both oil prices and passenger revenues, the benefits of lower oil prices should more than offset reduced revenues," he said.

Twelve airline executives, speaking at a Credit Suisse investors conference in New York this week, said the earlier cuts in flying and fuel-inefficient airplanes helped blunt the effect of Wall Street's meltdown and a tumbling economy that is discouraging travel.

In contrast to other industries, such as housing and autos, airlines are expecting a better year ahead, said US Airways Group Inc. chief executive officer Doug Parker. "For airlines at least, 2009 looks better than 2008," he said.

Airlines not only cut flying, but also changed their pricing models to include ancillary fees and charges for everything from checked bags to soft drinks that "will have material impact on airlines' ability to generate higher profitability," Parker said. "Most analysts are now projecting you're going to see profitability for the industry next year."

Parker said bookings for January look better than in November, which "was very soft. December looks better than November, and January looks better than December."

US Airways reported a nearly 7 percent decrease in passenger traffic for November. Southwest Airlines Co. said traffic was down 8 percent. American Airlines said its traffic fell 14.5 percent in November compared with November 2007.

"We have seen business travel softening in certain markets," Parker told the investors conference, "presumably because of what is going on here in New York with the financial industry. Leisure bookings are staying almost surprisingly robust."

Southwest's CEO Gary Kelly said the Dallas low-fare carrier planned "significant" changes in its flight schedule in January.

"We are going into our daily flight schedule and pulling out trips that are not popular and not profitable," Kelly said. "Obviously we are concerned about the economy. We need to get our flight schedule adjusted to lower demand. Our plan is to not grow the fleet in 2009."

Delta Air Lines Inc., which merged recently with Northwest Airlines Corp., said it would trim domestic flying 8 percent to 10 percent in 2009, and cut international capacity 3 percent to 5 percent.

US Airways expects to shrink flights and seats 6 percent to 8 percent next year, but does not anticipate reducing capacity more than that.

United Airlines said it would lay off nearly 1,200 workers in January as part of a previously announced plan to eliminate 7,000 jobs.

United is also closing repair stations at Philadelphia International Airport, LaGuardia Airport and Newark International Airport on Jan. 11.

"We announced those maintenance facility closings on Oct. 21," said United spokeswoman Megan McCarthy. About 30 mechanics work at United's repair station at Philadelphia International.

"Most of the work that is performed at Philadelphia will move to other airports throughout United's system," she said.

United announced in October that it expected to shrink capacity 8 percent to 9 percent in 2009. "These difficult but necessary decisions are all part of United's work to remain competitive in this extremely difficult economic environment," McCarthy said.