Airline industry takes steps to avoid crisis

As the global recession dampens air travel, and with jet fuel up more than 20 percent since January, the U.S. airline industry is again facing a monumental crisis.

Although steps airlines took a year ago when crude oil hit $147 a barrel have better prepared the industry for this year's economic storm, those steps alone are not sufficient, a roster of airline executives said at an investor conference today in New York.

"Just as the airline industry was not built for $130 oil, neither was it built for an environment of negative global economic growth and nonfunctioning capital markets," American Airlines chief executive officer Gerard Arpey said at the Bank of America-Merrill Lynch Global Transportation Conference.

Airlines are making additional cuts to flight schedules. Delta Air Lines hinted that it might eliminate more jobs as it further cuts capacity - seats and flights - 10 percent.

Business travel remains weak, and fares are steeply discounted to fill planes.

Southwest Airlines Co. CEO Gary Kelly said June revenue "could be down more than we saw in May."

Philadelphia's second-busiest carrier is looking for new revenue streams, and it recently added fees for unaccompanied children and for pets. Southwest is offering buyouts for employees to leave the company, and it plans to further cut unprofitable flights 6 percent.

US Airways Group Inc., Philadelphia's dominant airline, said it reinstituted a fuel surcharge last night to counter rising fuel costs. The fare increase of $10 one-way is on most U.S. and some European flights.

"The drop-off in revenue has been more severe than any of us would have expected," said US Airways president Scott Kirby. "We don't have a very reliable outlook beyond about 30 days."

Kirby said extra or "ancillary" fees for things such as checked bags and choice seating were expected to garner $400 million to $500 million this year and constitute "one of the most important structural changes" airlines made in 2008.

Delta president Edward Bastian said the downturn in travel had overtaken $6 billion in benefits the airline had expected this year from lower fuel prices than a year ago, previous capacity reductions, and savings from Delta's merger with Northwest Airlines Corp.

"The operating environment is challenging to say the least, probably on a scale that we've not experienced, certainly not since Sept. 11," Bastian said. "We're not expecting any consequential recovery for the balance of this year."

Delta said it would cut seat capacity by an additional 10 percent starting in September, including a 15 percent reduction on international routes.

Among the cuts, Delta will suspend nonstop flights from its headquarters in Atlanta to Seoul, South Korea, and Shanghai, China, and eliminate nonstop flights from its Cincinnati hub to Frankfurt, Germany, and London Gatwick Airport.

United Airlines, which cut capacity 30 percent in the first quarter, said it was assessing additional capacity cuts for the fall.

American will make additional flight cuts beginning in late August - about 2 percent to mainline routes and 3.5 percent on its international network. American's full-year mainline capacity will be down 7.5 percent over 2008.

"Our challenge has been made that much more daunting with the recent H1N1 effect, which at least temporarily devastated our Mexico traffic, and has had a dampening effect on demand throughout our network," American's Arpey said.

All airlines are not suffering equally.

Discount-fare carrier AirTran Airways said, because of aggressive steps to raise cash and cut costs, it expected to have one of the best years in its history. "We had record first-quarter profit, and we expect to be profitable for the full year," AirTran chief financial officer Arne Haak said.

Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.