U.S. Airlines Add Seats Amid Fare Wars
What price will
airlines pay to attract passengers? In some cases, the money
counter can reach quite high. As the travel industry sputters its
way out of a three year downturn, U.S. airlines are adding enough
seats to approach pre-Sept. 11 levels. However, some analysts see
turbulent skies ahead as carriers slash fares to win market share,
leading revenue to trail demand.
Industry analysts expect low-cost carriers to expand capacity by
more than 10 percent this year, and regional carriers by 24
percent. Even the larger carriers are doing the same, even as many
continue to lose millions of dollars a day. The nine major airlines
-- American Airlines, Continental Airlines, Delta Air Lines,
Northwest Airlines, United Airlines, and U.S. Airways, Alaska
Airlines, America West and Southwest Air -- are expected to
increase capacity by 5.8 percent this year, according to Deutsche
Bank. That is up from their previous forecast of 2.3 percent.
The tide has turned since the steep fall of the airline industry
post-9/11. Larger airlines shrank capacity after the 2001 attacks,
as the Severe Acute Respiratory Syndrome (SARS) epidemic and the
Iraq war took their toll on the economy. Vacationers tightened
their budgets and corporations curbed their travel spending.
Low-cost carriers, on the other hand, grew aggressively. Now, we
are starting to see an increase in capacity and that may signal the
beginning of a gradual rebound of the airline industry. As the
economy has started to rebound, particularly in the past few
months, larger carriers have begun adding capacity in a bid to take
on low-cost rivals.
Total U.S. airline
capacity, measured in available seat miles, has fallen
progressively over the past three years -- to 891 billion in 2003
from 966 billion in 2000. It is estimated to climb back to 964
billion in 2004. By early 2005, capacity will have returned to
pre-9/11 levels.
But even as the comeback of leisure travelers is keeping holiday
sales relatively strong, year-round corporate travel remains well
below pre-Sept. 11 levels. Increased competition on
transcontinental U.S. routes and for certain destinations has also
been pushing prices down. Analysts expect total industry revenue in
2004 to trail 2000 levels by about six percent to eight percent.
Costs, on the other hand, have been on the way up due to rising jet
fuel prices.