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.

FMI: www.iata.org