Carriers And Analysts Expect Slow Comeback For Business Travel

With the end of the peak summer travel season just three weeks away, US airlines are staring at volatile fuel costs and declining consumer confidence, and are likely to make the decision to reduce their capacity, or at least hold off on expansion of available seats. Delta and Southwest have already announced plans to do so, and Hunter Keay, an analyst at New York-based Wolfe Trahan & Co., tells Bloomberg others will follow the trend toward contraction.

The recent roller coaster of the downgrade by Standard & Poor of the quality rating of federal debt, followed by wild swings in stock prices, have contributed to consumer confidence in the US reaching its lowest level since 1980. Keay predicts, "I don’t think airlines should view that nervousness as short term. If executives are going to go out and assume high fuel prices are here to stay, then they should assume that fear and destruction of consumer wealth are here indefinitely as well."

Despite gasoline prices for motorists which declined ten cents per gallon last week, and predictions the fall could continue, refining costs for jet fuel are predicted to rise. Bloomberg reports airlines have tried to recoup those costs by raising fares at least eight times this calendar year so far, but in three of the last four attempts, they've had to roll them back again.

The industry's bread and butter are business travelers, who often have no choice but to pay high, last-minute fares. Southwest Airlines CEO Gary Kelly (pictured) sees slow growth ahead in that segment, telling Bloomberg, "It’s very clear the economy is not recovering. Business travel...won’t grow until the economy really does grow at a healthy rate."

Among other airlines, United Continental says it will not cut capacity in 2011. At the other extreme, American Airlines has made three progressive cuts totaling 1.9 percent of capacity, and says it expects to cut more seats in 2012.

FMI: http://wolfetrahan.com/research/sector/hunter-keay/