Investment Firm Says Even Drop In Capacity Won't Make Things Better

GAMA says the future of general aviation is looking much brighter than it was a year ago. The investment firm Moody's, however, says the same is not true for the airline industry. Nope, it's not a matter of phasing out capacity. Instead, it appears to be a problem with fare structures.

"Low-cost carriers set, or at least substantially impact, pricing decisions on between 80% and 90% of the routes between US cities," said Moody's VP Greg Clifton in an interview with the Dallas Business Journal. "There is no reason to expect fare increases higher than what is necessary for them to remain modestly profitable and allow them to continue to use pricing to gain market share. It is also considered unlikely, in the near term, that we will see the estimated 10% to 15% reduction in US domestic capacity that would be necessary to allow for higher fares."

Clifton suggests the problem for legacy carriers will be made worse by a round of new aircraft deliveries to LCCs like JetBlue and Southwest. That means the low-cost lines will be eyeing those aircraft and setting "pricing to fill."

But the one thing that might just do one or more airlines in this year, Clifton said, is the price of Jet-A fuel. It's high now -- and expected to go higher.

FMI: www.moodys.com