Friday, March 25, 2011

Capacity Cuts

Just when it looked like the U.S. airline industry was on the road to recovery, rising fuel prices and the recent earthquake in Japan have spurred some carriers, including US Airways and Delta Air Lines, to cut capacity.  See Karen Jacobs, U.S. Airlines Cut Capacity to Battle Fuel Costs, Reuters, Mar. 23, 2011 (available here).  Additionally, airline analysts are encouraging the cuts, though some have criticized American Airlines for not being more aggressive with theirs.  See Terry Maxon, Wall Street Talks Smack About American Airlines' Capacity Plans, Airline Biz Blog, Mar. 23, 2011 (available here).

As the various stories concerning the capacity cuts point out, flight reductions will likely mean higher prices for consumers in the coming months, particularly on international routes.  Whether these moves will be enough to keep the struggling airline industry profitable remains to be seen.  Domestic carriers like Southwest currently have no plans to reduce capacity, though even their consumer base may have to endure a price spike if fuel prices continue to rise or Southwest's main competitors scale back their service offerings. 

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