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It's cut, cut, cut for airlines

Major carriers are shedding domestic flights as financial problems mount. That could mean higher fares and more crowded planes.

By STEVE HUETTEL
Published October 17, 2005

TAMPA - For more than two decades, Delta Air Lines flew Terry Kors around the country on countless business trips in comfort and convenience. He repaid Delta with steadfast loyalty.

But the relationship has become strained as Delta cuts flights in a sweeping recovery plan to emerge from bankruptcy. Kors worries about getting a seat home when Delta replaces three late-night flights from its huge Atlanta hub to Tampa with a single trip on Dec. 1.

Delta also will eliminate an early morning connection in Cincinnati that he flies to return from the West Coast. That means his work day in St. Petersburg won't start until well after noon.

"I'm a loyal customer, but I'm struggling to find ways to get here without sitting in (an airport) for three hours," said Kors, a regional vice president for Raymond James Financial Services.

Delta plans to slash domestic jet flying as much as 20 percent by the end of 2006 while it sheds more than 80 planes under bankruptcy rules and moves larger aircraft to international routes.

Other big carriers caught in the industry's financial crisis are slimming down, too.

Northwest Airlines, also in bankruptcy reorganization, expects to cut capacity - the number of seats it flies - 10 percent by year's end. US Airways, recently out of bankruptcy and merged with America West Airlines, will cut 50 planes from the combined fleet.

American Airlines, the world's largest carrier, trimmed 15 domestic flights from its Dallas-Fort Worth International hubs this month, citing fuel price spikes after hurricanes Katrina and Rita.

Travelers can expect some turbulence.

Certain deep discount air fares have disappeared, and airline analysts say ticket prices are headed up. Packed planes will likely become more crowded. Frequent fliers like Kors will find it harder to find flights that fit their schedule.

Delta is Florida's biggest airline and just behind No. 1 Southwest Airlines at Tampa International Airport. The nation's third-largest carrier remains the favorite of business travelers for its first-class cabins and worldwide route network.

You've probably heard the old joke: If you're going to heaven, you'll need to stop in Atlanta. That's how much people in the Southeast associate air travel with a change of planes at Delta's fortress hub.

But getting a ticket to or from Atlanta will get more difficult for Tampa Bay area travelers this winter.

Delta will fly 34 percent fewer seats - an average loss of 1,800 per day - between Tampa International and Atlanta in December than during the same month in 2004, according to OAG, a company that tracks airline schedules worldwide. The number of seats to its smaller Cincinnati hub will shrink by 39 percent.

Capacity reductions nationwide should shore up an industry that lost more than $30-billion since 2001 and remains neck deep in red ink, airline experts say.

The dilemma facing traditional airlines is three-pronged: high costs, low fares set by growing discount competitors and skyrocketing fuel prices. Cutting the supply of seats for sale should push up prices, especially on heavily traveled East Coast routes.

"Everybody will be in a better postion to make money," said Darryl Jenkins, a visiting professor at Embry-Riddle Aeronautical University.

Domestic capacity among the largest eight U.S. airlines next year will shrink 6.6 percent - more seats than fast-growing JetBlue Airways flies, according to Jamie Baker, airline analyst for JPMorgan Chase & Co.

Along with other pressures like fuel costs, Baker wrote in an Oct. 6 report, the seat reduction should drive up revenue for the Big Eight more than 10 percent on U.S. routes next year.

History suggests pain for consumers will be short-lived.

Since airline deregulation in 1978, capacity has dipped slightly as carriers hit hard times but always recovered and continued growing, wrote the Government Accountability Office in a September report.

The reason: competitors eventually move in to claim customers left behind by struggling carriers.

The biggest winners of the latest shakeup will likely be Southwest, JetBlue Airways, AirTran Airways and other low-cost carriers that have kept their heads above water financially and continue growing.

While US Airways struggled through two bankruptcies, Southwest and AirTran went on the offensive. They chased US Airways out of Baltimore-Washington International Airport and jumped into Philadelphia, the carrier's most important hub.

Low-cost carriers are set to add more than 110 jets in 2006. But with fuel prices squeezing them, they might decide to profit from higher fares instead of adding capacity in markets where Delta and Northwest retreat, said Robert Mann, an airline consultant in Port Washington, N.Y.

"It's an opportunity," he said. "Each one has a choice - to take it in growth or in price."

AirTran Airways appears best poised to take advantage of Delta's capacity reductions. The discounter has a small hub in the shadow of Delta's huge operations in Atlanta and generates more than 90 percent of revenues from routes where they compete head to head.

On Oct. 4, AirTran raised its lowest sale fares as much as 12 percent over last month, wrote Baker, the JPMorgan analyst. A one-way fare between Tampa and Akron, Ohio, for example, jumped $10 to $99.

AirTran made a small profit for the first half of 2005, but analysts expect that to turn into a modest loss for the full year. New jets arriving next year will likely enter new markets, not less profitable routes that Delta cut back, said AirTran president Robert Fornaro.

"As capacity comes out, we need to increase (passenger loads) and increase average fares," he said. "Our goal is not to backfill every seat because there are too many seats out there in the first place."

Southwest doesn't compete as directly with Delta. But the nation's largest low-fare carrier has a history of moving quickly into big markets when competitors falter.

After ATA Airlines filed for bankruptcy last fall, Southwest made a deal to expand at Chicago's Midway International Airport by buying six gates from the ailing carrier. The discount giant then jumped into Pittsburgh when US Airways cut back there. Is Atlanta or Cincinnati next?

"We're always keeping an eye on the marketplace and poised to take any opportunities that arise," said spokeswoman Marilee McInnis. Executives haven't decided if the Delta or Northwest bankruptcies open a door for Southwest to move in, she said.

Don't count Delta out as a big player in Florida or the Tampa Bay area.

True, the airline is making deep cuts in capacity between the Sunshine State and Atlanta, with about one out of every five seats going away for the busy winter season, according to Baker of JPMorgan Chase.

But at the same time, Delta is building capacity on nonstop routes to big Northeast destinations flown by its discount brand Song.

Song will fly 24 percent more seats - an average of 436 extra per day - between Tampa International and New York City in December than it did in the same month last year. The airline will also add seats from Tampa to Boston and Hartford, Conn.

Delta won't fly as many seats between Atlanta and Tampa because it's moving big 767 jets out of Florida to expand flights on more lucrative international routes. Those planes will be replaced with smaller jets, said spokesman Anthony Black.

"Florida will continue to be a big market for Delta," he said. "How we feed (passengers) into Florida might change with the size of the aircraft we use."

Airline experts say it's all about cutting costs on Delta's lowest fare routes.

Moving customers through connecting hubs adds a layer of expenses, such as more airport landing fees, more staff and twice the fees from computer reservations systems that charge for each segment of a trip ticket.

Airlines can absorb the expense when business travelers buy expensive walk-up tickets or connect to international flights. But not when planes are packed with tourists on cheap Florida flights where low-cost competitors set the price, said Mann, the airline consultant.

"They've got to get out of the business of spending extra money on the most price-sensitive business," he said.

AirTran executives, who have long criticized Delta for expanding into unprofitable routes to protect its East Coast turf, say those decisions have come home to roost.

"Delta has been the most aggressive airline competing with the low-cost carriers, and they're still aggressive," Fornaro says. "Over the last couple years, they've focused on a market-share strategy that contributed to their bankruptcy as much as anything."

Delta will keep fighting JetBlue by expanding Song on routes between the Northeast and Florida. But the game plan in bankruptcy shows Delta will be more selective in choosing its fights, said Jenkins, the Embry-Riddle professor.

"I'm glad to see they're more concerned about their financial welfare than chasing AirTran around," he said.

Steve Huettel can be reached at 813 226-3384 or huettel@sptimes.com

[Last modified October 17, 2005, 08:07:57]