Fall Outlook: Fewer Flights, Sustained Fares

It’s earnings season again, and that means it’s time to gather round and listen to every airline talk about what’s happened and what’s next. After seeing some of the earnings call summaries, it sounds like demand will, as usual, plummet after the summer. But airlines are mostly continuing to keep from adding too many seats, and that means you shouldn’t sit around waiting for any incredible deals.

First, I should say that I can’t stand listening to earnings calls. They take forever and I don’t have the patience. That’s one of the many reasons I subscribe to PlaneBusiness. I can skim the transcripts, get some analysis, and spend a lot less time on it. Since PlaneBusiness is a subscription site, I can’t link directly to any of the info on there, but that’s where I pulled most of this.

One of the more interesting calls for me was Delta’s. These guys were very direct about the state of things. From PlaneBusiness:

[Delta CEO Richard Anderson] then said that where the airline cannot get the “necessary revenue increases to offset the increased cost of operating the flights” the airline is going to remove capacity — particularly in its post-Labor Day schedule. “We have announced that we are reducing capacity by 4 points from our original plan for the second half of 2011. This will result in our post-Labor Day system capacity being down 4% year-on-year,” he explained.

In other words, things are looking strong enough for this summer that you won’t see much of a cut. But as soon as the summer travel hoardes are gone, the flights will go as well. The worst of it? Trans-Atlantic flying. There’s too much capacity there and it’s going to get hacked after the summer.

In addition, we’ve already been told that Memphis will be losing about 25 percent of its flights as the hub shrinks dramatically. Most of those will be Connection flights to small cities. We just had a Cranky Concierge client fly from Huntsville to Austin via Memphis the other day. I’m guessing that won’t be possible after Labor Day rolls around, but the details haven’t been released yet.

While Delta may have been the most clear about its plans, it’s a safe bet that others will follow along as well. Most other large airlines are following similar strategies of being very careful with having too much capacity out there. I say “most” other large airlines. As Delta made very clear on its call, it doesn’t see American acting the same way.

After a Wall Street analyst asked how Delta would defend its share of the corporate business in the face of American’s 21 percent capacity jump in New York and 8 percent in LA, Delta CEO Richard Anderson came back at him.

We are not going to focus on chasing market share. We are focused on operating margin because operating margin ultimately is what our shareholders want us to produce. And so trying to take market share with very poor operating margin and negative cash flow doesn’t work for Delta.

He ended this by saying, “This isn’t a hobby.”

Some very strong words there, and it shows a discipline that we haven’t often seen in this industry. Smart strategies like this mean that there is less of a chance of having a bunch of empty seats that need to be filled with fare sales. So if you’re waiting for that fall deal, it may not be so easy to find this year.

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Muscat,  Oman
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