Airlines Climb on Capacity Cutbacks

Brittney Barrett  |

U.S. airlines are considering reducing the amount of flying they do as the ailing economy prevents further fare boosting. The price of jet fuel has risen sharply this year and remains disparately high against the price of oil. Airlines had been relying on higher fares and additional fees to negate the costs, but have begun experiencing lower volume on flights as a result. A legislative crackdown on fees, designed to increase transparency for the fliers, threatens to exacerbate losses and contributed to airlines across the board reaching their 52-week lows in recent trading.


Airline stocks began to recover today; however, after calls for contraction amongst airlines renewed investor confidence that the industry would find a way to recover from the conditions they have been facing. The news of dramatic action helped to distract from a benchmark of fuel-refining expenses climbing to record highs and reports indicating consumer confidence at a 32-year low.


Fares have risen eight times over the course of this year and at some point, especially with a weak economy, there is little room for further increases. Rather than experience losses on low-volume airlines have established these impediments are here to stay and decided to cut down on flights.


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Among the airlines that have decided to trim future growth are Delta Airlines Inc. (DAL) and Southwest Airlines Co. (LUV), both of which ascended in trading today.


Last week Delta’s CEO, Richard Anderson prepared employees for the changing landscape. Anderson doesn’t believe short-term declines in fuel prices spell long-term relief for airlines and Delta will pare capacity by around 5 percent rather than 4 percent in order to compensate. Delta employed early retirements and contract buyouts to slash around 2,000 jobs. Anderson’s perspective seems to be convincing investors he will be proactive in improving profitability and led shares up considerably in trading.


Southwest also cut capacity growth to around 4 percent this year from an earlier number between 5 and 6 percent.  The company will not continue to reduce seating next year. Shares of Southwest were headed higher on the news.


United Continental Holdings Inc. (UAL), the largest airline company said seating for 2011 would not change. Overall sector optimism may have been helped lift the stocks in trading on Monday.

American Airlines (AMR), the third largest domestic line has reduced growth plans three times this year and that tend continue into 2012. Pricing improvements on shares were among the highest of the day but still fell below Jet Blue (JBLU). JBLU had been silent among the discussions of the capacity paring, but were perhaps buoyant on the basis of revenue and capacity improvements in last week’s earning report.



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