American, Delta Plan More Capacity Cuts

'We have transitioned rather seamlessly from a fuel crisis to an economic crisis,' said American CEO Gerard Arpey.
Author:
Publish date:

Both

American

(AMR)

and

Delta

(DAL) - Get Report

announced additional capacity cuts Thursday, as the airline industry faces both a global recession and rising fuel costs.

"We have transitioned rather seamlessly from a fuel crisis to an economic crisis," said American CEO Gerard Arpey, speaking at a Bank of America/Merrill Lynch transportation conference.

Reminding that last year he said the airline industry was not built for $130-a- barrel oil, Arpey said: "Neither was it built for negative economic growth (or) non-functioning credit markets."

American's advance bookings through August are down about two points. The carrier will reduce second half mainline capacity two points beyond what was previously announced, meaning a 7.5% mainline capacity reduction in the second half, Arpey said. The newly announced reduction includes a point in domestic capacity and 3.5 points in international capacity.

Overall, American will have reduced second-half mainline capacity by 15.5% and international capacity by 5.5% in compared with the same period in 2007.

Meanwhile, Delta said it will reduce system capacity by 10% and international capacity by 15% this year.President Ed Bastian said second-quarter passenger revenue per available seat mile will decline by 20%, while total RASM will decline by 16%, reflecting the benefit of fee and credit card initiatives.

The spread of the H1N1 virus has contributed to the lower demand, Delta said. Bastian said "we believe it's going to be largely a second-quarter event (with) some effect in the third quarter."

While Mexican routes have seen a modest impact, the impact in Asia has been substantial, shaving revenue by $125 million to $150 million as potential passengers recall the impact of avian flu, he said. "Bookings in the month of May fell off in a very dramatic manner across Asia," but that impact is starting to recede, he said.

Delta said it will reduce international by 5% more than previously announced, bringing the total international reduction to 15%. Routes to be cut this fall include Atlanta-Seoul and Atlanta-Shanghai, Cincinnati-Frankfurt, London-Gatwick, and New York-Edinburgh. Additionally, weekly frequencies from Atlanta and Detroit to Mexico City will be reduced, and planned seasonal service to Mexican beaches will be postponed.

Nevertheless, Delta will add 20 new international markets in 2009, including Los Angeles-Sydney, Salt Lake City-Tokyo, Detroit-Shanghai, New York-Prague, Pittsburgh-Paris and Atlanta-Johannesburg.

Additionally, American will take delivery of eight additional 737-800 aircraft over the next two years, bringing total new

Boeing

(BA) - Get Report

deliveries to 84 during between 2009 and 2012.

On Thursday afternoon, shares in American were trading down 3 cents at $4.61, while shares in Delta were up 1 cent at $6.56.