Special anna.aero briefing:
Capacity and route reductions provide opportunities for niche carriers (and LCCs)

It seems that barely a day goes by without a major airline announcing either capacity reductions, dropped routes, an increase in fares, or some new way of charging passengers for things that were previously free. Depending on your point of view the current record high fuel prices are either forcing airlines to take drastic action against their will, or it is giving them the perfect excuse to remove previously unprofitable capacity and routes without a major backlash.

Map: World Air Routes
Every route dropped by one airline is an opportunity for another airline.

US carriers appear to be taking most drastic action

According to the US Air Transport Association airlines in the US could lose as much as $10 billion in 2008 and up to 200 communities could lose air services as a result of carrier capacity cutbacks. In the last few weeks the following airlines have issued statements on how they plan to deal with the current situation.

Image: Irish Independant Newspaper Headline
Headline-writers are enjoying the changes, but LCCs may well benefit the most from the current situation.

The majors: headline capacity/route adjustments

  • Air Berlin: Will reduce the number of aircraft in its fleet by 10% from 134 to 120 by the end of the year. Four A330s will be redeployed form long-haul to medium-haul routes. As a result a variety of long-haul routes will be axed for the winter period including its recently started Chinese services and Dűsseldorf to New York route.
  • Air Canada: Will reduce capacity by 7% over the winter season.
  • AirTran: Has deferred delivery of 18 737-700s by four years and has scaled back plans to grow by 10% so that growth will now be flat.
  • American: Will reduce Q4 mainline domestic capacity by between 11% and 12% and regional domestic capacity by around 10%.
  • Continental: Will cut domestic mainline capacity by 11% in Q4 and will stop flights from its main hubs to 40 domestic and international destinations. High profile casualties include its Newark to Cologne/Bonn service and flights between Houston and Washington Dulles.
  • Delta: Will cut domestic capacity by 13% in the second half of 2008
  • easyJet: Has revealed that it will reduce capacity at its Dortmund base by 50% this winter.
  • Northwest: Will cut mainline capacity in Q4 by around 9% and dispose of 14 narrowbody Airbus and Boeing aircraft and stop operating a further 33 DC9s.
  • Ryanair: Grounding 20 aircraft this winter, primarily at its two biggest bases of Dublin and London Stansted.
  • US Airways: Will cut its Q4 mainline capacity by between 6% and 8%. For 2009 the airline will cut domestic mainline capacity by around 8% compared to 2008. Las Vegas (a major Southwest base) will be hit hard with daily departures down from 141 last September to 81 by this September.
  • Virgin America: Will reduce capacity by 10% in Q4 mostly on mid-week, off-peak flights. The number of aircraft will remain unchanged.
  • Virgin Blue: Will take four aircraft out of operation and will cut planned capacity growth for the next fiscal year by 6%.

Ironically even though fuel costs make up a higher percentage of costs for low-cost carriers (there’s no such thing as low-cost fuel and very little hedged fuel is left), LCCs may well benefit the most from the current situation, as passengers, reluctant to give up on air travel either for business or pleasure, look to get better value for money. Southwest has regularly emerged from US economic downturns in better shape than its legacy rivals. Indeed the aftermath of 9/11 was the catalyst for the launch of the vibrant low-cost scene across Europe.

New opportunities for niche carriers

It should be remembered that every route dropped by one airline may be an opportunity for another airline. There is even the benefit that there is at least some historic data to look at compared with starting a totally new route. Just because a 50-seat jet is unprofitable on a route does not mean that a smaller turboprop with significantly lower fuel costs might not be able to make money on the route. Here at anna.aero we aim to report on as many of the route axings as we can find out about. Unlike route launches airlines are understandably reluctant to promote their ‘failings’ but with your help we will help highlight these cases which may be of interest to other carriers.


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Comments

  1. James Pearson says:

    BA also plan to ground some its fleet from this October, as here: http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article3953811.ece

    The present climate is certainly very trying. I do, however, genuinely believe that there are amid such trouble good opportunities for discount airlines (my primarily area of interest) that are cost leaders, value leaders, service reliability leaders, those that are well-established, have effective and growing ancillary revenue components, have a true competitive advantage through much greater operational performance (efficiency/productivity), if they aren’t hybrid, middle-of-the-road, have sufficient cash reserves, not much debit, retain focus and determination, etc. For the most part I subscribe to the belief that they will be able to expand and capitalise on the route eliminations, frequency reductions, capacity withdrawls, higher fares, bankruptcies, etc, of incumbents and other discount airlines. The opportunities and benefits won’t just materalise, but I reckon they will in a couple of years or so.

    Meanwhile, I believe they need to always have the right mindset, vision, determination – be proactive, effectively always thinking ‘we’re in a crisis’ and acting as such rather than being stung and having to react much more greatly, which would surely be far more difficult, time-consuming and uncertain.

    Interesting times indeed.

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