US airlines - Airline Capacity Cuts May Mean Higher Fares

Plans by major US airlines to reduce the number of seats they sell may bolster fares later this year, further propping up prices that dropped this year as economic weakness drained travel demand.

Delta Air Lines and American Airlines said they would cut their capacity deeper than previously predicted. The capacity reductions are expected to kick in after the peak summer travel season.

"When they do kick in, I expect price points to move up a bit," said Rick Seaney, chief executive of FareCompare.

"It's about competition," he said. "So the routes that are losing the seats are the ones that are going be boosted, and the ones that continue to have excess capacity are still going to have really good deals."

Delta said it would trim system capacity by 10 percent this year, with reductions beginning in September. Previously, it said its system capacity would be down 6 to 8 percent.

American Airlines said it would cut capacity by 7.5 percent this year, compared with a previous forecast for a 6.5 percent decline. Other airlines signaled their intention -- or at least their willingness -- to cut capacity.

The airline industry, battered severely last year by high fuel prices and later by falling travel demand, rapidly downsized to offset its two heaviest burdens. But the carriers were largely unprofitable in the first quarter despite a sharp decline in fuel prices in the second half of 2008.

Now, as airlines face a new rally in oil prices and demand remains tepid, experts say they must once again cut their capacity in hopes of charging more for tickets.

Earlier this year, average fares slipped thanks to deep discounts and seasonal sales that lasted longer than usual. Prices since then have begun to stabilize, Seaney said.

"If you look at a two- or three-year history, it's not terribly low right now, but there's a lot of sale fares still thrown in the market," he said.

Capacity cuts already in place have helped airlines keep planes full, even if fares remain somewhat depressed, said Terry Trippler, a travel opinion writer.

"Planes are still going to be somewhat full again because capacity is down," Trippler said. "But the airports are going to be a little lighter so the hassle factor is going to drop substantially."