The association representing major U.S. airlines expects that carriers will scale back capacity early next year, aligning it more closely with passenger demand to offset record high jet fuel prices. Airlines for America (A4A) projects a 2.4-percent reduction in scheduled domestic flights, a 1.3-percent decrease in domestic seats and a 0.1-percent cut in domestic available seat miles (ASMs) in the new year. This year, domestic ASMs rose a modest 0.1 percent over last year’s total seat capacity.
Estimates for first-quarter 2013 domestic ASMs suggest a nearly 10-percent decline from the industry’s capacity in the first quarter of 2007, before the global recession began. A4A expects that ASMs for flights departing U.S. airports for Europe will decline by 8.3 percent in the new year, and for the Middle East and Africa by 9.1 percent. The association expects that seat-mile capacity will increase by 8.8 percent to the South Pacific region and by 3.8 percent to the Caribbean and Latin America.
In a teleconference with reporters on November 7, John Heimlich, A4A chief economist, characterized the reduced airline capacity as “no surprise given the difficult environment, with costs outpacing revenues.” He placed the blame largely on the price of jet fuel. Through the first week of November, the year-to-date price of jet fuel averaged $3.08 per gallon, exceeding the record 2011 level of $3.00. During the first three quarters of this year, fuel accounted for 34 percent of airline operating expenses, for an increase of 6 percent over the same period last year.
“We are poised, once again, to see all-time-high jet fuel prices for this year, with a fair degree of volatility throughout the year,” Heimlich said. “That is a major factor driving results and driving service levels.”
Heimlich said the fuel supply has returned “to normal” at airports in the Northeast after Hurricane Sandy, “thanks to a cooperative effort across the entire supply chain and some aggressive operational measures taken by the carriers.”
Total airline expenses increased by 6.2 percent year over year, offsetting a 5.6-percent increase in operating revenues. An A4A analysis of financial reports by 10 airlines–Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways–revealed that net profit margin declined from 0.9 percent in the first nine months of 2011 to 0.2 percent this year, on net income of $262 million. “That’s two-tenths of a penny profit for every dollar of revenue generated,” Heimlich said.