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Shrinking Airline Capacity Hits Consumers' Wallets

By Dan Schlossberg
ConsumerAffairs.com

, 2006

• Be a Traveler, Not a Target • Money Solutions for the Traveler • Travel News

Airlines are profitable again. But they're not about to share the wealth with consumers.

Collectively, the carriers are likely to realize a profit as high as $3 billion for 2006 and could do twice as well this year, according to several sources.

The reasons are readily apparent:

• Lower fuel costs;
• High demand for seats; and
• Limited seat supply

Although low-cost carriers have increased fleet size and the number of available seats, the legacy lines have refused to go along -- keeping inventory tight and demand ahead of supply.

A series of fare increases (24 in little more than two years) has helped hike revenues, especially when coupled with drops in the price of the crude oil used for aviation fuel.

If a series of airline mergers materializes, seat inventory will shrink further and prices will go in the opposite direction. With AirTran bidding for Midwest, US Airways after Delta, and other mergers in discussion, the likelihood is that one or more will go through.

Although most big carriers announced a winter fare sale in late December, they also teamed for a mid-January price hike that added $5 to the cost of each flight segment. The first boost of 2007 was the 11th in 13 months, since the start of 2006.

Keeping tight controls on capacity helps the legacy lines, which are expected to expand seating by less than 3 per cent in 2007, as opposed to an increase above 10 per cent by discounters and a projected increase above 5 per cent by regional airlines.

According to the Air Transport Association, the airline industry had not reported a profit in six years before 2006. Losses were a combined $8.3 billion in 2001, the year planes were used in September terrorist attacks on New York and Washington, and $11 billion a year later. The lines lost a collective $11.3 million in 2004-05, jumping the five-year industry plunge to $35 billion.

Now that the travel climate has improved, carriers are determined to recoup as much as possible.

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