Destinations Brace for Market Jolts from Airlift Cuts

Sweeping capacity cuts by major U.S. air carriers likely will force rapid adaptations by destinations and other suppliers as they seek to limit the impact of reduced airlift and higher fares.

After months of half-measures, U.S. network carriers –first American, followed last week by United and Continental- finally are capitulating to stubbornly high oil prices by announcing major service cuts. The planned reductions will result in the retirement of about 210 planes in total from the three carriers’ mainline fleets by the end of next year.

The actual net loss in aircraft will be somewhat less than that, since some of those planes will be replaced by newer, more fuel-efficient models. The shutdown of United’s Ted brand, also announced last week, won’t contribute to seat cuts because its aircraft will be redeployed.

The capacity cuts announced so far –and more are likely to come- will mean reduced service for many destinations as routes are dropped or frequency is reduced. In addition, the availability of fewer seats will help drive airfares higher, especially given the persistence of high oil prices.

The greatest concern among executives and analysts in the broader travel industry is that shrunken U.S. airlines might deal a double blow to travel and tourism in the form of reduced demand for travel as fares rise and a diminished capability to provide desired destinations to those passengers who still want to fly despite the price.

Most segments of the travel industry appear capable of countering the blow of capacity cuts by engineering a wide range of adjustments and adaptations. For example, some destinations can increase their appeal to short-haul travelers, while others can be expected to work more closely with air providers (both scheduled carriers and charter services) to ensure adequate airlift.

Destinations especially dependent on air seats, such as Hawaii and the Caribbean, may need to devise more creative solutions, such as subsidizing specialty carriers.

While destinations that are almost completely reliant on airlift might have to take extreme measures to keep air passengers coming, other destinations can adjust more easily. For example, Sachs said that some U.S. destinations that normally market themselves nationally would need to seek more local and regional business.