U.S. airlines are facing a confluence of factors that could lead to more capacity cuts and downsizing or reduced employee hours this fall, according to Roger King, an airline analyst with CreditSights.
King talked with the Dallas Business Journal Tuesday, in the wake of three North Texas carriers -- Southwest Airlines, American Airlines and American Eagle -- announcing traffic declines this week. (See related stories here and here.)
He said the upcoming travel period that lingers between Labor Day to Thanksgiving is always a big "trough period" for the carriers. When you add in ambiguous predictions about fuel prices and tepid summer demand, King sees the airlines having to take action in the near future.
“I think they’re going to start cutting capacity more right after Labor Day, King said. “ I don’t know to what extent they have announced those cuts, but there will definitely be less flying in the fall.”
King said whether staffing reductions are in the form of employees working fewer hours or layoffs staffers depends on how much cutting has already taken place at various airlines.
He said that Dallas-based Southwest Airlines Co. (NYSE: LUV) is in the domestic leisure segment, which remains the strongest sector in the industry. This segment benefits from having no international exposure--a market that has taken a hit in business. He places Southwest, AirTran and JetBlue in the category that has maintained more consistent demand from passengers.
Southwest announced significant fare cuts on Tuesday for flights that will occur within the autumn trough period that King describes. He says fare cuts are typically implemented to get more people on flights during slower seasons.
American Airlines, a subsidiary of Fort Worth-based AMR Corp. (NYSE: AMR), is in the international sector, which has experienced a lag in international travel, according to King. However, he says although American may have challenges ahead, it's not facing “the most difficulties” when compared to other major carriers.
King said American, like most airlines, has been successful in maintaining its load factors by keeping flights full and flying less.
Oil prices and demand remain the big question marks, King said। “It’s really hard to predict making money or losing money,” he said. “So far, demand has proven to be weak. I think the revenue side is going to be difficult and oil is higher than expected. Airlines will be squeezed this fall. It’s a question then of how much liquidity they have to survive until the next upturn.”
King talked with the Dallas Business Journal Tuesday, in the wake of three North Texas carriers -- Southwest Airlines, American Airlines and American Eagle -- announcing traffic declines this week. (See related stories here and here.)
He said the upcoming travel period that lingers between Labor Day to Thanksgiving is always a big "trough period" for the carriers. When you add in ambiguous predictions about fuel prices and tepid summer demand, King sees the airlines having to take action in the near future.
“I think they’re going to start cutting capacity more right after Labor Day, King said. “ I don’t know to what extent they have announced those cuts, but there will definitely be less flying in the fall.”
King said whether staffing reductions are in the form of employees working fewer hours or layoffs staffers depends on how much cutting has already taken place at various airlines.
He said that Dallas-based Southwest Airlines Co. (NYSE: LUV) is in the domestic leisure segment, which remains the strongest sector in the industry. This segment benefits from having no international exposure--a market that has taken a hit in business. He places Southwest, AirTran and JetBlue in the category that has maintained more consistent demand from passengers.
Southwest announced significant fare cuts on Tuesday for flights that will occur within the autumn trough period that King describes. He says fare cuts are typically implemented to get more people on flights during slower seasons.
American Airlines, a subsidiary of Fort Worth-based AMR Corp. (NYSE: AMR), is in the international sector, which has experienced a lag in international travel, according to King. However, he says although American may have challenges ahead, it's not facing “the most difficulties” when compared to other major carriers.
King said American, like most airlines, has been successful in maintaining its load factors by keeping flights full and flying less.
Oil prices and demand remain the big question marks, King said। “It’s really hard to predict making money or losing money,” he said. “So far, demand has proven to be weak. I think the revenue side is going to be difficult and oil is higher than expected. Airlines will be squeezed this fall. It’s a question then of how much liquidity they have to survive until the next upturn.”
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