Airlines move to make bad situation worse

updated 7:22 p.m. ET June 4, 2008

CHICAGO - First it was soaring ticket prices and vanishing bargain fares, then new baggage fees. Now air travelers are facing dwindling choices for when they can fly and where — even to such popular tourist destinations as Las Vegas and Orlando.

The squeeze, a byproduct of record oil prices that are pushing airlines toward financial disaster, accelerated Wednesday when United Airlines announced plans to take 70 more jets out of service and cut domestic capacity by 17 to 18 percent in 2008-09. Its discount unit Ted will be shut down and 1,100 additional jobs eliminated, with more to follow.

That came two weeks after a similar move by AMR Corp.'s American Airlines, the only U.S. carrier larger than United, which said it would slash domestic capacity 11 to 12 percent after the peak summer travel season. American already has begun eliminating flights, as have No. 3 Delta Air Lines Inc. and others.

That's bad news for travelers, especially those who fly out of smaller regional airports that are losing flights and service, and it's almost certain to get worse unless oil prices drop and take the pressure off airlines to keep shrinking. "For the next year or so, it's going to be gloom and doom" in terms of fares and flight options, said air travel expert Tom Parsons.

While United didn't specify routes or flights to be trimmed, the airlines already have begun targeting less profitable flights even if they are to leisure destinations with strong demand. Several carriers have cut back on service to Las Vegas, Honolulu and elsewhere; Delta's service to and from Orlando, Fla., is down 45 percent from a year ago.

While demand for tickets to those destinations remains solid, the airlines say they have to focus on higher-priced and more profitable routes in the face of sky-high fuel prices.

Airline consultant Robert Mann said the tourism and travel industries as a whole are subject to "serious collateral damage," with a likely drop in air travelers to hotels and resorts in places that have flourished with the proliferation of low air fares.

The outlook may be grimmest of all for airlines that don't cut back enough to survive oil prices trading above $122 a barrel even after a decline from $135. That's still well more than double the $50-a-barrel price that United pegged its business plan to after emerging from bankruptcy in 2006.

"Some airlines will likely go bankrupt and cease operating," Lehman Brothers analyst Joseph Campbell said in a note to investors Wednesday.

That might help the bottom lines of those that manage to keep flying, but it would only speed up a trend of narrowing U.S. flight options that has been under way for months.

The largest airports may see only a small decline in flight options, but smaller cities such as Lancaster, Pa., and Ithaca, N.Y., already have lost all service. Experts say others in the East, Midwest and beyond are likely to see individual carriers depart or also lose service completely.

"If you're in a small city you're going to have less opportunities, and the leisure markets are going to be priced out," said Parsons, chief executive of the discount travel site Bestfares.com.

U.S. Rep. Jerry Costello, chairman of the House aviation subcommittee, said he is concerned about small and rural areas losing service. He said he strongly supports the "essential air service" program, which provides federal subsidies to guarantee air routes in rural areas, but is taking a wait-and-see approach before considering further financial support for carriers.

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