1. Archive

Two top airlines cut back on plans

Published Oct. 10, 2005

First, the recession devastated earnings at the nation's airlines. Now, it's forcing a sobering reduction in growth plans at the two biggest carriers.

At first blush, one might think slower expansion could make the aviation superpowers, American Airlines and United Airlines, a little less of a threat to their weaker rivals.

But experts said last week that less spending on airplanes and other equipment at two of the so-called "mega-carriers" won't make life easier for smaller carriers. It does, however, raise questions about whether the third-largest U.S. carrier, Delta Air Lines, could soon announce reductions in its own expansion plans.

The airlines have been put into a financial tailspin, first by the Persian Gulf crisis, which raised fuel prices and spooked passengers, and second by the recession, which cut into demand for air travel and prompted struggling carriers to initiate harmful fare sales.

"If it's tough on the big guys, the strong guys, it's 10 times as tough on the people that are already in financial difficulty," said Lee Howard, president and chief executive of Airline Economics Inc., a Washington-based aviation consulting firm.

"The competition that the big guys are offering is still very, very keen," Howard said.

But the biggest airlines acknowledge they need to slow the pace of their dizzying growth.

Chicago-based United announced at the beginning of last week that it was cutting its capital spending plans through 1995 by about $6.7-billion, to $12.2-billion. United will achieve this cut by taking delivery of 156 aircraft during that period instead of its initial goal of getting 278 new planes.

United's move follows that of archrival American Airlines. American, based in Fort Worth, Texas, announced in November it would trim $8-billion from a $22-billion capital spending plan. That would scale back the planned size of American's aircraft fleet by 93 aircraft at the end of 1995, although the fleet would still be substantially larger than it is now.

The big carriers have achieved much of their growth at the expense of the industry's weaklings, buying prized international routes from such carriers as Pan American World Airways and Trans World Airlines before Pan Am and TWA went into bankruptcy.

But a slowdown in that growth won't necessarily ease the pressures that eventually put Pan Am, Eastern and Midway out of business last year and has other carriers hanging on for life in Chapter 11.

"To the extent that they are slowing down, it will obviously take a little bit of the psychological pressure off some of their competitors," said Daniel Kasper, an aviation analyst at Harbridge House, a Boston-based consulting firm. "Unless they stop purchasing all together, they're still going to be growing faster than their competition."

Airlines often seem to mimic one another closely, particularly when it comes to changing the price of their fares. Once United and American had cut their capital spending plans, it raised questions about whether Atlanta-based Delta would soon tag along.

"We haven't announced any changes at this point, but _ and that's not an important "but' _ but our capital expenditures and fleet planning are always under review," Delta spokesman Neil Monroe said last week.

Analysts weren't sure what to expect from Delta.

"American had the most aggressive plans and it's been scaled back the most," said Dan Hersh, who follows airlines for Kemper Securities Group in Denver. "United had the second-most aggressive plan and they scaled back a little less. Delta hasn't announced anything, but they had the least aggressive plan. Very possibly, you're not going to see Delta make any reductions."