Capacity Cuts - 2009 version

For a while now I have been predicting that the current 2008 round of cuts was not enough.

Today at an analysts conference and widely reported - the second round has now started to filter out.

3 Airlines have reported cuts/status today. UAL, New DL, and LH. So here are some of the news and some commentary from me.

UAL is stubbornly sticking to its guns that its 25% plane fleet cut is adequate and there will be no more. I think they need to cut their headcount further as noted earlier in prior posts.

Lufthansa is parking some of the oldest planes in its fleet - the A300-600s of which 4 will go to a parking lot. A340-300s may be next. For sure the 737-300/500s will start leaving the fleet.

DL has announced the most aggressive cuts with 8% approx in total cutting domestic and international. For the first time DL is acknowledging that the international expansion will be curtailed and some routes cut back (read downsized with reduced frequency and smaller planes). It says part of the reason is a surplus of international capacity resulting in depressed yields. This will put pressure on NW's older 747s. It is quite likely that some of the dedicated freighters will go. DL did not reveal any plans on the 787s as noted yesterday.

QF has been cutting capacity slowly. BA is shifting some capacity around and cutting smaller marginal markets. Y/Y BA is going to be a smaller airline than it was. While I still don't believe it, the QF discussions seem to be serious and are "official". I still smell a rat and may be part of a Machiavellian plot by a departing Dixon to put pressure on the Aussie government not to loosen the regulator strings too much.

Anyway you cut it - capacity in 2009 will be cut significantly. The extent of those cuts will obviously vary but by the end of the new year - we will have seen total capacity cuts for larger US legacy airlines at about 12-15%. EU based legacy players will see double digit cuts too in some cased (SK, AZ) while the big players will likely stay static to down about 5%. Asia/Pac players will also be down similar amounts.

Ouch. This now confirms that we are in for a deep and lengthy recession. It may extend to airline/travel/tourism beyond the norm (16-18 months).

In a few weeks I will be publishing our 2009 full predictions. But this will give you something to chew on.

Cheers