Airlines Cut Capacity to Offset Fuel Increases

With growing political turmoil in the Middle East and rising global demand for oil driving fuel prices rapidly upward, airlines are scaling back their capacity in hopes of keeping profits in the black for 2011 The Wall Street Journal reports.

Airlines have, for the most part, seen a rise in revenue and a return to profit after years of dismal results but recent fuel increases have caused concern that the airline industry could be headed for another bleak year. With fuel prices reaching record highs for this time of year, airlines are electing to keep planes on the ground and trim routes and capacity rather than hope that demand will be strong enough to fill seats as ticket prices rise.

 The unit of AMR Corp. (AMR) said it would reduce planned extra flying this year by a percentage point from existing guidance having said in January that consolidated capacity–which includes regional flying–would be 3.6% higher than in 2010.

The airline also said bad weather reduced revenue by around $50 million in January and February when it had to absorb the costs of storm-related closings at its Dallas-Fort Worth and Chicago hubs.

American’s move follows that of Delta Air Lines Inc. (DAL), which last month trimmed its own first-quarter capacity guidance. United Continental Holdings Inc. (UAL) said it had no plans to announce changes to its existing capacity guidance at this time.

Decreased capacity could spell bad news for consumers looking to fly in the upcoming months as airlines will need to charge higher fares to cover fuel costs but will not need as many travelers in order to fill seats, making it less necessary to try and entice new customers with cheaper fares.

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