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US airlines plan further capacity cuts

Two major US airlines, Delta Air Lines Inc and American Airlines, will slash capacity this year as the recession erodes travel demand, the carriers said.

The cuts, which were broadly expected, are likely to be matched by rivals. US Airways Group and Continental Airlines also signaled plans to cut the number of seats available for sale.

The airline industry has barely digested last year's deep capacity cuts. But experts say more are needed to bolster fares and help compensate for rising oil prices and weak demand.

“We think fourth-quarter (capacity) will be down at least 12% over last year. Maybe even 15%,” said airline consultant Michael Boyd.

“Right now, capacity has not fallen to match decline in demand,” he said.

Delta said it plans to trim system capacity by 10% this year, with reductions beginning in September. Previously, it said its system capacity would be down 6% to 8%.

Delta also said it plans to cut international capacity an additional 5% on top previously announced cuts, for a total reduction of 15%.

“If you can't recover the cost of oil, it's going to necessitate more dramatic capacity reductions as we get to the end of the year,” Delta President Ed Bastian told a Bank of America-Merrill Lynch conference.

AMR Corp, parent of American Airlines, said it would cut available seat miles by 7.5% this year, compared with a previous forecast of a 6.5% decline.

US Airways said it expects further capacity cuts in its TransAtlantic flying but could announce “marginal reductions” in domestic routes, too.

“The truth is, we don't have a very reliable outlook beyond 30 days,” US Airways President Scott Kirby told the Merrill Lynch conference.

Continental Airlines Inc said on Thursday it would outline further capacity moves in July, when it has a clearer picture of the status of business traffic.

Carriers have been hit hard as the weak economy has caused consumers and businesses to curtail spending on travel. Demand has also been hurt by this year's outbreak of the H1N1 virus, and rising fuel prices are now also pressuring costs.

Delta told investors that second-quarter revenue could drop by $150 million to $200 million because of reduced travel due to the virus.

The International Air Transport Association, the voice of more than 200 global airlines, has repeatedly warned of a grim year for carriers amid the recession. This week, the Geneva-based airline lobby nearly doubled its forecast for industry losses this year, to $9 billion.

“Based on the trends we're seeing in June, I don't expect things to get any better,” Southwest Airlines Co Chief Executive Gary Kelly told the Merrill Lynch conference.

Glenn Tilton, CEO of United Airlines parent UAL Corp, told reporters after the company's annual meeting that capacity cuts announced on Thursday will underscore the need for industry downsizing.

“I think it'll put the issue squarely in front of the marketplace,” Tilton said.

“We are certainly willing to adjust our capacity,” he said.

Delta also said it would accelerate the merger integration of Northwest Airlines and keep tight controls on costs and spending. It said its latest capacity reductions meant it would need to “reassess staffing needs,” but added it would try to avoid involuntary layoffs.

Also on Thursday, plane maker Boeing Co cut its global outlook for aircraft demand, saying it now expects 20,000 new planes to be ordered worldwide in the next 20 years, down from its forecast of 29,400 a year ago. But Boeing expects recovery over the longer term.

Delta shares erased deep losses earlier in the session and were up 10 cents to $6.65 in afternoon trading. Standard & Poor's equity research reiterated its “buy” rating on Delta after the capacity cut announcement. (Reuters)