CHICAGO (Reuters) – UAL Corp (UAUA.O: Quote, Profile, Research), parent of United Airlines, will shrink its fleet by up to 4 percent this year to combat the skyrocketing cost of jet fuel, the chief executive of the No. 2 U.S. carrier said on Tuesday.
In a message to employees, Glenn Tilton said the airline aims to eliminate 15 to 20 of its older, less fuel efficient narrow-body planes. United’s fleet currently has 460 aircraft.
The airline industry has been battered by rising fuel costs, which are directly linked to the price of oil. A barrel of crude touched a record high on Monday of $111.80 CLc1.
“Continued uncertainty about the overall U.S. economy with the price of fuel at historically high levels has put significant pressure on all U.S. carriers,” Tilton said.
United and other airlines have attempted to offset the fuel burden with fuel surcharges, fare hikes and charging for services that previously were including in the fare. But some experts say airlines may find it harder to pass the expense to travelers if a weaker economy erodes travel demand.
OK, seems to make sense. I’m curious to see which planes they eliminate (hopefully the ex-Shuttle 737’s!) and whether or not they replace them with regional aircraft or just choose to cut frequencies and maybe even some routes. Certainly the coming months (especially after the summer season, when travel really slows down) will be challenging for US airlines, especially now that merger rumors have slowed down quite a bit. That’s not to say that nothing will happen anymore, but like I said from the beginning, it’s not over till it’s over, and I think almost everyone was predicting a merger to be done by now just a month ago.
I think price increases are almost inevitable, and I’m guessing they’ll be achieved by substantial capacity reductions. That really seems to be the only way to go, at least until we see some mergers. I also think now more than ever if there is a merger we’ll see the new carrier basically be the size of the larger original carrier and just take the best qualitative aspects of both. While it wont stop the problem in the industry, reducing capacity is a must.
Another thing I’ll never understand is that airlines have such a hard time passing on fuel surcharges to the customer. Yes, I understand the market is very elastic, but come on, I think we all realize that oil is at a record high and there’s not much that can be done. It seems like the airlines have introducted about 100 different fuel surcharges which were all repealed within a day, which makes little sense to me. It would see to me that if the airlines were smart they would all introduce surcharges around the same time (of course not collaborating but as soon as an airline introduces a fuel surcharge the others should follow). Of course I HATE to see this as a consumer, but the airlines do need to survive and from their perspective it amazes me that they haven’t done so already.
And worst of all, and I shudder when I say this. I really don’t want to post this, actually, because the thought of it makes me want to cry, but I’ll do it anyway. Four words- fuel surcharges on awards. Brrrrrrr……
So what does my crystal (probably totally wrong) ball say? I’m predicting substantially higher fares in the fall due to fuel surcharges than we’ve seen in the beginning of this year, but I think we’ll see lots of promos to offset those. Since the load factor should drop off quite a bit, the airlines have little choice but to offer some good promos to give people an incentive to fly, so it’s not all doom and gloom in my book!