United Continental Holdings Inc., the world's biggest airline company, scrapped its 2011 growth plans on Monday and said it will cut unprofitable routes because of rising fuel prices.
United Continental Holdings Inc., the world’s biggest airline company, scrapped its 2011 growth plans on Monday and said it will cut unprofitable routes because of rising fuel prices.
The airline also said it may remove less fuel-efficient planes from its fleet.
United said the amount of flying it does this year will remain about the same as last year. It had previously planned to grow as much as 2 percent.
Fuel has become into the largest single expense for most airlines. Flying less is one way they can offset it. Raising fares is another – and they’ve been doing that aggressively.
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Over the weekend Southwest Airlines Co. joined a $10 increase started by other airlines on many domestic round-trip fares. Southwest’s increase may have ensured success for a price hike by major airlines that seemed to be faltering. Southwest carries more U.S. passengers than any airline and wields great influence over prices.
It’s the sixth time airlines have raised fares already this year. FareCompare.com CEO Rick Seaney says leisure travelers may now have to pay $260 for a ticket that cost $200 back on Jan. 1.
The airlines say they need the money.
“Fuel prices are up every week and the fare increases aren’t keeping pace with fuel cost increases,” Southwest CEO Gary C. Kelly told The Associated Press.
Kelly said Southwest is on pace to spend $1.3 billion more on fuel this year than last year. That’s nearly triple the airline’s $459 million net income for 2010, or about $15 per customer.
Kelly doesn’t think higher fares are driving away customers. Southwest reported Monday that February traffic, measured in miles flown by paying passengers, jumped 13 percent from the same month last year. However, United Continental traffic fell 1.1 percent for the month.
Jet fuel prices have risen more than 50 percent in the past year to more than $3 a gallon, although most airlines have offset some of the increase through hedging – in effect, paying extra to lock in the top price they’ll pay for some of their fuel.
The latest price increase started early last week. Delta Air Lines Inc. tried to raise many fares by up to $20 per round trip, but other big airlines sided with a $10 increase started by AMR Corp.’s American Airlines.
Southwest waited three days before matching American’s move on Friday night. Other airlines had rolled back fare hikes on routes where they compete with Southwest and other discount carriers, but they revived the full increase once Southwest raised prices too, Seaney said.
Low-cost airlines JetBlue, AirTran and Virgin America also raised prices, virtually assuring that the increase will become permanent, he said.
There were only four broad price increases in all of 2010, and two of those occurred in December. The flurry of fare hikes so far this year mirrors the rapid rise in fares and fuel surcharges in early 2008, when oil prices were heading toward record levels. Oil prices have soared in the past three weeks, approaching $107 a barrel on Monday, because of unrest in the Middle East.
Delta and AMR Corp.’s American Airlines – second- and third-biggest carriers – had already announced smaller growth plans for this year. Flights that were profitable when fuel was cheaper can become money-losers at these prices.
United Continental said changes in its flying plans will include reduced frequencies, which means that a city that has two flights a day now could drop to one. It also said it will drop less-profitable routes altogether, and indefinitely postpone the start of flying in some markets.
Spokesman Michael Trevino said that includes a planned Cairo flight that had been due to start in May.
It said it will also look at removing some less fuel-efficient planes from its fleet, “and will be taking other cost saving measures.” It did not offer details.
United Continental is in the process of merging those two airlines, giving it a chance to pick and choose which parts of the combined fleet it wants to keep.
Right now it has 354 planes with 50 seats. Planes of that size are out of favor with airlines right now because they spread fuel costs among fewer passengers. According to a filing last month, the company owned 18 of those and leased the rest as of the end of 2010, opening the possibility that it could park planes whose leases expire this year.
Also Monday, Frontier Airlines said second-quarter capacity would be flat, rather than a planned increase of 1.5 percent to 2.5 percent. Frontier, a unit of Republic Airways Holdings Inc., said it made the move because of the uncertainty of future oil prices, even though bookings are better than last year.
Freed reported from Minneapolis.