Cheap Airline Tickets

From the WSJ:

Historically when demand dwindles, airlines offer new flights and cheap tickets to lure travelers from competitors. But this time, with a number of seats going empty as the economy sours, airlines continue to pare flights from networks that by the end of the year will already have shrunk in number of seats more than 10%, compared with last year.

Airline executives, burned by the volatility of energy prices in recent years, say they refuse to believe that the drop in oil prices is permanent. The frail economy that pushes oil prices lower is also what keeps demand for air travel weak.
[Flights]

"There is a long-term question mark over fuel prices just as there is a long-term question mark over demand," says Tammy Romo, vice president of financial planning at Southwest Airlines Co., the low-fare pioneer that in past downturns led the charge to add routes and aircraft as competitors pulled back. "There is a need for the industry to continue to show discipline."

For an industry long criticized for overcapacity, the cuts are expected to help airlines maintain a rare balance between supply and demand and post a modest profit next year, even as other consumer industries suffer. Almost as if by accident -- the cuts came well before the severity of the downturn was apparent -- carriers are now poised to weather the turmoil better than at any other time in the industry's recent history.

While the downturn could still hold surprises, "the combination of significant capacity reductions and declines in fuel prices far outweigh potential demand declines," wrote Gary Chase, an airline analyst at Barclays Capital, in a research report on Tuesday. In a separate report, analysts at Merrill Lynch on Wednesday predicted an industrywide profit of $2 billion next year, up from a previously projected loss of $4 billion.