http://www.dallasnews.com/sharedcontent/dws/bus/stories/111004dnbusair.5 5746.html =20 Guess what the capacity-plagued airline industry gets in the next four years?=20 Lots more planes.=20 Low-cost airlines have ordered or taken an option to purchase nearly 550 new aircraft through 2008.=20 That's the equivalent of adding a new carrier the size of No. 2 United Airlines Inc. to a market already choking on an abundance of seats.=20 And the carriers have plans to accept several hundred more in later years.=20 "There's entirely too much capacity in the market for fares that need to be charged for the industry to be profitable," said Phil Roberts of Unisys R2A, a transportation management consultancy.=20 While more capacity represents great news for travelers who benefit from cheap tickets on dozens more new routes, it's grim news for the traditional airlines waging war against the low-cost upstarts.=20 Southwest Airlines Co. will receive 34 new Boeing 737s next year. And chief executive Gary Kelly said Tuesday that his airline could easily double that figure if it finds new flying opportunities.=20 "We think we probably could take 50 to 60 airplanes in total, not incrementally, but in total, for 2005," Mr. Kelly told analysts in New York. "We want to grow profitably, so we're not interested in growing for growth's sake."=20 Low-cost carriers, which account for more than a quarter of all flying today, will represent as much as 40 percent of the industry based on aircraft deliveries scheduled, Mr. Kelly said.=20 For traditional carriers such as American Airlines Inc., the onslaught of discounters is grim news. The airline has jettisoned $4 billion in annual costs, only to find itself losing money because of high fuel prices.=20 "We're already seeing [low-cost] pricing in most of the biggest markets," Henry Joyner, senior vice president of planning for Fort Worth-based American, said in a conference with analysts last week.=20 Those low-cost carriers will continue to infiltrate American's best markets. "It's really just a question of running down a list of the biggest point-to-point markets out there that don't have it yet," he said.=20 While Southwest and carriers such as AirTran Airways Inc. are expanding, airlines such as American are shrinking their schedules and delaying delivery of new airplanes.=20 American will fly about 5 percent less domestically in the first quarter of 2005, while rival United is reducing its domestic schedule by 12 percent next year as it tries to emerge from bankruptcy protection.=20 American is in talks with the Boeing Co. to defer the delivery of 56 planes. Both American and United intend to shift some of their planes to international routes.=20 "I think the legacy carriers have gotten the message about costs and capacity," said Ray Neidl, an analyst with Calyon Securities in New York. "They've all got a long way to go still."=20 To be sure, the nation's commercial aircraft fleet will lose some planes in coming years. American is grounding 15 of its aircraft next year. United is cutting dozens from its fleet. Retirements will also thin the ranks of some fleets.=20 US Airways continues to teeter on the edge of insolvency, which would put the future of its 282 planes in question.=20 But even if US Airways liquidates, its aircraft would probably fly again under different colors. And if they're grounded, the capacity problem remains, Mr. Neidl said.=20 It's too early to tell if cost-cutting efforts so far at American, United and Delta Air Lines Inc. will be enough to keep them competitive over the long term.=20 Declining fares=20 As capacity at low-cost carriers has increased, the average fare has steadily declined.=20 Yields - figures that gauge how much airlines receive for each mile a passenger flies - aren't likely to rise even during a robust economy, consultants say.=20 "All those deliveries suggest it's going to be a very difficult yield environment for the majors," said Dan Kasper of LECG, a consulting firm in Cambridge, Mass. "And the carriers sure aren't getting any help from fuel prices right now."=20 American and others are spending more than $1 billion more this year for jet fuel over 2003. Several low-cost carriers are also suffering, with ATA Airlines Inc. falling into bankruptcy protection last month in part because of high fuel costs.=20 Whether low-cost carriers can handle all the planned expansion remains unknown, said American chief financial officer James Beer, speaking at the same investor conference as Mr. Kelly on Tuesday.=20 "Time will tell which orders actually come to fruition," he said, noting that only Southwest has a recent track record of handling breakneck expansion.=20 Business plan=20 American's business plan recognizes that it can't match Southwest's costs.=20 But American believes it earns more revenue against low-cost carriers on many routes where it competes against them, because the carrier still commands some customer loyalty for high-dollar business passengers.=20 And by earning more revenue across its global network compared with low-cost rivals, American can cover its higher costs and still turn a profit.=20 "There's still a lot of evidence out there that the legacy carriers can generate a healthy revenue premium," Mr. Kasper said.=20 The hunt for more lucrative passengers is partly behind American's focus on Dallas/Fort Worth International Airport, where it will add 90 daily flights next year.=20 American will also abandon most of the flying on longer routes where it went toe-to-toe with America West Airlines Inc. and JetBlue Airways Corp.=20 American isn't giving up on domestic flying, though its growth will lean toward international routes. "You can't have a successful worldwide network if you don't have domestic strength," Mr. Beer said.=20 But as for what traditional carriers should do about the coming surge of low-cost growth, Mr. Neidl is succinct: "Worry."=20 =20 =20 Clay Wardlow | Technical Publications | ADIC <http://www.adic.com/> | Redmond, WA | 425-897-7448 =20