Delta Air Lines to cut growth in US seat capacity to protect fare levels

The US carrier Delta Air Lines plans to reduce its growth in seats capacity in the American market, even as the country’s airlines are being investigated for signs of unlawful collusion to control seat supply and inflate fares.

Delta, which yesterday posted a 15.8 per cent jump in second-quarter profit to US$1.03 billion from $889 million a year earlier, said that it would expand capacity by 3 per cent this quarter amid oversupply in the market to prevent ticket prices from falling. The carrier had raised capacity by as much as 5 per cent in the first quarter of the year.

Analysts say that the cut in capacity is owing to a fierce competition between the big three US carriers – Delta, American Airlines, and United – and other low-cost airlines.

“The likes of Delta have added capacity in the past to focus on profiting from the domestic market, but the expansion of low-cost carriers has eaten into their market share,” said Saj Ahmad, the chief analyst at StrategicAero Research.

“I would not be surprised if the recent allegations of pricing collusion between some of these US airlines by the justice department is stemming from this sort of pricing activity that harms customers.”

Delta’s move comes after American Airlines’ decision to cut seat capacity last week.

The airline said that capacity in the American market will grow from 1 to 2 per cent this year.

Other US carriers have said they would reduce their capacity after the rush of the summer season.

The latest developments come as US airlines are loudly voicing allegations that Emirates, Etihad Airways and Qatar Airways have received billions of dollars in illegal government subsidies that have helped them to unfairly compete, putting them in breach of open skies agreements.

The US airlines have called on the administration of the US president Barack Obama to review these deals and block their rivals from receiving any additional capacity.

The Arabian Gulf airlines have rebutted the allegations, and claim that the US airlines are acting to protect their own market share.

Separately, Delta is said to be eying up an investment in Japan’s financially ailing Skymark Airlines.

The move would allow it to connect international travellers to Japanese cities served by Skymark.

“Delta’s pitch for Skymark represent more of a threat for US to Japan traffic for ANA [All Nippon Airways] and Japan Airlines, and any other US airline flying between US and Japan,” said Mr Ahmad.

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Shereen El Gazzar

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