Japan Airlines lead cuts as airlines fret on demand

MADRID – Japan Airlines said it could slash international capacity by almost 10 percent and Scandinavia’s SAS unveiled brutal cost cuts on Tuesday as global airlines scrambled to adjust to worsening demand.

JAL Vice President Tetsuya Takenaka told Reuters that while it would cut domestic capacity by 2-3 percent from April, it would slice far more on international routes after seeing demand for premium cabins fall 20 percent on long haul routes and by 15 percent in economy class.

Such cuts would be deeper those announced by many of its international competitors as demand for global air traffic, particularly business travel, is sapped by economic crisis.

Global passenger demand will fall 3 percent this year — its first drop since 2001 — and airline losses will total $2.5 billion (1.7 billion pounds), putting hundreds of thousands of industry jobs at risk, the International Air Transport Association (IATA) said in December.

Nick van den Brul, an analyst at Exane BNP Paribas in London, said SAS’s decision to cut 3,000 staff, withdraw another 14 aircraft and reduce routes was not only a response to recession but to fix long standing problems at the partly-state owned firm.

“They are more akin to Alitalia than Lufthansa or Air France in their need to restructure but it’s obviously exacerbated by the recession,” van den Brul said.

LUFTHANSA LIFT

But elsewhere Lufthansa defied the doom and raised its forecast for full-year 2008 operating profit, following Ryanair as the second European airline in as many days to say it could defy the tough market environment.

The German carrier’s shares reversed earlier losses and closed up 7.8 percent at 10.125 euros as the carrier provided a rare ray of light in a sector pummelled for months by weak traffic and economic malaise.

Others like American Airlines and Australia’s Qantas indicated they were in a holding pattern, waiting to see whether demand would deteriorate further.

American Airlines CEO Gerard Arpey told journalists at the oneworld alliance meeting in Madrid that he was watching demand very carefully but was holding off any further capacity cuts despite “disappointing” forward bookings.

“Our advance bookings are down from where they were this time last year despite the capacity cuts, so that’s disappointing, but not at this point so alarming that we are cutting more capacity,” said Arpey.

Qantas CEO Alan Joyce told Reuters that Australia’s biggest airline had not seen any further fall in long-haul demand since the sharp drop it registered last September and October, particularly on premium traffic.

“We have plans, if things improve, to grow in the market again, but we also have plans, if things get worse, to take further action if need be,” he added.

Van den Brul said airlines that were more exposed to weaker routes, like BA’s North American flights, were cutting “ahead of the game” whereas the Europe’s biggest airlines, Air France and Lufthansa, were seeking to more closely match demand and supply.

British Airways had already cut 5-6 percentage points off winter capacity after originally planning a small increase, its Commercial Director Robert Boyle said.

The Heathrow-based carrier will replace existing 747s and 767s with four new Boeing 777s rather than add to its fleet this summer, leading to a small reduction in capacity year on year.