Markets

Alaska Sees Rising Costs on Capacity Cuts

By Brett Snyder

Updated on: March 12, 2009 / 10:56 AM EDT / MoneyWatch

At the JP Morgan Aviation & Transportation Conference, Alaska gave us some numbers on the rising unit costs that we knew would result from capacity cuts. The cost increase shows why you only cut capacity if it's absolutely necessary. Clearly, it's absolutely necessary right now.

Alaska plans its capacity to be down 7 percent in 2009 as compared to 2008. Horizon Air will be down 9 percent. But this chart shows what that's expected to do to costs:

This isn't a surprise. When you have fewer flights over which to spread your fixed costs, unit costs will rise. And airlines realize that this makes profitability more difficult on individual flight segments. That's why they have to be sure that the ~~demand~~ capacity is truly excessive before making these cuts, and right now, that's definitely the case.