Rising Fuel Costs and Dropped Routes = Expensive Flights

(MoneyWatch)  Today's news of dropped capacity and rising oil costs means only one thing to consumers -- get ready to pay through the nose for airline tickets. And the death spiral of low demand and cut flights will only cause more pain for the airline industry.

Both Delta Air Lines and American Airlines are cutting capacity because of low demand and meager advanced bookings. US Airways is also likely to drop flights. The swine flu pandemic helped push demand to its lowest in years, but the high cost of oil and flights may keep more passengers away.

And the passengers staying away the most? Business-class travelers. The situation apparently is so bad that Continental Airlines chief executive Larry Kellner has now resorted to begging corporations to start using business travel to keep Continental and other airlines afloat. (Although coach does give some profit, it's microscopic next to what business-class or first-class brings to airlines.)

Isn't this situation just impossible? Airlines respond to low demand by cutting capacity, thus raising prices on flights -- which in turn makes those flights in less demand, which means more cut capacity. Add rising oil costs for another price goose and the whole vicious cycle churns until someone goes bankrupt, heads out of business or creates a huge spike in Greyhound or Amtrak ridership.