American and Southwest both saw declining traffic outpace their respective capacity cuts in January, resulting in emptier planes than a year ago. Southwest cut January capacity by 4.4 percent, but traffic declined by over 6 percent; American, which cut capacity by 8.3 percent, saw an 11.7 percent drop in traffic.
You don't need to be a math whiz to see the problem here. Clearly, demand is weakening at a far more severe rate than either airline predicted, resulting in a net loss of traffic despite service reductions aimed at keeping capacity and demand more or less even. Southwest is in a particularly tight spot, due in part to this drop in traffic and also because of fuel-price fluctuations, and has already planned more reductions in 2009.
But no matter what the airlines do, it seems they are incapable of filling their planes. January was chock-full of sales and discounts, including a few from Southwest, but the prevailing wisdom is that traffic has a ways to go before bottoming out and beginning a slow recovery. Low fares will entice some travelers, sure, but not enough to reverse the trend.
So what happens in the meantime? All signs point to further reductions in capacity as airlines try to keep pace with an industry that is seemingly grinding to a halt. Some airlines (US Airways, Alaska, and AirTran among them) flew relatively full planes in January, proving that it's possible to find a way through this volatile economy.