Airline downsizing means U.S. holiday travel overhaul

CHICAGO (Reuters) - Air fares that creep ever higher, infuriating add-on fees and a skittish economy will keep a lot of thrifty holiday travelers off of airplanes this year.

Losing some passengers is a sacrifice U.S. carriers are resigned to make as they hack unprofitable routes from their networks. The overhaul of the holiday travel season is merely a side-effect of a massive airline downsizing planned for the fourth quarter.

For the embattled airline industry, cutbacks became necessary to simply survive in an era of tough competition and record-high fuel prices. And for much of the traveling public, distant friends and family became more distant.

"It's just a matter of crossing that threshold," said Dale Oderman, associate professor of aviation technology at Purdue University.

"There are some people that will fly over the holidays regardless because it's the only time they can fly," he said. "But I think there are a lot of people can't afford to fly at least at the current prices."

Oderman himself canceled plans to travel from Indianapolis to Denver in December when he found the cost of air travel on that route had nearly doubled since last year.

"If it does happen, it's going to be by car," he said.

U.S. airlines have been rapidly raising fares this year in a frantic effort to offset the rising cost of jet fuel.

Data from FareCompare.com, which tracks airfares, show U.S. airlines have initiated 22 broad-based fare increases so far in 2008, compared with 23 fare hikes in 2007.

The higher ticket prices -- as well as a series of new fees for food, baggage checks and other in-flight perks that used to be free -- are part of a strategy by airlines to offset fuel bills, which soared as the price of crude oil raced to a record high near $150 a barrel in July.

Earlier this year, carriers announced major capacity cuts aimed at eliminating less profitable routes, which often fly between mid-sized cities.

AMR Corp (AMR.N), parent of American Airlines, said it would trim domestic capacity up to 12 percent in the fourth quarter. UAL Corp (UAUA.O), parent of United Airlines, said it would cut is fourth-quarter mainline capacity up to 16.5 percent.

Oil prices have retreated since July, but remain well above $100 a barrel, more than 30 percent higher than a year ago.

Against this backdrop, the U.S. economy teeters on the brink of recession, amid a year-old U.S. credit crisis that intensified this month, claiming two large investment banks. As a result, some experts predict softening in discretionary travel spending.

"Demand has been fairly resilient, but the economic news now raises doubt about that," Joe Schwieterman, transportation expert at DePaul University, said, adding that air traffic during the U.S. Thanksgiving holiday likely would be down more than 10 percent from last year.

"In some markets, a trip to visit family over Thanksgiving is out of the question," Schwieterman said.

Yet some travel experts believe demand for holiday air travel will remain strong. Travelers may complain about high fares and fees, but ultimately they will not let the expense keep them from seeing family, according to Terry Trippler at TripplerTravel.com

"I just don't see people staying home," he said.

(Editing by Maureen Bavdek)