Oil prices push airlines to shrink, airfares to grow

— -- Record oil prices that hit an all-time peak of $119.90 a barrel on Tuesday are pushing the USA's airlines into crisis mode.

From the biggest national network carriers to the smallest discounters, they're slamming already-slowed growth plans into reverse and talking loudly about raising fares — by a lot.

Delta CEO Richard Anderson told reporters at a Washington briefing Tuesday that oil prices have gotten so high that every fare in the industry needs to go up 15% to 20% just for the carriers to stay even.

But in light of Tuesday's record oil prices, investors weren't appeased. The Amex Airline index fell 12.35%, and all but two carriers, JetBlue and Southwest, saw their shares lose more than 10% of their value. Shares of United and AirTran were hit especially hard, falling almost 37% and 21%, respectively.

Details about the planned capacity cuts were sparse. But most endangered are leisure-oriented routes and secondary business travel routes such as JetBlue's flights between New York and Tucson. The discount carrier said it is suspending service on that route because there are not enough travelers willing to pay high enough fares to make it profitable.

"Every aircraft has to earn its way in our network," said CEO Dave Barger, signaling a major shift in its previous willingness to let secondary business routes develop in time into moneymakers.

United announced the most sweeping cuts Tuesday. By fall, the USA's No. 2 carrier will be flying 9% less domestic capacity than it did in the fourth quarter of 2007. United also will eliminate 1,100 jobs.