Airlines could suffer with fewer fliers, Wall Street meltdown

— -- Amid higher airfares and a crisis inthe financial markets, airlines in the U.S. and abroad are seeing or bracingfor softening passenger demand.

The International AirTransport Association, which represents 230 carriers worldwide, on Thursdaysaid international travel fell in July, especially in the lucrative first classand business class.

The number of passengers traveling on premiumtickets fell 1% in July after growing the first six months of2008.

Though average jet fuel prices in recent days have dropped about20% from their July peak, "The financial sector meltdown now risks a muchsharper economic downturn," IATA said.

Prompted by record fuel pricesthis year, airlines have been hastily parking old, inefficient jets, droppingflights, raising fares and fees and cutting jobs to reduce costs and force upticket prices. By December, the U.S. industry's domestic flying capacity willbe down 10% year-over-year.

Last week, Alaska Airlines became the latestmajor U.S. carrier to announce big flight cuts for coming months.

"Wethink there's a high probability that we will continue to see demand for travelfalling," said Andrew Harrison, Alaska Airlines' managing director forplanning. "This economy is going to be around for a while."

Alaskaearlier had pulled its fall schedule down about 6%. But Friday it said it willcut its winter flying capacity even more, a total of 8% systemwide, even moreon its routes to Mexico and Canada.

Meanwhile, at a conference Thursdayof U.S. airline executives sponsored by Calyon Securities in New York, severalexpressed uneasiness.

"Questions about the … price of fuel andthe direction of the economy are still unanswered," said American Airlines VicePresident Beverly Goulet. She said the industry's in "turbulenttimes."

Even falling oil prices are turning out to be not completely goodnews. United Airlines said Wednesday it could take a hit of more than $500million in this quarter because the rapid fall in oil prices means losses onsome of the fuel hedges it put in place to protect it from sharp priceincreases.