Air travel forecast: Fewer flights, higher fares

— -- Most major U.S. airlines posted another quarter of sizable losses last week. The top ten U.S. airlines combined have reported a loss of nearly $2.5 billion so far this year, and most airline CEOs are painting a gloomy picture for the remainder of the year. Unfortunately, bad news for airlines doesn't bode well for business travelers either.

Pinched by high fuel costs in 2008 and the global recession of 2009, U.S. airlines continue to shrink, eliminating unprofitable routes and decreasing capacity to align their operations with weakening travel demand. To cut costs and fill airplanes, U.S. airlines reduced domestic capacity by more than 12% and international capacity by 4% in the past two years according to the Air Transport Association (ATA), but with 9% to 10% fewer air travelers, additional capacity cuts are likely.

Worse than dwindling passenger volumes are steeper revenue losses. ATA says U.S. airline domestic revenues declined 21% and as much as 23% to 25% on many transoceanic routes from January through June vs. the same period last year. When revenues decline at twice the rate of passenger volumes, it clearly indicates a disproportionate loss of high-end business travelers.

The International Air Transport Association (IATA) says the number of passengers traveling on "premium" first- and business-class tickets worldwide has steadily eroded every month for the past year, with a 23.8% decrease alone in May. IATA projects the decline in premium passengers translates to a 40% to 45% revenue loss for the world's airlines.

IATA concludes many business travelers may be downgrading to economy class to cut travel costs, in addition to canceling or postponing business trips. Meetings and conventions have taken the hardest hit, particularly to destinations perceived as "fun" places, like Florida or Las Vegas. More than one corporate travel manager told me that many former road warriors have transitioned into "conference-call warriors" as businesses seek to curtail travel spend in this age of austerity.