Just when major U.S. airlines were cautiously planning to start increasing capacity to catch up with rising passenger demand, the sharply rising cost of fuel is forcing them to cut back on those plans. Since passenger demand continues to rise faster than available seats – passenger traffic was up 2.1 percent year-over-year in February 2011, the 13th consecutive month of increases – that will likely mean even higher fares and more crowded planes in the months ahead.

Delta Air Lines president Ed Bastian told an investment conference in New York that repeated fare hikes so far this year aren’t coming fast enough to cover higher operating costs due to fuel price increases, so Delta plans to reduce overall capacity by 4 percent in the second half of 2011, the second time this year it has scaled back its growth plan. That includes a 4 percent reduction in transatlantic capacity (previously expected to be a 1 percent drop), and scaling back transpacific growth plans from a 13 percent increase this year to just 5 percent. Domestic capacity will be cut by 3 percent instead of the previously planned 2 percent increase. He said Delta expects to reduce capacity the most at Memphis, with a 25 percent drop this year. United Continental Holdings said in a regulatory filing that although its overall capacity this year will be about the same as last year, it now expects to trim domestic schedules by 2 to 3 percent, while international capacity will grow by 3 to 4 percent. American disclosed that its planned 2011 capacity growth of 4.3 percent has now been cut back by 1 percent.

Southwest Airlines CEO Gary Kelly told the New York conference that his company still expects to stick with its plan for a 5 to 6 percent capacity increase in 2011, but he hopes to achieve that by getting more efficient use of Southwest’s existing fleet rather than adding more aircraft. Other than new service that just started to Newark, Charleston and Greenville-Spartanburg, Southwest is not likely to add any new cities to its route map this year, he said. And Air Canada announced that it plans to eliminate some unprofitable routes as fuel costs climb. On May 1, Air Canada will suspend service to Washington Dulles from Ottawa and Montreal, as well as Calgary flights to Chicago and San Francisco.