Airlines face capacity dilemma

BERLIN - Airline chiefs gathering for their annual meeting in Berlin on Monday face the biggest decision since the recession: whether to boost capacity as demand for travel surges or restrict supply and focus on raising ticket prices.

Air China Ltd has already opted for growth, adding 9.8 percent more seating in April and planning a 12 percent increase this year as it takes delivery of 33 new aircraft through 2011. In Europe, carriers have been more cautious, with capacity at Air France-KLM Group, the regional No 1, unchanged last month.

Recovery trends following the Sept 11 attacks, the Asian financial crisis and the SARS outbreak suggest carriers should err on the side of caution. While adding planes, frequencies and routes will lift sales, offering too many seats too quickly can erode occupancy levels, leading to fare discounting and shrinking profitability.