The U.S. airline industry, under siege from soaring fuel costs, has made a commitment to shrink business by about 10% this fall, mostly eliminating domestic service where major airlines can't make money. But many carriers haven't said exactly where cuts will be made when the busy summer travel season is over, leaving some in the business-travel industry in a holding pattern.

For airlines, tighter capacity will make seats more valuable, allowing them to raise ticket prices high enough to cover the cost of jet fuel, which has risen about 80% since last year. That means the new face of air travel is likely to include a higher percentage of business travelers, as some vacationers get priced out of the market.

However, with the shaky U.S. economy, business travelers are watching their wallets. A recent study by Orbitz Worldwide Inc. (NYSE:OWW) (OWW) found that 79% of business travelers are feeling pressure from their employers to trim travel expenses -- although so far, they have been cutting their hotel bills, but not canceling trips.

With ticket prices going up, some corporate travel managers are looking at renegotiating contracts with airlines, or cutting some of the preferred airlines they work with to beef up volume at others, said Caleb Tiller, spokesman for the National Business Travel Association. But he said, "One solution may be that employees will have to take fewer flights."

Airlines normally cut capacity in the fall, but the sharp reduction set for this year is a cause for concern, said Roger Cohen, head of the Regional Airline Association. His trade group serves small, regional airlines that contract with large carriers to fly to smaller markets. RAA members also include small airports, which are likely to see the most cuts in service. "It's still a little squishy in terms of what will happen," Cohen said.

In recent weeks, major airlines have said they will reduce flight schedules later in the year by an average of about 10%, but there could be more cuts; analysts have said the industry needs to wring out 20% of seat capacity to assure long-term profitability.

"There are a few reasons why airlines haven't said where they'll be cutting back," Cohen said. For one thing, with the current volatility in the airline business, things could change by fall. Also, airlines are looking to Congress for help. Among other things, lawmakers are investigating the reasons for the spike in crude-oil prices, and it is possible they could legislate lower fuel prices. Also, "for competitive reasons, airlines don't want to say too soon where they're cutting service," Cohen said.

Some Airports Will See Fewer Flights

It is certain that airlines will eliminate service to some very small markets, and reduce service -- by cutting flight frequencies and destinations -- at smaller hubs.

Major business markets like New York, Chicago and Atlanta aren't likely to see as many cutbacks or significant fare hikes, due to greater demand and tough competition from low-cost carriers.

The Air Transport Association, the main industry trade group, has said as many as 200 cities could lose air service, and many more markets will have fewer flying choices, which would hurt local communities.

Cleveland is one hub that has already been hit hard. Continental Airlines Inc. (NYSE:CAL) (CAL) has scrapped plans made last year to add new service to cities like Greensboro, N.C., and Omaha, and to add frequencies to other cities. That would have would have increased capacity at Cleveland's Hopkins International Airport by 40% and added hundreds of new jobs.

From data available so far, medium-size cities like Des Moines and Tulsa typically have been targeted for reductions in service.

"Are we worried that the airlines will cut back at our airport?" asked Scott VanLaningham, executive director and chief executive of Northwest Arkansas Regional Airport. "You bet we are," he said, even though nearly 70% of passengers are well-heeled business travelers.

Nearby corporations include Wal-Mart Stores (NYSE:WMT) (WMT), Tyson Foods (NYSE:TSN) (TSN) and J.B. Hunt Transport (JBHT). With such good customers, "We're hopeful that we won't see service cuts," the airport official said. The regional airport is served by six airlines that fly direct to 15 destinations. But recently, as fuel costs became prohibitive, direct service to Miami and Salt Lake City was dropped.

VanLaningham is also concerned that corporate travel budgets will shrink. "We were just in a planning meeting. We're doing everything we can to add revenue and cut costs at our airport." Further, he said, "we had planned to add a second concourse, at a cost of $25 million. We'll go ahead with the design phase on that, but this is not the time to begin a building project."

So far, said Ken Spirito, director of the Greater Peoria Regional Airport, the five airlines that fly to his facility haven't said they plan to cut service. He thinks Peoria can avoid cuts because it has a high percentage of business travelers headed for international destinations. For airlines, international flying remains a bright spot since they are making money on those routes. In Peoria, the airport depends heavily on traffic from Caterpillar Inc. (NYSE:CAT) (CAT), which sells construction and agricultural equipment worldwide.

"One-fourth of our passengers are international," Spirito said. "They take connecting flights from our airport to hubs like Chicago and Atlanta and Detroit. With the price of gas so high, it's not likely that people will drive their cars three hours to Chicago, the closest hub," he added.

The Peoria airport also accommodates quite a few corporate jets. Spirito said that, with the higher prices commercial carriers are charging for first-class tickets, some companies are choosing to charter their own flights. But that's not a simple choice, he said, since all types of fliers are paying a lot more now to fill up their fuel tanks.

-By Ann Keeton; Dow Jones Newswires; 312-750-4120; ann.keeton@dowjones.com

Corrected June 20, 2008 14:58 ET (18:58 GMT)

The Air Transport Association, the main industry trade group, has said as many as 200 cities could lose air service, and many more markets will have fewer flying choices, which would hurt local communities.

("Draconian Cuts In Air Service Could Hurt Business Travel" at 1:51 p.m. EDT Friday misidentified the trade group as the Airline Transport Association.)

    (END) Dow Jones Newswires   06-20-08 1406   Copyright (c) 2008 Dow Jones & Company, Inc.