1. fuel is of course, a variable cost - which has historically plagued the airline industry
2. reducing the number of total flights is something all carriers have flirted with to some degree or another. This is in response to simply having too many planes in the air with too few passengers throughout most of the last decade
It is a delicate balance for air carriers to limit the amount of lower-profit flights, while at the same time expanding into new markets like China as they fight to recover out of the recession.
3. Of course they're more likely to cancel flights with high seat vacancy
4. This represents the difference between your full-service network carriers (like American Airlines or Air Canada in Canada) and lower-service differentiated service carriers like Westjet in Canada (perhaps Southwest in the US??) Smaller carriers have the advantage of buying smaller planes, which take less fuel, which means they can still turn a profit even if all the seats aren't full.
On the other hand, FSNCs take care of the longer international flights that low-cost carriers do not make. They have historically held more popularity with business-class travellers as well.
I have a hub on the market outlook for the Canadian air traffic sector in 2010, which i will be publishing shortly