NEW YORK (CNNMoney.com) - The embattled airline industry is cramming more fliers onto fewer flights and into fewer seats, according to a report Tuesday.

Shrinking domestic flying capacity could mean higher fares, fewer choices, fuller flights and tougher searches for mileage upgrades and award travel, USA Today said.

The number of scheduled domestic airline seats this month will fall 5 percent compared to last year. That means that 3.9 million airline seats offered for sale last December aren't there this year, which is an average of 126,000 seats a day, the paper said, even though the number of fliers has been growing strongly.

For the airlines, capacity reduction cuts expenses and improves pricing power by constricting the supply of airline seats, which could hopefully translate into a return to profitability, the paper said.

U.S. airlines have lost $32.3 billion in the last four years and are expected to lose $10 billion more this year, the paper said.

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