On Tuesday Delta Air Lines unveiled plans to cut 2,000 jobs and scale back flights, leading efforts by US carriers to cut costs in the face of rising fuel prices and a weakening economy.
 Delta, which has been unable to seal a merger with rival Northwest Airlines, will offer voluntary retirement and buyout packages to 30,000 employees. It is aiming to cut 1,300 rank and file jobs and 700 administrative and management jobs, or more than 3 percent of its work force overall. "If we need to, we'll go deeper," Delta Chief Financial Officer Ed Bastian told analysts at a JP Morgan investor conference on Tuesday, referring to the cost-saving plan. Delta shares, which have been on a slide for the last month, as hopes for a merger recede, rose about 8 percent to $9.95 on the New York Stock Exchange.
In a regulatory filing, Delta also said it will cut flights in the United
States, aiming to reduce 2008 domestic capacity by an additional 5 percent by
August, resulting in a 10 percent year-over-year capacity cut. Delta
planned to take 15 to 20 mainline aircraft and 20 to 25 regional jets
temporarily out of service. It also identified $200 million in capital
expenditure to be deferred or eliminated.
Delta has been looking actively at mergers for the past two months, but
hopes for a deal took a blow earlier on Tuesday, as Delta's pilot union said
it could not reach agreement over seniority with pilots of the potential
merger partner, widely reported to be Northwest Airlines. "Our
long-term view remains that consolidation may be the right course of
action," Delta Chief Executive Richard Anderson and CFO Bastian said in a
letter to Delta staff, included in the regulatory filing.
Delta's main rivals are also rolling out plans to cut capacity, the day
after a barrel of crude touched a record high of $111.80. The fuel price
spike coupled with a steadily weakening US economy has stalled the airline
industry's modest recovery from the 2001-06 downturn. As a result, airlines
have seen a steep decline in their share prices. The previous downturn
resulted in bankruptcies and unprecedented out-of-court restructurings, but
experts say carriers appear leaner and in better shape this time around to
weather the oncoming turbulence. Jeff Misner, Chief Financial Officer of
Continental Airlines told the JP Morgan conference that demand remained pretty
good, but added: "The problem is we are not covering the cost of fuel
right now." Northwest Chief Financial Officer Dave Davis told the
conference that bookings in March are strong. It is harder to forecast
bookings for April and May, which tend to be "iffy," he said.
"We expect to have a strong summer as well," Davis said.
"Despite some storm clouds on the horizon, bookings for the company have
held up quite well." Northwest is evaluating capacity
changes, but has given no firm targets.
United Airlines parent UAL, said it will shrink its fleet by up to 4
percent this year to combat the skyrocketing cost of jet fuel. In a
message to employees, chief executive Glenn Tilton said the airline plans to
eliminate 15 to 20 of its older, less fuel efficient narrow-body planes.
United's fleet currently has 460 aircraft. "Continued uncertainty
about the overall US economy with the price of fuel at historically high
levels has put significant pressure on all US carriers," Tilton said.
The fleet reduction is part of a broader effort to offset a possible $1
billion increase in fuel costs in 2008, UAL's chief financial officer Jake
Brace said. United currently has 20 percent of its anticipated 2008 fuel
requirements hedged, Brace said. That is up from 16 percent as reported in
previous regulatory filings.
Southwest Airlines, the leading US discount carrier, said it continues to
evaluate growth plans in light of high oil prices. Chief Financial
Officer Laura Wright said that Southwest is sticking with its forecast of
growth of up to 5 percent for 2008. Like other airlines, Southwest has been
slowing expansion this year. Southwest shares rose about 3.9 percent to
$12.02. "We are looking at an industry that has chronic diseases
like overcapacity and structural considerations that foster and feed that
overcapacity," said Daniel Ortwerth, transport analyst at investment
advisers Edward Jones. "Southwest... is the one airline that actually
merits some consideration for the long-tern investor."
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