Delta To Cut International Capacity
Delta Air Lines said on Tuesday it would cut its international capacity by an additional 10 percent starting in September as the global economic downturn batters the industry.
The airline also indicated it might need to pare more jobs.
The Atlanta-based carrier also said that while it expects a first-quarter loss, it should post profits for the second quarter and full year.
Its shares rose almost 8 percent.
Delta said the latest cuts are planned for its Atlantic and Pacific networks, which have seen the most revenue weakness. They come on top of a system-wide capacity decrease announced late last year.
"While flying held up somewhat in the second half of last year, it was just a matter of time until the rest of the world started to slow down," said Basili Alukos, a Morningstar analyst.
"From the international perspective, most of the airlines are just late to the game," he added.
Delta said its trans-Atlantic capacity this coming winter would be down 11 to 13 percent compared with the winter of 2008, while its trans-Pacific capacity would be down 12 to 14 percent. It said it would exit low-performing markets and move some to seasonal service.
The airline industry is grappling with weaker travel demand as economies sag around the world and businesses trim costs. Carriers slashed seat capacity in the second half of 2008 to compensate for volatile fuel prices and falling demand, and analysts have been expecting further cuts.
UAL, the parent of United Airlines, is cutting international capacity by 15 percent in the first quarter from year-earlier levels.
"Our geographic dispersion is heavily weighted in the Pacific," UAL Chief Financial Officer Kathryn Mikells said during a presentation at a JP Morgan aviation conference on Tuesday. "Those markets have been under more pressure than other markets."
Still, Delta said it is beginning to see normal sequential demand growth heading into the spring and summer.
"Revenue is stabilizing; by no means are we out of the woods," President Edward Bastian told the conference. "The demand picture continues to be soft, but it's not getting worse from what we've seen."
Delta, which merged last year with Northwest Airlines, said in December its domestic capacity would fall 8 to 10 percent in 2009, and international capacity would fall 3 to 5 percent. Systemwide, that meant a reduction of 6 to 8 percent.
The new round of downsizing means Delta must "reassess our staffing needs," the company said in a memo to workers. The carrier has eliminated 2,100 jobs through voluntary exit programs and hopes to achieve its next target also through voluntary separation. Delta has more than 70,000 employees.
Delta forecast operating margin would be down 6 to 7 percent in the first quarter. Excluding one-time items, the carrier said it sees quarterly operating margin down 5 to 6 percent. Delta said it expects to end the first quarter with a liquidity position of USD$4.4 billion.
