Delta hints at additional job losses

Published: Wednesday, Dec. 3, 2008 12:48 a.m. MST
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DALLAS — Executives of major U.S. airlines, already seeing signs of slumping travel demand, said Tuesday that they were ready to cut more flights, and Delta hinted at more job losses as the carriers jockey to survive the deepening recession.

U.S. airlines have been helped by a sudden drop in jet fuel prices, and they already cut capacity this fall to further reduce costs and drive up fares.

But traffic has fallen even faster than the supply of seats, especially since the stock market went into a nosedive.

"October was a bang-up month, almost unexplainably strong," said Southwest Airlines Co. Chairman and Chief Executive Gary Kelly. "The trends changed in November."

Delta Air Lines Inc., the world's largest carrier, said it will reduce overall capacity another 6 percent to 8 percent next year. In a regulatory filing, the Atlanta-based carrier said domestic capacity in 2009 will be reduced 8 percent to 10 percent compared to 2008, while international capacity will be reduced 3 percent to 5 percent next year compared to this year.

In a memo to employees, Delta CEO Richard Anderson and President Ed Bastian said they are analyzing the impact of reduced flying on jobs, and "as in the past, we will offer voluntary programs to adjust staffing needs." They did not elaborate.

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"We are taking these actions to secure your careers and return us to sustained profitability," the two executives said.

Earlier this year, Delta sharply cut U.S. capacity and aimed to cut 2,000 jobs, although more than 4,000 workers took voluntary severance. Delta and Northwest have 75,000 employees.

Bastian said at the Credit Suisse Global Airlines Conference that Delta hasn't been able to fully realize the benefit of the steep drop in fuel prices the last several months because of bad bets on fuel hedges the airline took part in while fuel prices were at record levels over the summer.

Based on the price of oil early Tuesday of $49 a barrel, Delta was expected to have to put up $1.1 billion in cash collateral at the end of December to account for fuel hedges that have turned against it, Bastian said. The price of a barrel of oil settled Tuesday at $46.96. Bastian said that every $5 drop in the price of oil would mean an additional $130 million in collateral being posted by the end of the year.

Bastian described the situation as a short-term "blip." He said Delta expects to end the year with $5.6 billion in liquidity. He said Delta is looking into several cash-raising opportunities, though he didn't elaborate. He said more details about that could come when Delta hosts its own investor conference Dec. 9.

Meanwhile, American Airlines and its feeder carrier American Eagle plan to cut capacity 6 percent next year, with an 8.5 reduction in U.S. flying by American itself, said Beverly Goulet, treasurer of parent AMR Corp.

Even Southwest, which saw the pullback of other airlines as an opportunity for growth, is cutting capacity. Kelly said Southwest would drop unprofitable routes and trim first-quarter capacity 4 to 5 percent, although that's slightly less than the airline's previous goal of a 5 to 6 percent reduction.

The economic slowdown has hurt demand for the airlines' most lucrative seats.

United said it would reconfigure its international planes to cut the number of premium seats by 20 percent while adding seats in coach. Continental Airlines Inc. said it, too, was seeing weaker demand for first- and business-class seats on international flights, which had been a relatively strong part of the business.

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