ATLANTA (TVLW) – Delta Air Lines Inc. plans to cut costs to deal with higher fuel prices, a senior official told investors on Tuesday, but he offered little insight into whether the third biggest U.S. air carrier will combine with another airline.
President and Chief Financial Officer Ed Bastian said at an investor conference in New York that the board of the Atlanta-based company is still evaluating whether to enter into a deal.
Bastian said the value to shareholders of remaining a standalone carrier versus a combination are being considered. He did not say when the review would be complete, and analysts at the conference did not ask him to elaborate.
Delta shares fell $1.18, or 6 percent, to $18.40 in morning trading Tuesday.
Amid increased speculation about industry consolidation and Delta’s possible role in it, two of the airline’s executives have left in the last three weeks: vice president of operations Joe Kolshak and vice president of corporate communications Jeff Battcher.
Delta has said Bastian would keep his dual role of president and CFO instead of the airline hiring a separate CFO.
Last month, Delta denied reports that it was talking to UAL Corp.’s United Airlines about a combination. Since then, it has said little about the issue, and United’s top executive recently refused to fully address the issue.
On the financial side, Bastian said at the Calyon Securities U.S. Airline Conference that high fuel costs will “dampen” Delta’s operating margin in the fourth quarter.
He said Delta’s current projection for operating margin is flat to minus 2 percent. Previously, the company projected an operating margin of 3 percent to 5 percent for the quarter. For all of 2007, Bastian said Delta is still projecting an operating margin of around 6 percent.
Cost cuts will be key to helping Delta deal with higher fuel prices, Bastian said, noting that jet fuel prices are up nearly 50 percent since the beginning of 2007.
Bastian said Delta will cancel or reduce flying of some aircraft. Capacity for 2008 is expected to still be up 2 percent, reflecting a decline in domestic capacity of 4 percent to 5 percent and an increase in international capacity of 15 percent, Bastian said. By 2009, Bastian said, 40 percent of Delta’s flying will be on the international side.
Delta has initiated a hiring freeze on any non-customer facing positions. It also wants to improve self-service kiosk options for customers and increase the number of people buying tickets online, Bastian said.
Delta is still evaluating whether to sell any noncore assets, including regional feeder carrier Comair Inc., Bastian said. No decision on Comair has been made, he said.