CHICAGO – Delta Air Lines Inc. said it will make deeper cuts to its international flight schedule this autumn, as the global recession continues to hurt passenger traffic.
In a letter to employees Thursday, Delta’s Chief Executive Richard Anderson and President Ed Bastian said that amid challenging times for the airline industry the company in September will slash international flights by 15% – including a 20% reduction on transatlantic routes – shrinking the overall system by 10% this year. The cuts will come from canceling some flights and reducing the frequency of others.
Domestic seat capacity this year will fall 6%, Delta said, about 1% to 2% more than had been planned.
In April, the airline had said it would cut international flying by 10%, with total route capacity down 6% to 8%. In the past two years, Delta ramped up oversees flights, which are more profitable than domestic flying, where low-cost competition is fierce.
Speaking at the Bank of America Merrill Lynch Global Transportation Conference, which was webcast from New York, Bastian said Thursday that summer revenue is looking weak compared with last year, although the downturn in passenger traffic appears to be stabilizing.
Airlines also have been hurt by the outbreak of the H1N1 virus. “There has been a modest impact in Mexico,” Bastian said.
He said that Delta expects a revenue loss of $125 million to $150 million in the second quarter, noting that “Asian customers have a very impressive recall of the SARS epidemic” in 2003. Bastian said Asian ticket bookings have started to strengthen in the past two weeks.
Other airline executives speaking at the Merrill Lynch conference said they would wait before making a decision on their autumn schedules, although most agreed that June passenger revenue, especially for business travel, continues to be weak, with no recovery in sight.
In order to fill up planes, airlines have offered hefty discounts on ticket prices. So far this year, industry passenger revenue has fallen by about 20%.
Delta, which merged with Northwest Airlines last year to become the world’s largest carrier, said in the memo to employees that declining revenue will “overtake the more than $6 billion in total benefits we expected this year from lower year-over-year fuel prices, merger synergies and capacity reductions.”
Delta said the recession won’t change the airline’s plans to continue the merger integration, and in some cases has speeded it up. Bastian said Delta expects this year to merge airport operations and employee work groups, and is on track to “be a single company” next year.
By 2012, Delta expects to reap full merger benefits worth $2 billion per year.
The cost for fuel, the single greatest expense for airlines, is rising, which Delta said will put pressure on airlines to raise ticket prices this autumn. Delta is still unwinding out-of-the-money fuel hedges from the second half of last year, when prices dropped sharply. It has added new hedges this year to protect against fuel-price volatility.