As part of its domestic retrenchment Delta President and CFO Ed Bastion said the airline will slash up to 25 regional jets – largely 50-seats and below – as it reorganizes toward international operations, especially to places no other U.S. carrier is going nonstop such as Africa and the Middle East. It is also deferring deliveries of additional Bombardier CRJs to 2009. Delta Connection carriers have reported that they are nearing or already at the minimum schedules called for in their contracts.
It is concentrating on markets where economies are growing. Orlando is one of the hardest hit regional jet operations as the carrier also moves away from heavily competitive leisure markets. By June, the average number of weekly seats Delta will have at Orlando will drop nearly 45 percent compared with a year ago.
It is also cutting 20 mainline jets in its domestic retrenchment which is eliminating point-to-point operations in favor of hub service. Consequently, it will retain hub-to-Orlando connections and eliminate point-to-point service there and at its other hubs. In addition to Orlando, the airline has already announced it is cutting SkyWest's Salt Lake City to Bellingham, Wash., and Fargo N.D., as of April 30 for a total of eight destinations eliminated from SLC since January when it cut nonstop service to Birmingham, Ala.; Des Moines, Iowa; Fayetteville, Ark.; Memphis, Tenn.; Milwaukee; and Sioux Falls, S.D. From Orlando it is cutting Charleston, S.C.; Columbia, S.C.; Greensboro, N.C.; and Little Rock, Ark, points that have no other nonstop competition. It is also ending its nonstop service to Miami, Fort Lauderdale and Las Vegas as well as reducing Orlando service to Boston, New Orleans, Richmond, Raleigh and Knoxville, Tenn.
In a speech before the JP Morgan transportation conference last week, Bastion said in the past three months, fuel prices have climbed nearly 20 percent and the airline’s 2008 fuel bill is now expected to increase by nearly $900 million compared to its 2008 business plan (based on $90 per barrel fuel) for a total of more than $2 billion over 2007.
Delta is focusing its efforts on four key areas – continued international expansion, further domestic capacity rationalization, improving RASM to more than 100 percent of industry average, and a heightened focus on cost and cash-flow discipline including a goal of reducing staff by at least 2,000 through voluntary reductions.
“This summer more than 40 percent of our capacity will be dedicated to international flying where fares more readily cover higher fuel costs,” said Bastion. “We firmly believe that global expansion, and the network diversity that it provides, is key to our long-term success.”
International capacity will rise by more than 15 percent in 2008 as domestic capacity shrinks an additional five percent by August, resulting in a 10 percent year-over-year domestic reduction. “These reductions will be made through a combination of decreased utilization and parking 15-20 mainline aircraft and 20-25 regional jets,” he said. “As with past schedule reductions, changes will also be focused at off-peak times or in markets where regional jets are not profitable at the current fuel levels.” Delta will also be thinning frequencies.
“We have now targeted $550 million in productivity initiatives for 2008, a $150 million increase over our plan,” he told investors. “Importantly, for frontline employees, we expect to achieve the necessary reduction of approximately 1,300 positions through attrition, retirements, limited hiring and the introduction of these voluntary programs. We have even more aggressive productivity improvement targets, including the reduction of more than 700 merit positions.
“In this industry, speed and agility wins,” said Bastion. “We are making quick decisions to contend with the economic environment. We see no significant reductions in either forward bookings or demand in international travel. In fact, it continues to grow at a 15 percent pace. We expect this year, double-digit unit revenue gains despite double digit capacity gains. Considerable amount of our international expansion will be funded out of domestic reductions. Most of domestic capacity will be geared toward feeding international routes so it is even greater than pure numbers suggest”