Bleak Picture for Delta Ticket Demand

Delta Air Lines CEO Richard Anderson has painted a bleak assessment of 2009 bookings as the world continues to reel from economic crisis.

In a recorded message to employees, Anderson did not specifically say Delta plans to slash more jobs and capacity than previously announced, but he hinted that erosion in demand may lead to further flight cuts.

The internal communication to workers, as reported by The Associated Press, said "passengers, our customers, are not buying tickets at rates they were buying tickets a year ago," Anderson said. "Obviously, we wish we didn't have to decrease our capacity, but we cannot fly our airplanes around at low load factors." Anderson said Delta needs to right size the airline based on customer demand.

"The economy is very difficult," he said. "It seems every day we read about companies announcing layoffs by the thousands." Anderson said customers are holding off on buying tickets for vacation destinations. As a result, he said, Delta will need to react quickly.

The prospect of further staff reductions and capacity cuts system-wide follows labor paring already in the works as the result of 2008’s red ink.

Delta Air Lines lost $1.4 billion in the fourth quarter of 2008, including massive one-time special charges related to its merger with Northwest Airlines and major losses from fuel hedges. A year earlier, Delta reported a $70 million net loss.

For the full year of 2008, the losses at Atlanta-based Delta totaled $8.9 billion. “It was an incredibly challenging year,” said Delta President Ed Bastian. Delta said it also expects to report a “sizable loss” in first quarter 2009.

But the outlook is brighter for the coming year and Anderson said Delta---despite the difficult economic environment---expects to be “solidly profitable in 2009 driven by lower fuel costs, capacity discipline, and merger synergies.”

“Delta’s proactive decision to reduce domestic capacity during 2008 mitigated the impact of the decline in demand we saw over the course of the fourth quarter. We expect the worldwide economy to be difficult throughout 2009; however, if fuel prices remain at current levels, we believe the benefit of lower fuel prices will more than offset the revenue decline.” said Bastian.

Delta responded to high fuel prices and the weakening demand environment by reducing domestic capacity eleven percent in the last six months of 2008. In 2009, the company plans to remove 40-50 mainline aircraft from the fleet as it eliminates the fixed costs associated with an additional six to eight percent capacity reduction.

While parking a large number of jetliners, Delta will take delivery of two new B777-LR aircraft to support Delta’s international expansion and five B737-700 aircraft that allow the addition of service into airports requiring high-performance aircraft such as in Tegucigalpa, Honduras.

Bookings were anemic in the second half of January, and are no better in February and March. “The recession is clearly causing leisure customers to rethink or postpone some of their discretionary travel decisions until they see signs that the economy is starting to show some light,” Bastian said.

He said Delta is seeing the most weakness at its Cincinnati and Detroit hubs.
"If you look at what's going on in the industrial base in regions such as Detroit, Michigan and Ohio, we are certainly seeing a reduction in the travel and the demand, as measured against a Minneapolis," Bastian said.

Delta lowered business and leisure fares in domestic markets served from its Cincinnati hub. The reductions offer more than 80 percent of customers flying to or from Cincinnati/Northern Kentucky International Airport (CVG) a “significant” savings on advance-purchase leisure and business class fares to the hub’s most popular destinations, including select cities in Florida, the Northeast and along the West Coast.

“Cincinnati/Northern Kentucky is the airport of choice for customers across the Tri-State Region and these new fares make it compelling for customers to choose the convenience of flying nonstop to more than 90 worldwide destinations from Delta’s Cincinnati hub rather than wasting time and money driving to neighboring airports,” reasons Glen Hauenstein, Delta’s executive vice president for network planning and revenue management.

To sweeten the deal, Delta is offering SkyMiles members the opportunity to earn up to 25,000 bonus miles on select round-trip nonstop flights from the airport.

Last month, Delta initiated a second round of voluntary workforce reductions to more closely align its staffing with lower capacity levels. “Delta will continue to monitor the demand environment and has full flexibility to further reduce capacity if warranted,” the company said in announcing its fourth quarter and year-end results.

Delta expects about 2,000 employees to accept the company's latest round of severance offers. The deadline for employees to accept the severance packages closed Feb. 11. Anderson did not say in his message how many workers took the offer.

The severance deal program is similar to one that Delta used to trim about 4,000 positions last year. Northwest Airlines previously eliminated jobs before being acquired by Delta last October.