Mixed news emerged from the airline sector Tuesday as talk of capacity cuts, potential mergers and the benefits of falling oil prices made headlines.
Delta Air Lines (DAL) said it will reduce its consolidated system capacity by 6% in 2009 as consumers’ economic woes continue to keep them out of the skies. The Atlanta-based carrier plans to cut its domestic capacity by between 8% and 10%, and cut international capacity by 3% to 5%, according to a regulatory filing.
Citing “difficult” economic hurdles, Delta President Ed Bastian said the move is necessary to ensure seat capacity is in line with customer demand.
“Remember that speed wins so we will be decisive and not delay," he said in an employee memo released jointly with Chief Executive Richard Anderson.
The move fans fears of more layoffs at Delta, which earlier this year said its capacity reduction efforts would result in nearly 4,000 job cuts. Bastian and Anderson did not offer any further insight in the memo, only stating that “as in the past, we will offer voluntary programs to adjust staffing needs.”
But the news at Delta isn’t all bad. At a conference of top airline executives and analysts in New York, Bastian said that if oil continues to trade near $50 a barrel, Delta could see a $5 billion benefit in 2009. Oil prices, which skyrocketed to unprecedented levels this past summer and quickly became the biggest dagger in the airline industry’s gut, have dropped off dramatically, recently trading at their lowest level in more than three years.
Bastian is confident that cheaper fuel will continue to offset a dip in revenue, arguing that passenger revenue would have to decline 20% to erase the cost benefit of lower fuel prices. Not even the Sept. 11, 2001, terrorist attacks resulted in a hit of that magnitude, he said.
Bastian’s announcement came at the same conference attended by UAL Corp. (UAUA) Chief Financial Officer Kathryn Mikells, who said the carrier expects to raise about $300 million during the fourth quarter.
The parent company of United Airlines, which said Monday it plans to sell up to $200 million in additional common stock, said it expects a $150 million benefit from refinancing. The company has sold $45 million in assets in this quarter alone and also eliminated its 17-year old 737 fleet in an effort to keep its maintenance costs in check.
Dallas-based Southwest Airlines (LUV) said Tuesday its traffic declined by 8.3% in November as greater economic pressures continue to weaken demand for air travel.
The carrier said traffic fell to 5.26 billion revenue passenger miles -- a unit used by the industry to measure one passenger flown one mile -- compared with 5.74 billion last November.
Capacity remained relatively flat, inching up just 0.4% to 8.33 billion available seat miles.
Overseas, British Airways (BAY) revealed it is in talks about a potential merger with Australia’s Qantas Airways.
The Tuesday announcement comes just one day after the Australian government said it will boost the level of foreign ownership permitted in Qantas, but will not allow a takeover.
British Airways said it is considering a potential merger with Qantas “via a dual-listed company structure,” offering no details about its reason for pursuing the deal. The company is already working on a revenue-sharing deal with American Airlines (AMR) and Spain’s Iberia SA.
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