June 11, 2009
Hit with the double whammy of rising fuel costs and falling ticket sales, Delta Airlines says it is reducing seating capacity aboard its jetliners, with the cuts taking effect later this year.
Delta CEO Richard Anderson and President Edward Bastian jointly announced the move, attributing it to the continuing effects of the global recession.
"Industry passenger revenues have declined nearly 20 percent in the first four months of the year compared to the same period in 2008," the statement said. "That trend is expected to continue in the near term."
The executives also cite cost pressures from rising jet fuel prices — up more than 20 percent since the start of the year — coupled with softer travel demand due to the spread of the H1N1 virus. It's unusual to have rising costs when the world is in a recession, but oil prices are proving to be the exception, rising above $70 a barrel this week.
"Declining revenues 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," the two executives said.
At an investor conference in New York Thursday, Delta said it would align its capacity with market demand to preserve liquidity and ensure Delta's long-term success. The plan includes reducing system capacity by 10 percent compared to 2008.
Capacity reductions will begin in September, the airline said. In additional bad news, Delta said customer demand for international travel has fallen significantly, cutting into what had been the airline's most lucrative profit center.
"Accordingly, we plan to reduce our international capacity by an additional five percent from what we announced in March, for a 15 percent total reduction in international capacity," the statement said.
The airline said this fall's capacity reductions will target routes that have experienced losses in the current economic climate and with higher fuel prices, including:
• Suspending nonstop service from Atlanta to Seoul and Shanghai and instead routing customers for these flights over Detroit or Tokyo, or on nonstop SkyTeam partner flights.
• Suspending nonstop flights from Cincinnati to Frankfurt and London-Gatwick. Cincinnati customers will still be able to reach these and many other international destinations via our other European gateways.
• Suspending nonstop service between New York-JFK and Edinburgh.
• Reducing weekly frequencies connecting Atlanta and Detroit to Mexico City and postponing some previously planned seasonal service between non-hub cities and Mexican beach destinations due to the impact of the H1N1 virus on customers' travel plans.
