Delta Airlines Responds to Record Fuel Prices
Wednesday, 25 June 2008


Delta Airlines President and CFO, Edward H. Bastian has provided an update on the company’s efforts to fight rising fuel prices and its ongoing approach to building a sustainable, profitable business model.

“Delta has been a first-mover to aggressively respond to the challenges facing our industry with domestic capacity cuts, associated cost reductions, and a focus on preserving liquidity,” Mr Bastian said.

“These actions combined with our game-changing merger with Northwest are positioning Delta for long-term success as a strong competitor against any airline around the globe.”

Delta Airlines has been able to successfully realign its network to rationalize domestic capacity while expanding globally.

This means that Delta’s revenue per available seat mile has improved from 86 percent of industry average in 2005 to 102 percent of industry average through the first four months of 2008.

International flying continues to be a strong component of the carrier’s business plan with Delta services continuing to fly to five continents and 20 new international routes this year. This in turn means that airlines international capacity for 2008 is expected to be up 15-17 percent.
In response to rising fuel costs, the company is adding to previously announced plans to reduce domestic capacity by 10 percent year over year in the second half this year and now plans for total domestic capacity reductions of 13 percent in the second half of 2008.

As previously announced, Delta plans to remove the equivalent of 15-20 mainline and 60-70 regional jet aircraft from its operation by the end of 2008.

While capacity reductions have resulted in some market cancellations, most are being made through frequency and point-to-point reductions, as well as seasonal adjustments.

“The diversity of Delta’s network has provided the financial balance we need to counteract the soft U.S. economy and tough fuel environment. International routes continue to be a boon for us as we carefully manage domestic capacity. While it’s important to maintain a broad domestic presence for our customers and employees, as well as to feed international routes, we remain flexible and will make additional adjustments if needed,” said Mr Bastian.

Delta in December began adjusting domestic capacity in light of record fuel costs. Previously announced route cancellations have included service between Orlando and cities such as Las Vegas; Fort Lauderdale, Fla.; and Little Rock, Ark., as well as nonstop flights between Boston and cities such as Charleston, S.C. and Greensboro, N.C.

While a small number of additional market cancellations are expected as Autumn schedules are finalized, most reductions are being achieved through frequency reductions and by eliminating a number of unprofitable routes with particular focus on point-to-point flights that can more profitably and efficiently be served via Delta’s hubs.

As part of Delta’s commitment to both provide employees with flexibility and remove costs associated with capacity reductions, the airline in March was the first U.S. carrier to announce voluntary retirement and early out programs for employees.

As more than 4,000 Delta and Delta Technology employees elected to participate in the programs, the airline is positioned to achieve cost reductions associated with capacity pull downs.

Delta expects a profitable June quarter excluding special items, and expectations remain in line with previous guidance. Despite a $4 billion increase in fuel costs in 2008, the airline’s liquidity remains strong thanks to a solid operating cash flow, controlled capital expenditures and aggressive fuel hedge program.

The airline expects to end 2008 with $3.2 billion in unrestricted liquidity, down just $600 million from Dec. 31, 2007.

Delta’s aggressive, multiyear fuel hedge strategy is expected to offset nearly $1 billion in fuel cost impact for 2008 and continue to provide benefits in years to come. The airline’s hedge portfolio through 2010 is currently valued at approximately $1.5 billion.

Delta continues to focus on the proposed merger with Northwest Airlines to create a global airline better positioned for strength and profitability on a long term basis.

“The unique advantages created by the combination of Delta and Northwest are even more compelling as fuel costs continue to rise,” Mr Bastian said.
A merger of strength, the airlines will combine best-in-class cost structures, industry-leading balance sheets and complementary networks.

Delta and Northwest expect to find opportunities to both reduce one-time costs and increase synergies through the merger which is expected to receive approval by the end of the year.

Delta Air Lines operates service to more worldwide destinations than any airline with Delta and Delta Connection flights to 324 destinations in 62 countries. Delta has added more international capacity than any major U.S. airline during the last two years and is the leader across the Atlantic with flights to 43 trans-Atlantic markets.

To Latin America and the Caribbean, Delta offers 600 weekly flights to 62 destinations. Delta's marketing alliances also allow customers to earn and redeem SkyMiles on more than 16,000 flights offered by SkyTeam and other partners.