Hammered by record fuel costs and the weakening national economy, Delta Air Lines Inc. said it plans to cut up to 2,000 jobs through voluntary payouts offered to half of its workforce.
Atlanta-based Delta (NYSE: DAL) also will reduce domestic flights while adding more international routes and it will stay open to merging with another airline.
Delta President and Chief Financial Officer Edward H. Bastian delivered the news Tuesday at the 2008 JPMorgan Aviation and Transportation Conference in New York. Delta also filed with the SEC the heart of Bastian's remarks in a memo he and CEO Richard Anderson sent to employees today.
Bastian noted that in the past three months, fuel prices have jumped nearly 20 percent and the airline's 2008 fuel bill is now expected to increase by nearly $900 million more than it projected for the year and $2 billion more than 2007. Oil hit $112 a barrel on March 17.
Delta said it is focusing in on cost and cash flow discipline, which includes "voluntary staff reductions." It also plans continued international expansion and more domestic capacity reduction.
In April, Delta will offer two buyouts to U.S., non-pilot employees -- a total of about 30,000 people. First, the 60-Point Retirement Program for those who are already eligible for retirement or for those whose age and years of service add up to at least 60, with 10 or more years of service. The second option is the Early Out Program for front-line employees with 10 or more years of service and for administrative and management employees with one or more years of service.
Both programs offer severance payments, travel privileges and additional benefits to manage career transitions. Specifics differ based on age, retirement eligibility and years of service. The number of front-line employees who want to participate in the buyout programs will not be limited.
Delta also has identified 700 managerial and administrative jobs for elimination.
It estimates the 2,000 total job cuts -- about 3 percent of its workforce -- will save it up to 10 percent in costs this year.
Bastian said global expansion would be the key to the airline's long-term success. This summer, more than 40 percent of its capacity will be dedicated to international flying, where fares better cover higher fuel costs. Bastian said Delta is in the midst of its third consecutive year of record international expansion, including the additions of Shanghai and Heathrow in the first quarter.
Delta's international growth will continue to be supported by investments in its fleet, including the planned delivery of 22 new aircraft through 2009. The airline will boost international capacity by more than 15 percent this year. Adjustments to international flying will focus on reducing frequencies or eliminating select seasonal routes. For example, Delta will serve Edinburgh this summer from its JFK hub, but will not reinstate seasonal flights from Edinburgh to Hartsfield-Jackson Atlanta International Airport.
Fuel prices and a weakening domestic economy have put significant pressure on the profitability of Delta's U.S. network, Bastian said. Delta is therefore cutting domestic capacity by an another 5 percent by August -- a 10 percent year-over-year domestic reduction. The airline said the cuts would come from parking 15 to 20 mainline aircraft and 20 to 25 regional jets. Delta also will thin frequencies and reduce point-to-point routes.
Delta is aiming to recover fuel price increases in its ticket prices. In the past year, Delta has regularly increased systemwide domestic fares, boosted fuel surcharges, increased international fares and increased select service fees, Bastian said.
However, there is a limit to how much Delta can recover through increased fares. The airline's current fuel hedges for 2008 are worth $300 million and cover 25 percent of its 2008 requirements. To save more money, Delta is targeting $550 million in productivity initiatives for 2008. Bastian said Delta has identified $200 million in capital expenditures to be deferred or eliminated. It will sell mainline and regional aircraft as they are removed from the schedule to improve liquidity and eliminate overhead.
And as Delta's potential merger with Northwest Airlines seemed to be unraveling on March 18, Bastian emphasized Delta will continue to explore its strategic options.
"As we have previously stated, we support industry consolidation as a vehicle to ensure Delta remains an industry leader," he said in the memo. "The special committee of our board continues to work with our senior leadership team on strategic alternatives. The board, at its discretion, will act in the best interest of all Delta stakeholders. While the rise in fuel and the weakening economy present near-term challenges, our long-term view remains that consolidation may be the right course of action."
Delta emerged from bankruptcy in April 2007. It posted net income of $1.6 billion on $19.2 billion in revenue last year, compared with a net loss of $6.2 billion on $17.5 billion in revenue in 2006. However, the airline had a net loss of $70 million on $4.7 billion in revenue in the fourth quarter, and noted a 26 percent rise in fuel prices.
Email This Page!