Delta cutting services and 2,000 jobs

  • Article by: DAVID SHAFFER , Star Tribune
  • Updated: July 27, 2011 - 8:05 PM

The buyouts, along with fare increases, capacity cuts and more, are a response to high fuel costs.

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Delta had 80,000 employees at the end of 2010, including 12,500 in Minnesota.

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Delta Air Lines said Wednesday that 2,000 employees will take voluntary buyouts beginning in September as the carrier works to boost revenue and bring down expenses in the face of high fuel prices.

The airline, Minnesota's dominant carrier, also said it plans to use fare increases and other means to recover fuel cost increases and that it will reduce overall capacity in the last three months of 2011 by 4 to 5 percent compared with a year earlier -- a bigger cutback than previously announced.

By cutting flights, Delta can fill more seats on the remaining routes and keep them profitable, analysts said.

Fares may not rise overall, but "there may not be as many cheap seats," said Bob McAdoo, an analyst for Avondale Partners, a Nashville, Tenn., brokerage firm.

McAdoo said Delta and other major airlines deserve praise for contending effectively with high fuel prices. "It is remarkable that here we have $100-a-barrel oil and this company and pretty much every airline except American is being managed in such a way that they can make money," he added.

Travelers in Minnesota are affected, however. Earlier this month, Delta said it would end service to Thief River Falls, Brainerd and International Falls.

"There are some markets, including a number of small markets we serve, that simply are not profitable at these fuel prices," said CEO Richard Anderson, who added that more cutbacks may be coming.

Daniel McKenzie, managing director and senior research analyst at Rodman & Renshaw, a New York investment bank, said Delta's scheduling data shows it cutting back 106,000 of the 4.2 million seats on departing flights from Minneapolis-St. Paul International Airport in the third quarter, which ends Sept. 30.

Travelers leaving Minnesota on Delta will have fewer seats to choose from to smaller U.S. destinations like Appleton, Wis.; Rhinelander, Wis.; Colorado Springs; Jackson Hole, Wyo.; Lincoln, Neb.; and Albany, N.Y., McKenzie said.

Fewer seats also are scheduled from Minneapolis-St. Paul to some larger cities, including Memphis, Detroit and Newark, he said. And some international destinations also will have fewer Delta flights out of Minneapolis-St. Paul, including Regina, Edmonton and Calgary in Canada, and Amsterdam in the Netherlands, he said.

At the same time, other airlines -- including Southwest, American and Sun Country -- are adding seats out of Minneapolis-St. Paul, he said. That new competition for travelers should keep fares stable, he said.

"Overall, I don't expect to see a big change in pricing in the Minneapolis market," McKenzie said.

Shrinking profits

Delta, based in Atlanta, reported that it made money in the second quarter despite $1 billion in higher jet fuel costs. But profits declined 58 percent, to $198 million, from a year ago.

Anderson said a 12 percent increase in revenue from domestic flights and other revenue increases helped offset the fuel expense.

Delta's profit of 43 cents a share came in just below the average 44 cents that analysts forecast, as calculated by Bloomberg News. Its share price dropped 5.1 percent, or 41 cents, to close at $7.61, though at one point in the day shares were down 9.2 percent.

Anderson told analysts and reporters that "2,000 employees elected to participate in voluntary exit programs" and would leave Delta by the end of the year. Delta declined to offer a geographic or other breakdown of the reductions, but said no layoffs are planned.

The airline had 80,000 employees at the end of 2010, including about 12,500 in Minnesota from its acquisition of the former Northwest Airlines.

In another cost-saving step, 140 aircraft will be retired by the end of next year, including the Saab turbo-prop fleets and 60 of the 50-seat regional jets, which serve smaller airports.

Delta also said it will retire its remaining DC-9s. Delta had 39 DC-9s in service at the end of 2010, with an average age of 34 years. The plane hasn't been manufactured since 1982, but was long a backbone of domestic airline fleets.

"Retiring these maintenance-intensive aircraft will generate $250 million in maintenance savings for the second half of 2011," said Hank Halter, Delta's chief financial officer.

Delta said it plans a modest order of new planes, but gave no details.

David Shaffer • 612-673-7090

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