Fuel prices force Delta to alter its flight plans

In response to record-breaking oil prices, Delta Air Lines CEO Richard Anderson already has cut some domestic flights, and told his employees Friday that Delta will reveal a "comprehensive plan" next week to adapt its business.

"You'll see us taking quick action to revise our business plan for 2008," Anderson said in a recorded message to Delta employees.

"We've been trimming some domestic schedules in selected markets at off-peak times and reducing the number of regional jets significantly in the fleet while at the same time growing international capacity where higher average fares cover the increased cost of fuel," Anderson said.

In his weekly message, he made no reference to airline industry consolidation or to a Delta deal to acquire Eagan-based Northwest Airlines, which remains on hold.

Union pilots for both carriers have not yet negotiated an agreement to merge their seniority lists. Northwest pilot leaders convened this week in St. Paul for a quarterly meeting, but they didn't provide any public comments Friday about the status of seniority discussions with Delta pilots. Face-to-face talks recessed Tuesday in Washington, and it's unclear when the parties will meet again.

Meanwhile, Northwest and Delta executives are forced to cope with ever-rising fuel costs.

Anderson outlined his approach Friday. Northwest executives have not yet tipped their hands about how they will deal with runaway fuel prices.

Oil reached $111 a barrel Thursday, and most analysts expect oil to remain at elevated prices this year.

Anderson said Friday that Delta decided to quickly cut capacity "where single regional jet flights simply can't be profitable." Two examples he cited are Fargo, N.D., to Salt Lake City; and New York City's Long Island to Atlanta.

"We'll continue to look at selected flights [for cutbacks] that cannot be profitable in light of the 70 to 80 percent increase in fuel prices experienced in the last year," he said.

In January, when Delta provided guidance on its 2008 business plan, the carrier indicated that it planned to cut its domestic flight capacity by 4 to 5 percent, but boost international flying by 17 to 18 percent. Further capacity reductions at Delta are expected to focus on the U.S. market.

Northwest reported in January that it planned to grow its international capacity by 8 to 9 percent this year, while reducing domestic flying with its main fleet by 5.5 to 6.5 percent. Northwest has been expanding its regional flying and taking delivery of 76-seat jets that are flown by its Mesaba and Compass subsidiaries.

Anderson did not say whether the business plan revisions would cause any employee furloughs. But he added that Delta is taking multiple steps to raise revenue.

"We have initiated and participated in regular and consistent fare increases because it's important that the escalating cost of fuel be reflected in ticket prices," Anderson said.

"As you see us taking the cost measures that we need to take across the business," Anderson told employees, "at the same time we are working hard in a revenue environment to right-size the airline to this fuel price."

Delta had based its 2008 business plan on the assumption that oil would average $90 a barrel. In January, Delta said that it had hedged 26 percent of its fuel supply for the first quarter with a jet fuel equivalent cap of $2.77 a gallon. For the other three quarters of the year, Delta has hedged between 10 and 31 percent of its fuel supply.

Liz Fedor • 612-673-7709