Delta plans bigger capacity cuts in downturn

By Karen Jacobs and Deepa Seetharaman
ATLANTA/NEW YORK (Reuters) - Delta Air Lines Inc (DAL.N) said on Thursday that it plans additional cuts in seat capacity this year as rising fuel prices and softer travel demand pressure business.
The world's biggest airline also said more capacity cuts could be on the way in its industry as airlines face the most challenging period since after the September 11, 2001, attacks.
"I would anticipate the combination of the economy staying at somewhat of a flatline level coupled with higher oil prices is going to do two things -- one, it's going to put pressure on pricing because you're going to need to cover the cost of oil," Delta President Ed Bastian told a Bank of America-Merrill Lynch conference that was broadcast over the Internet.
"If you can't recover the cost of oil, it's going to necessitate more dramatic capacity reductions as we get to the end of the year," he added.
Atlanta-based Delta said it plans to reduce system capacity by 10 percent from 2008, with reductions beginning in September. Earlier, Delta had said its system capacity would be down 6 percent to 8 percent from last year.
It also said it plans to cut international capacity an additional 5 percent on top of what it has already announced, for a total reduction of 15 percent. Earlier this year, Delta had said it would cut international capacity by 10 percent.
Continental Airlines Inc (CAL.N) said on Thursday it would outline further capacity moves in July, when it has more visibility on the status of business traffic.
"Business traffic is off quite substantially," Continental Airlines Chairman and CEO Lawrence Kellner told the Merrill Lynch investor conference.
"We are responding to that by making capacity adjustments," he said, adding that the domestic and European markets are weak.
Carriers have been hard-hit as the weak economy has caused consumers and businesses to curtail spending on travel. Demand has also been hurt by this year's outbreak of the H1N1 virus; and now, rising fuel prices are pressuring costs.
The International Air Transport Association, the voice of more than 200 global airlines, has repeatedly warned of a grim year for carriers as the recession has hurt demand. This week, the Geneva-based airline lobby nearly doubled its forecast for industry losses this year to $9 billion.
"Based on the trends we're seeing in June, I don't expect things to get any better," Southwest Airlines Co (LUV.N) Chief Executive Gary Kelly told the Merrill Lynch conference. He added that near-term prospects for the airline industry remain grim as consumers and corporations cut back on travel, forcing carriers to cut fares.
Glenn Tilton, CEO of United Airlines parent UAL Corp (UAUA.O), told his company's annual meeting that the government must do something to "dampen the speculative nature" of current high oil prices.
Delta's Bastian said that the H1N1 virus, formerly called swine flu, earlier this year had hurt bookings, especially in Asia, but added that bookings were starting to recover.
Delta also said it would accelerate the merger integration of Northwest Airlines and keep tight controls on costs and spending. It also said its latest reductions meant it would need to "reassess staffing needs," but added it would try to avoid involuntary layoffs. Continued...
Source: Reuters