Delta to cut capacity; hints at layoffs

Delta president Ed Bastian visits the Twin Cities
Delta president Ed Bastian said today the airline will trim its capacity next year as a cost-cutting move, and that layoffs may occur.
MPR Photo/Annie Baxter

(AP) - Delta Air Lines Inc. hinted Tuesday that more job cuts could be on the way as it disclosed that it will reduce consolidated system capacity by 6 percent to 8 percent in 2009, compared to the current year.

The Atlanta-based carrier's president, Ed Bastian, spoke to investors during a conference in New York.

In a regulatory filing ahead of the speech, the world's biggest carrier said domestic capacity in 2009 will be reduced 8 percent to 10 percent compared to 2008, while international capacity will be reduced 3 percent to 5 percent next year compared to this year.

The news comes as a global financial crisis hits airlines hard by reducing demand for seats.

Delta Air Lines
Delta Air Lines customers check bags with a sky cap at the Delta ticket counter at San Francisco International Airport.
Justin Sullivan/Getty Images

"Once again, Delta must take the necessary steps to adjust our business accordingly and make certain seat capacity meets customer demand," Bastian and Chief Executive Richard Anderson said in a memo to employees.

"These economic hurdles are difficult, and we remain committed to building our company on a durable financial foundation with industry-leading liquidity. Remember that speed wins so we will be decisive and not delay."

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The memo also said that Delta is analyzing the impact on staffing as it pertains to the planned further capacity reductions and "as in the past, we will offer voluntary programs to adjust staffing needs." The memo did not elaborate.

"We are taking these actions to secure your careers and return us to sustained profitability," the two executives said.

In connection with capacity reductions put in place earlier this year, Delta said it would cut roughly 4,000 jobs.

Bastian said at the Credit Suisse Global Airlines Conference that Delta hasn't been able to fully realize the benefit of the steep drop in fuel prices the last several months because of bad bets on fuel hedges the airline took part in while fuel prices were at record levels over the summer.

Based on the current price of oil around $49 a barrel, Delta is expected to have to put up $1.1 billion in cash collateral at the end of December to account for fuel hedges that have turned against it, Bastian said.

He said that for every $5 drop in the price of oil, it would mean an additional $130 million in collateral being posted by the end of the year.

Bastian described the situation as a short-term "blip." He said Delta expects to end the year with $5.6 billion in liquidity. He said Delta is looking into several cash-raising opportunities, though he didn't elaborate. He said more details about that could come when Delta hosts its own investor conference Dec. 9.

"When you look at the demand picture for the airlines, obviously it is soft," Bastian said. "But we do have a fairly significant benefit coming to us in the form of crude oil."

Delta acquired Eagan, Minn.-based Northwest Airlines Corp. on Oct. 29. It is in the process of integrating the two carriers' operations.

(Copyright 2008 by The Associated Press. All Rights Reserved.)