DFW To Lose $20 Million In Revenue From Delta Exodus 09/14/2004 11:25:27 AM
Dallas/Fort Worth expects to lose at least $20 million in revenue in fiscal 2005 after Delta completes its massive flight reduction in January.
The second-largest carrier at DFW, Delta will slash capacity by 93% by Jan. 31 as part of a larger restructuring that includes cutting up to 7,000 jobs meant to save $5 billion by 2006. The carrier will shift the bulk of its DFW operations to Salt Lake City and Cincinnati, and will convert the 12 flight banks at its Atlanta hub to a continuous-flow operation that will allow more flights. CEO Gerald Grinstein acknowledged bankruptcy remains a possibility for the flagging carrier.
Delta's plans to all but abandon its Texas hub come on the heels of the airport celebrating record traffic of 5.68 million passengers in July, the highest level since July 2000. Now, the airport will defer discretionary spending and consider budget cuts, while looking for carriers to fill the void.
"With the most capacity of any airport in the world, DFW is fortunate to have the size, competitive cost structure and local market strength to 'backfill' many routes reduced by Delta," said DFW CEO Jeff Fegan.
Delta's 28 gates at DFW will shrink to three to five by the end of January, said Kevin Cox, DFW's chief operating officer. Even so, Delta still will owe the airport $8 million in terminal rent lease agreements for fiscal 2005. But unless those gates are filled, the airport faces a gate surplus when its new international terminal opens in July; however, Cox says it's too early to tell. "We believe there will be an interest prior to July of carriers to backfill." And carriers are interested. American this month announced plans to add 70 flights to its DFW schedule. Fitch Ratings, however, cautioned that unless other carriers add service, American would claim as much as an 85% market share at DFW, which could lead to other vulnerabilities for the airport.
Delta's announcement was no surprise to industry analysts, who early on identified DFW and Salt Lake City as exposed to Delta cuts. DFW recently conducted a detailed analysis of what operations would look like without Delta, said Kurt Forsgren, credit analyst for Standard & Poor's rating service. "Dallas was smart to do that," he said, adding that many airports are taking the same step. "They have to in this environment."
S&P is monitoring DFW's credit rating but has no immediate plans to change it, chiefly because of the airport's low cost structure. That structure will soon go up, however, with airport projects, including the international terminal under construction. Forsgren doubts that future airport costs influenced Delta's decision. "It had more to do with their view of the DFW market and how it fit into their plans," he said. "They weren't the main player there."
But Salt Lake City Airport, where Delta is the dominant carrier, will add gates and modify the terminal to handle the additional regional jet traffic, said Executive Director Tim Campbell. But despite the prospect of 58 new flights to 13 new destinations, Campbell recognizes the threat that Delta could declare bankruptcy. "We've done all we can do to prepare, which isn't a whole heck of a lot," he said. Even if Delta filed Chapter 11, Campbell predicted Salt Lake's 55% origin-and-destination traffic share would protect service.
Delta's planned "de-peaking" at its Atlanta hub drew praise from FAA Administrator Marion Blakey, who called the initiative an effective short-term solution until the airport's fifth runway opens.
The second-largest carrier at DFW, Delta will slash capacity by 93% by Jan. 31 as part of a larger restructuring that includes cutting up to 7,000 jobs meant to save $5 billion by 2006. The carrier will shift the bulk of its DFW operations to Salt Lake City and Cincinnati, and will convert the 12 flight banks at its Atlanta hub to a continuous-flow operation that will allow more flights. CEO Gerald Grinstein acknowledged bankruptcy remains a possibility for the flagging carrier.
Delta's plans to all but abandon its Texas hub come on the heels of the airport celebrating record traffic of 5.68 million passengers in July, the highest level since July 2000. Now, the airport will defer discretionary spending and consider budget cuts, while looking for carriers to fill the void.
"With the most capacity of any airport in the world, DFW is fortunate to have the size, competitive cost structure and local market strength to 'backfill' many routes reduced by Delta," said DFW CEO Jeff Fegan.
Delta's 28 gates at DFW will shrink to three to five by the end of January, said Kevin Cox, DFW's chief operating officer. Even so, Delta still will owe the airport $8 million in terminal rent lease agreements for fiscal 2005. But unless those gates are filled, the airport faces a gate surplus when its new international terminal opens in July; however, Cox says it's too early to tell. "We believe there will be an interest prior to July of carriers to backfill." And carriers are interested. American this month announced plans to add 70 flights to its DFW schedule. Fitch Ratings, however, cautioned that unless other carriers add service, American would claim as much as an 85% market share at DFW, which could lead to other vulnerabilities for the airport.
Delta's announcement was no surprise to industry analysts, who early on identified DFW and Salt Lake City as exposed to Delta cuts. DFW recently conducted a detailed analysis of what operations would look like without Delta, said Kurt Forsgren, credit analyst for Standard & Poor's rating service. "Dallas was smart to do that," he said, adding that many airports are taking the same step. "They have to in this environment."
S&P is monitoring DFW's credit rating but has no immediate plans to change it, chiefly because of the airport's low cost structure. That structure will soon go up, however, with airport projects, including the international terminal under construction. Forsgren doubts that future airport costs influenced Delta's decision. "It had more to do with their view of the DFW market and how it fit into their plans," he said. "They weren't the main player there."
But Salt Lake City Airport, where Delta is the dominant carrier, will add gates and modify the terminal to handle the additional regional jet traffic, said Executive Director Tim Campbell. But despite the prospect of 58 new flights to 13 new destinations, Campbell recognizes the threat that Delta could declare bankruptcy. "We've done all we can do to prepare, which isn't a whole heck of a lot," he said. Even if Delta filed Chapter 11, Campbell predicted Salt Lake's 55% origin-and-destination traffic share would protect service.
Delta's planned "de-peaking" at its Atlanta hub drew praise from FAA Administrator Marion Blakey, who called the initiative an effective short-term solution until the airport's fifth runway opens.
