http://www.ajc.com/sports/content/business/delta/stories/2008/03/21/Delta_0323.html
Delta execs confident airline can weather storms
Whole airline industry buffeted by rising oil prices, shifting economy
By
JIM THARPE
The Atlanta Journal-Constitution
Published on: 03/23/08
If you want to feel some real turbulence these days, don't get on an airplane. Just buckle up and step inside the boardroom of any major airline.
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John Spink/AJC
Is Delta on the rise? The airline is now better positioned to handle factors it can't control, one analyst said.
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Fuel prices have soared, stock prices have plunged, and analysts say there's no end in sight to the volatility ahead for carriers like Atlanta-based Delta Air Lines, Georgia's largest private employer.
Just in the last year, Delta has emerged from bankruptcy, picked a new CEO, entered into now-stalled merger talks with Northwest Airlines to create the world's-largest airline,
watched its stock price get cut in half and — just last week — announced it will trim 2,000 employees and park some of its jets to reduce costs.
Delta President Ed Bastian said the airline's latest moves show "a willingness to take decisive action quickly" in the face of a sudden economic shift.
"We want to be on the front end, taking advantage of it, not being victimized by it," Bastian said in an interview with The Atlanta Journal-Constitution.
"Whoever can move with speed will win."
But much is — and always has been — out of airline executives' control. For decades, airlines have suffered from the vagaries of winter storms, fuel prices and economic downturns.
They have reacted by raising ticket prices, parking aircraft and eliminating jobs and routes.
Boom/bust cycle
Still, executives have never been able to completely sidestep the bad times.
"The airlines are boom and bust, boom and bust and boom and bust," said John Heimlich, chief economist with the Air Transport Association. "The problem is the booms are small, and the busts are big."
The current crisis has been sparked by inflated crude oil prices topping $100 a barrel — jet fuel is about $35 higher — just as the economy hit some serious headwinds.
The nationwide fallout could be pronounced. Airlines are cutting less profitable routes.
And ticket prices will continue to head higher. Some carriers could fail.
"If this is sustained over a few years, you will see fewer, larger players over time, and we could possibly lose one or two hubs," said Heimlich, whose trade organization represents major carriers like Delta.
Merrill Lynch & Co. analyst Michael Linenberg recently lowered his forecast for U.S. airline earnings.
Previously he forecast profits of $1.7 billion for 2008 for the nation's nine biggest carriers. Soaring fuel costs forced him to revise that to a potential $1.5 billion loss for the year.
Delta, which employs 25,000 people in metro Atlanta, is moving quickly to make sure it is one of the survivors, company officials say.
The fortunes of metro Atlanta and major portions of the Southeast are directly tied to Hartsfield-Jackson International Airport and Delta, which accounts for about 70 percent of the airport's flights.
Hartsfield-Jackson, besides being the world's busiest airport with 86 million passengers a year, has an estimated $23 billion annual impact on the region.
Bastian said Delta, the nation's third-largest carrier, learned a lot of lessons from its 2005 bankruptcy that will help it weather the current downturn. He said it's still possible Delta can eke out a profit this year, despite a slowing economy and high fuel prices. In the run-up to its 2005 bankruptcy, he said, Delta saw fuel rise from $30 a barrel to $60 a barrel in the space of two or three years.
"We've now had that same effect in six months," Bastian said. "We have to respond aggressively and quickly to right-size the airline in that higher-cost environment."
International flights
Delta's game plans call for reducing unprofitable domestic flights while increasing its international footprint.
International flights are generally more profitable because there is less competition, and the flights are much longer, which means the airlines usually average more money for every mile a passenger travels.
Delta will launch inaugural flights to Shanghai's airport at the end of the month and to London's Heathrow a few weeks later.
By summer, Bastian said, international flights will comprise about 40 percent of Delta's revenue.
"There's no plan to pull anything down internationally," he said. "If we see economic duress spread to other parts of the world, we will. But at the present time, our bookings are strong, and our unit revenues are up 10 percent year-over-year, despite the fact that capacity is growing at 15 percent."
Most carriers, including Delta, have recently increased fuel surcharges to offset higher costs. Delta and seven other American or European carriers recently added $20 to their fuel surcharges on trans-Atlantic flights, boosting them to as much as $242, said Tom Parsons, chief executive of Bestfares.com.
But those increases can continue for only so long before cash-strapped consumers and businesses begin to cut back on discretionary spending.
There are already growing signs of stress.
Low-cost carrier Aloha Airlines declared bankruptcy Thursday for the second time in three years. Aloha is the second-largest Hawaii-based airline, with about 3,500 employees. Aviation experts say more bankruptcies could be on the horizon.
US Airways CEO Doug Parker has lamented that the entire industry is "a mess." And Northwest Airlines CEO Doug Steenland told employees earlier this month that the Minnesota-based carrier might have to further shrink its operations.
Colorado-based airline analyst Mike Boyd said airlines like Delta are better positioned to deal with downturns than they have been in the past. They now own "big chunks of their fleets" and can park airplanes cheaply, he said. And airlines are now pulling back capacity, even while demand is still strong.
"We see an airline industry better postured than it's ever been to get through tough times," Boyd said.
But surviving the downturn will have consequences.
"If it continues, you will see higher fares," he said. "You'll also see the bar raised as to where the air transportation system can fly. The Macons and the Augustas of the world might have to be dropped out of the system or people might have to pay a lot more money to fly there."
Whoops...I guess Delta is following the classic 'shrink the airline during bad times plan'.
Not so at NW no job losses here.
Interesting.
I wrote it that way on purpose because believe it or not some of us are in touch with reality.
You proved my point by trying to point out the negative in anything to do with NWA. 
