Delta: Enough worker pay cuts
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 04/30/05
Despite continuing financial losses and sky-high fuel prices, Delta Air Lines executives say they don't expect to go back to pilots or other employees for more pay cuts.
"That is not our plan," Chief Executive Gerald Grinstein said Friday.
BEN GRAY/AJC
Further employee sacrifices at the Atlanta-based airline would hurt morale and service, he suggested.
"We have gotten to the point where I think the morale and spirit of the people is so important," Grinstein said. He said he knows some workers were discouraged by the $1.1 billion net loss for the first quarter reported last week.
But Delta in coming months will stick with turnaround plans it's already launched, Grinstein said, while at the same time trying to offset fuel costs with more efficiency-boosting changes in schedules and airport operations.
Such moves include shortening the time aircraft spend on the ground between flights and trimming weekend flight schedules.
Grinstein and other Delta executives talked about their plans Friday in a meeting with editors of The Atlanta Journal-Constitution.
In a wide-ranging discussion, they said sustained high fuel prices — up about 50 percent in the past year — will make it impossible for any airline to succeed.
"There will be a lot of trauma in the industry" if conditions don't improve in coming months, said Chief Financial Officer Michael Palumbo.
"If we're measuring in terms of a race to the morgue, it's hard to make a call," he said. "But the fact is, we're in a much better position than we were last year."
The Delta executives said their cost-cutting campaign is "on target" but that the results are being masked by fuel costs that now consume about 30 percent of revenue.
The silver lining in the grim first-quarter report was significant progress in cutting costs other than fuel. The airline maintained its cash reserves at $1.8 billion, albeit by using the last installment of vendor financing that helped it avoid a bankruptcy filing last fall.
"Even with higher fuel, we didn't miss [our] plan by that much," said Grinstein, "which tells me we're on the right track."
Since 2001, Delta has announced about 23,000 job cuts, won deep pay concessions from pilots, cut other nonunion employees' pay, shut down its Dallas hub, launched more efficient operations at its huge Atlanta hub and ditched older, gas-guzzling aircraft.
Delta's strategy and network chief, James Whitehurst, said future cost-cutting efforts are aimed at creating a "hybrid" airline combining more efficient flight hubs with more of the point-to-point service that discount carrier Southwest Airlines uses.
While the overhaul hasn't stopped Delta's bleeding, management is betting it may be enough to allow the airline to survive until a rival goes out of business first, or until dropping fuel prices or rising fares give the industry some relief.
Palumbo said Delta has cut $2 billion from its operating budget since last year and expects to push annual savings to $3 billion by year-end.
As a result, Delta should continue to operate outside of bankruptcy with lower cash reserves than it would have needed in the past, the executives said.
"We'll bleed more slowly than we ever did before, and disproportionately more slowly than the rest of the industry," Palumbo said.
Some industry analysts remain skeptical and think Delta will be back at the brink of a Chapter 11 filing later this year.
Delta is burning through $4 million a day — more than any other carrier — and is "the most likely candidate for a bankruptcy filing this year," said Calyon Securities analyst Ray Neidl in a report this week.
The airline is lobbying Congress for assistance that would spread required pension reserve payments out over 25 years instead of five. That would save Delta and other big airlines hundreds of millions of dollars in coming years.
Sen. Johnny Isakson (R-Ga.) introduced a bill to that effect in the Senate and Republican Rep. Tom Price of Roswell is expected to put in a House version next week.
The legislative effort has backing from Delta and Northwest, their pilots unions and other employee groups, but may face an uphill battle because White House pension proposals don't include relief for airlines.
Grinstein said the government assistance shouldn't be seen as an industry bailout because it would help airlines stay solvent enough to pay their own pensions rather than terminating them and saddling the government-backed Pension Benefit Guaranty Corp. with the liabilities.
"I actually think of it as a bailout of the government," the Delta CEO said.
High fuel costs have prompted airlines to nudge fares upward — something the hyper-competitive industry rarely does successfully.
The latest bump came late Thursday when American Airlines added $10 roundtrip to U.S. and Canadian flights. Delta and Northwest matched the move.
Grinstein, a longtime Delta board member who took the controls in a late 2003 management shake-up, said he expects to stay in the job this year and part or all of next year.
He said he expects to name a successor from within Delta's ranks.
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 04/30/05
Despite continuing financial losses and sky-high fuel prices, Delta Air Lines executives say they don't expect to go back to pilots or other employees for more pay cuts.
"That is not our plan," Chief Executive Gerald Grinstein said Friday.
BEN GRAY/AJC
Delta CEO Gerald Grinstein says the airline is now on the right track.
Further employee sacrifices at the Atlanta-based airline would hurt morale and service, he suggested.
"We have gotten to the point where I think the morale and spirit of the people is so important," Grinstein said. He said he knows some workers were discouraged by the $1.1 billion net loss for the first quarter reported last week.
But Delta in coming months will stick with turnaround plans it's already launched, Grinstein said, while at the same time trying to offset fuel costs with more efficiency-boosting changes in schedules and airport operations.
Such moves include shortening the time aircraft spend on the ground between flights and trimming weekend flight schedules.
Grinstein and other Delta executives talked about their plans Friday in a meeting with editors of The Atlanta Journal-Constitution.
In a wide-ranging discussion, they said sustained high fuel prices — up about 50 percent in the past year — will make it impossible for any airline to succeed.
"There will be a lot of trauma in the industry" if conditions don't improve in coming months, said Chief Financial Officer Michael Palumbo.
"If we're measuring in terms of a race to the morgue, it's hard to make a call," he said. "But the fact is, we're in a much better position than we were last year."
The Delta executives said their cost-cutting campaign is "on target" but that the results are being masked by fuel costs that now consume about 30 percent of revenue.
The silver lining in the grim first-quarter report was significant progress in cutting costs other than fuel. The airline maintained its cash reserves at $1.8 billion, albeit by using the last installment of vendor financing that helped it avoid a bankruptcy filing last fall.
"Even with higher fuel, we didn't miss [our] plan by that much," said Grinstein, "which tells me we're on the right track."
Since 2001, Delta has announced about 23,000 job cuts, won deep pay concessions from pilots, cut other nonunion employees' pay, shut down its Dallas hub, launched more efficient operations at its huge Atlanta hub and ditched older, gas-guzzling aircraft.
Delta's strategy and network chief, James Whitehurst, said future cost-cutting efforts are aimed at creating a "hybrid" airline combining more efficient flight hubs with more of the point-to-point service that discount carrier Southwest Airlines uses.
While the overhaul hasn't stopped Delta's bleeding, management is betting it may be enough to allow the airline to survive until a rival goes out of business first, or until dropping fuel prices or rising fares give the industry some relief.
Palumbo said Delta has cut $2 billion from its operating budget since last year and expects to push annual savings to $3 billion by year-end.
As a result, Delta should continue to operate outside of bankruptcy with lower cash reserves than it would have needed in the past, the executives said.
"We'll bleed more slowly than we ever did before, and disproportionately more slowly than the rest of the industry," Palumbo said.
Some industry analysts remain skeptical and think Delta will be back at the brink of a Chapter 11 filing later this year.
Delta is burning through $4 million a day — more than any other carrier — and is "the most likely candidate for a bankruptcy filing this year," said Calyon Securities analyst Ray Neidl in a report this week.
The airline is lobbying Congress for assistance that would spread required pension reserve payments out over 25 years instead of five. That would save Delta and other big airlines hundreds of millions of dollars in coming years.
Sen. Johnny Isakson (R-Ga.) introduced a bill to that effect in the Senate and Republican Rep. Tom Price of Roswell is expected to put in a House version next week.
The legislative effort has backing from Delta and Northwest, their pilots unions and other employee groups, but may face an uphill battle because White House pension proposals don't include relief for airlines.
Grinstein said the government assistance shouldn't be seen as an industry bailout because it would help airlines stay solvent enough to pay their own pensions rather than terminating them and saddling the government-backed Pension Benefit Guaranty Corp. with the liabilities.
"I actually think of it as a bailout of the government," the Delta CEO said.
High fuel costs have prompted airlines to nudge fares upward — something the hyper-competitive industry rarely does successfully.
The latest bump came late Thursday when American Airlines added $10 roundtrip to U.S. and Canadian flights. Delta and Northwest matched the move.
Grinstein, a longtime Delta board member who took the controls in a late 2003 management shake-up, said he expects to stay in the job this year and part or all of next year.
He said he expects to name a successor from within Delta's ranks.
