Delta may still be ready when you are, but in 2009 they're not going to be as big. Citing the global recession, Delta (NYSE: DAL) announced that it will cut an additional 6-8% of capacity in 2009. The move will result in an up to 10% reduction in domestic capacity, when one includes the impact of previously-announced operational cuts. Delta also said it will eliminate an undetermined number of jobs.
Shares of Delta (NYSE: DAL) rose 52 cents to $8.48 on Tuesday at mid-day amid a broader market rally.
Delta, which recently merged with Northwest to become the world's largest airline, said it will offer "voluntary programs" to decrease the size of its workforce. Delta President Ed Bastian called the cuts "dramatic" and said total seat capacity, domestic and international, over the two-year, 2008-2009 period, will be reduced by 20% -- a required step, due to the downturn in both business and leisure travel, The Wall Street Journal reported.
Economist Richard Felson said Delta's cuts, while large, were not unexpected. "Of course, one knew that with consumers cutting back spending, and the U.S. economy shedding a large amount of jobs each month, that air travel would take a hit. Delta's capacity cuts underscore the depth and seriousness of the recession," Felson said.
"We've got surpluses piling up everywhere, in autos, in airplanes, in commodities. All three [major economic] regions of the world need to provide large fiscal stimulus, or they're going to be a lot more airplanes parked in desert lots," Felson said. Felson added that he does not own shares of any airline.
Airline Sector Analysis: Delta's announced downsizing was not a surprise. Still, what may be a surprise is the depth of the pull-back in air travel. It's reasonable to assume a 7-10% decline in air travelers during a recession, but imagine the impact on the sector of a 15% or 20% reduction in travelers? Not pretty. Another irony: just when airlines experience some relief on fuel costs, due to oil's drop to about $50 per barrel, demand starts to disappear. The sector is overdue for some good luck, and if it doesn't appear, it's going to have to make its own good luck in a challenging (to say the least) economic environment.
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Reader Comments (Page 1 of 1)
12-02-2008 @ 3:51PM
joe-joe said...
delta get in line for a few billion.my son has closed two of his five retail stores,laid off 30 empolyees.why can't he have a place in welfare bail out line.
12-02-2008 @ 10:52PM
June said...
I don't get IT! Now GAS prices are LOWER, WHY isn't everything else receding like it was before oil went UP? Could it be the Green-Eyed Monster is rearing its UGLY head? Bring Prices down where consumers can afford. The Greed of the Company owners is its own Destruction! WAY to GO! Price yourselves out of business!
12-03-2008 @ 1:40AM
GAS HOG said...
FUNNY THING IS DELTA PRE-HEDGED THEIR FUEL PRICES FOR 2009....AT $4.25/GALLON!! OOPS! PLUS THEY ARE ON THE HOOK FOR BILLIONS IN PLANES THEY CONTRACTED TO BUY THEY DON'T NEED. THEY SHOULD FILE CHAPTER 11 SO THEY CAN RENEGOTIATE THINGS.