Delta offers buyouts, cuts capacity
Bloomberg — Delta Air Lines Inc. plans to reduce capacity by at least 4 percent and trim the workforce with the first buyout and retirement offers since 2009 as it grapples with soaring fuel costs that led to a first-quarter loss.
Delta is the largest carrier serving Minnesota and has more than 12,500 employees in the state.
Workers in the United States with 10 years of service whose age and service total at least 55 years are eligible for the retirement offers while employees with five years of service can take a buyout, Chief Executive Officer Richard Anderson said Friday in his weekly recorded message to employees. Both are voluntary.
Delta's cut in available seats after the peak summer travel season goes deeper than actions by U.S. rivals including United Continental Holdings Inc. and American Airlines parent AMR Corp., which plan to trim capacity growth by 1 to 3 percentage points. Carriers may need more reductions after Labor Day, said Hunter Keay, an analyst at Wolfe Trahan & Co. in New York.
"I don't want the sense of urgency to be removed" even though crude oil prices fell by about $10 per barrel yesterday to just under $100, said Keay, who recommends buying the shares.
Delta has said most of the capacity reductions will be through an 8 to 10 percent cut on trans-Atlantic routes after Labor Day, the first Monday in September, reversing previous growth in European flights. Delta's joint-venture partner Air France-KLM hasn't said yet how much it will reduce available seats across the Atlantic.
"Delta is correcting a problem they created along with their JV partners, which is good," Keay said. "They did over-grow and now they're correcting it."
Delta plans to retire more of its least-efficient aircraft, trim capital spending and continue to increase ticket prices in additional efforts to cover rising fuel costs, Anderson said today. The company had a $318 million loss in the first quarter after jet-fuel costs surged 41 percent from a year earlier.
"In order for our business to thrive, we must think of the current high prices as a permanent reality of our business," Anderson said, referring to oil. "The associated costs of doing this flying must also be reduced."
About 55,000 employees, or 70 percent of the workforce, are eligible for the buyout and retirement program, said Keyra Johnson, a spokeswoman for Delta. Most of them are mid-level managers and front-line workers, she said.
Delta's previous voluntary retirement and buyout offers have been successful. In June 2008, the company cut 4,000 jobs through similar methods, double the number it initially targeted, and more than 2,000 workers accepted buyouts in 2009. The carrier isn't disclosing the target number for its new program, Johnson said.
Delta has previously said it plans to retire 140 aircraft in the next 18 months, including some widebody planes used on international routes. Anderson didn't specify which additional types of planes would be removed from service.
Delta fell 1 cent to $11.21 at 4 p.m. in New York Stock Exchange composite trading. The shares have dropped 11 percent this year, compared with a 4 percent decline in the Bloomberg U.S. Airlines Index.