Bloomberg News

Delta Plans 2012 Seat Cuts as AMR Joins Pullback This Year

September 13, 2011

(Updates with closing share prices in seventh paragraph.)

Sept. 13 (Bloomberg) -- Delta Air Lines Inc. will shrink seating capacity in 2012 to cut operating costs, and American Airlines is joining an industry pullback in flights for the end of this year.

Delta’s available seating next year will fall by 2 percent to 3 percent, the Atlanta-based carrier said today in a regulatory filing. American said next quarter’s trims will pare flying by 0.5 percent, and plans for 2012 are now under review. The Bloomberg U.S. Airlines Index jumped the most in a month.

“If a recession does pop and we start to see demand reductions, we’ll be prepared for it,” Delta President Ed Bastian said at a Deutsche Bank AG conference in New York.

Paring capacity can be a positive step for airlines, both in savings from operating expenses and in pricing power for a smaller supply of seats. United Continental Holdings Inc., the world’s largest carrier, and No. 2 Delta unveiled their end-of- year retrenchments earlier.

United’s capacity will be unchanged next year, with a planned drop in domestic seats balanced by increases in overseas flying, Chief Executive Officer Jeffery Smisek said at the conference.

“If we had a material decrease in demand or a material increase in input prices, we would shrink” in 2012, Smisek said.

Airlines Rally

The Bloomberg airlines index jumped 6.3 percent for its biggest one-day advance since Aug. 9, led by US Airways Group Inc. The Tempe, Arizona-based airline soared 79 cents, or 16 percent, to $5.64 at 4 p.m. in New York Stock Exchange composite trading.

American parent AMR Corp. climbed 18 cents, or 5.5 percent, to $3.45, and Delta rose 61 cents, or 8.3 percent, to $7.99. United increased $1.32, or 7.4 percent, to $19.28.

US Airways President Scott Kirby told analysts and investors that air-travel demand appears to be disconnected from global economic events such as the European credit crisis that might have eroded airlines’ business in the past.

“We don’t see any evidence yet of a slowdown,” Kirby said. “We’ve seen a strong demand environment from mid-July through yesterday.”

Lower-Demand Days

American’s pullback includes reductions that began in August that reduce flying by varying amounts on lower-demand travel days, Treasurer Beverly Goulet said at the conference. The cuts include a 13 percent drop on Saturdays, according to an American presentation for investors.

“Although advance bookings are generally in line, we are taking the step in light of the mixed economic environment and to make sure we run a smooth operation given additional pilot retirements we expect this fall,” Goulet said. Pilots were asked to voluntarily delay September vacations to avoid shortages after 111 retirements at the end of August exceeded expectations.

The Fort Worth, Texas-based airline had held off on disclosing fourth-quarter capacity changes as Delta decided in July to deepen its capacity reduction to 5 percent after the peak summer travel season, up from a planned 4 percent cut, and United chopped available seats by 4 percent.

Delta’s projected cut in 2012 flying builds on savings steps such as buyout and early retirement offers that were accepted this year by more than 2,000 employees. The airline also said this month it is eliminating 200 administrative jobs.

Delta Stands Pat

Bastian confirmed today that Delta has no plans for a purchase of smaller single-aisle jets after agreeing last month to buy 100 Boeing Co. 737s with a catalog value of $8.5 billion.

Delta had been in talks with Embraer SA and Bombardier Inc. about planes that would complement its Boeing and Airbus SAS narrow-body jets, according to people familiar with the matter who weren’t authorized to speak publicly. One person said last month that the Embraer and Bombardier discussions had been tabled until at least 2012.

“I want to put to rest as to whether there is a second tranche,” Bastian said today. “We are done talking about aircraft for the near to medium term, be it with Bombardier or Embraer or Boeing or Airbus. We’re very comfortable with where we are for the next several years.”

American also said Hurricane Irene reduced revenue by about $25 million and that third-quarter unit revenue, a measure of sales for each seat flown a mile, will rise by about 7 percent from a year earlier.

Southwest Airlines Co., the largest low-fare carrier, said Irene reduced revenue by about $6.5 million. Southwest, which previously said capacity will be unchanged to down next year, also probably won’t add more seats in 2013, Chief Financial Officer Laura Wright said today.

Expansion of about 5 percent is a “reasonable forecast” for JetBlue Airways Corp., which hasn’t completed its 2012 plans, Chief Financial Officer Ed Barnes said at the conference. The majority of the New York-based airline’s growth would occur in Boston and the Caribbean, he said.

--Editors: Ed Dufner, James Langford

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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