NEW YORK (Reuters) - Delta Air Lines Inc unveiled plans to cut 2,000 jobs and scale back flights on Tuesday, leading efforts by U.S. carriers to cut costs in the face of soaring fuel prices and a weakening economy.
The No. 3 U.S. airline, which has been unable to seal a merger with rival Northwest Airlines Corp, will offer voluntary retirement and buyout packages to 30,000 employees.
It is aiming to cut 1,300 rank and file jobs and 700 administrative and management jobs, or more than 3 percent of its work force overall.
“If we need to, we’ll go deeper,” Delta Chief Financial Officer Ed Bastian told analysts at a JP Morgan investor conference on Tuesday, referring to the cost-saving plan.
Delta shares, which have been on a slide for the last month, as hopes for a merger recede, rose about 8 percent to $9.95 on the New York Stock Exchange.
In a regulatory filing, Delta also said it will cut flights in the United States, aiming to reduce 2008 domestic capacity by an additional 5 percent by August, resulting in a 10 percent year-over-year capacity cut.
Delta planned to take 15 to 20 mainline aircraft and 20 to 25 regional jets temporarily out of service. It also identified $200 million in capital expenditure to be deferred or eliminated.
Delta has been looking actively at mergers for the past two months, but hopes for a deal took a blow earlier on Tuesday, as Delta’s pilot union said it could not reach agreement over seniority with pilots of the potential merger partner, widely reported to be Northwest Airlines Corp.
“Our long-term view remains that consolidation may be the right course of action,” Delta Chief Executive Richard Anderson and CFO Bastian said in a letter to Delta staff, included in the regulatory filing.
Delta’s main rivals are also rolling out plans to cut capacity, the day after a barrel of crude touched a record high of $111.80.
The fuel price spike coupled with a steadily weakening U.S. economy has stalled the airline industry’s modest recovery from the 2001-06 downturn. As a result, airlines have seen a steep decline in their share prices.
The previous downturn resulted in bankruptcies and unprecedented out-of-court restructurings, but experts say carriers appear leaner and in better shape this time around to weather the oncoming turbulence.
Jeff Misner, Chief Financial Officer of Continental Airlines Inc told the JP Morgan conference that demand remained pretty good, but added: “The problem is we are not covering the cost of fuel right now.”
OTHER AIRLINES CUT FLIGHTS
Northwest Chief Financial Officer Dave Davis told the conference that bookings in March are strong. It is harder to forecast bookings for April and May, which tend to be “iffy,” he said.
“We expect to have a strong summer as well,” Davis said. “Despite some storm clouds on the horizon, bookings for the company have held up quite well.”
Northwest is evaluating capacity changes, but has given no firm targets. Northwest shares rose about 7 percent to $9.59 in afternoon trading.
UAL Corp, parent of United Airlines, said it will shrink its fleet by up to 4 percent this year to combat the skyrocketing cost of jet fuel.
In a message to employees, chief executive Glenn Tilton said the airline plans to eliminate 15 to 20 of its older, less fuel efficient narrow-body planes. United’s fleet currently has 460 aircraft.
“Continued uncertainty about the overall U.S. economy with the price of fuel at historically high levels has put significant pressure on all U.S. carriers,” Tilton said.
The fleet reduction is part of a broader effort to offset a possible $1 billion increase in fuel costs in 2008, UAL’s chief financial officer Jake Brace said at the JP Morgan investor conference. UAL stock rose OVER 6 percent to $22.20.
The U.S. No. 2 airline currently has 20 percent of its anticipated 2008 fuel requirements hedged, Brace said. That is up from 16 percent as reported in previous regulatory filings.
Southwest Airlines Co, the leading U.S. discount carrier, said it continues to evaluate growth plans in light of high oil prices.
Chief Financial Officer Laura Wright said at the JPMorgan conference that Southwest is sticking with its forecast of growth of up to 5 percent for 2008. Like other airlines, Southwest has been slowing expansion this year. Southwest shares rose about 3.9 percent to $12.02.
“We are looking at an industry that has chronic diseases like overcapacity and structural considerations that foster and feed that overcapacity,” said Daniel Ortwerth, transport analyst at investment advisers Edward Jones. “Southwest ... is the one airline that actually merits some consideration for the long-tern investor.”
Additional reporting by John Crawley in Washington and Kyle Peterson in Chicago; Editing by Brian Moss/Andre Grenon
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