Delta stock plummets amid economic downturn

For the airline industry, the economic turmoil roiling the stock market and the banking industry brings more uncertainty and weaker demand for corporate and leisure travel.

Airline stocks have been dropping with the rest of the stock market. Atlanta-based Delta’s shares closed at $5.66 Thursday, up 2 cents from Wednesday’s close but down 33.8 percent from the price on Oct. 1 — just eight days earlier.

“Investors are worried about the overall stock market decline, they’re worried about the economy,” said Standard & Poor’s analyst Jim Corridore. “And these are very risky stocks to own in good times and bad.”

While fortunes in the airline industry are linked to the strength of the economy, one bright spot for carriers is the decline in oil prices.

High oil prices have been the bane of the airline industry, so the roughly 40 percent drop in the past three months will mean significant savings for airlines. According to Delta president Ed Bastian, every dollar of movement in oil prices equates to an $80 million a year shift in costs for Delta, and will equate to a $135 million a year shift for a combined Delta and Northwest if their proposed merger is approved.

But that doesn’t necessarily mean savings for travelers. Airlines continue to raise fares, including a $35 one-way increase on Delta and AirTran fares purchased within a week of travel in Atlanta markets last month, cited in a J.P. Morgan research report.

Delta will report its third quarter results next week, and Bastian has said the company expects to report break-even results or a “modest” loss.

The company believes its proposed all-stock acquisition of Eagan, Minn.-based Northwest Airlines will better position it to “withstand any economic cycle,” said Delta spokesman Kent Landers Thursday.

Delta also said it has financing commitments for its aircraft deliveries through 2010.

Delta has pledged not to close any hubs or lay off frontline employees as a result of the merger.

But, the weak economy “gives them a talking point if they decide to make a change,” Corridore said. “It’s been my view all along that Delta has just been saying that they’re going to maintain all hubs because they want approval of the merger. But once it’s all done, they’ll revisit that and say, you know what, economic conditions force us to rethink that.”

Delta, along with AirTran Airways and other airlines, has already cut domestic flights and shed routes, leaving fewer options for travelers this fall.

Airlines have cut the number of domestic flights by nearly 11 percent for the fourth quarter of this year compared with a year ago, according to OAG, the Official Airline Guide.

“Now they’re well-positioned for a drop in demand,” Corridore said.