Delta saw $8.9 billion in losses for 2008

Delta Air Lines lost $1.4 billion in the fourth quarter of 2008, including massive one-time special charges related to its merger with Northwest Airlines and losses from fuel hedges.

But the outlook is brighter for the coming year. Chief Executive Richard Anderson said in a written statement Tuesday that Delta expects to be “solidly profitable in 2009 driven by lower fuel costs, capacity discipline, and merger synergies.” Delta expects to save $5 billion on fuel costs this year and $1 billion by cutting flight capacity, while generating $500 million in benefits from its merger with Northwest.

For the full year of 2008, the losses at Atlanta-based Delta totaled $8.9 billion, mainly because of accounting write-downs reflecting the decreased value of the company due to record fuel prices earlier in the year.

“It was an incredibly challenging year,” said Delta president Ed Bastian. Delta said it also expects to report a “sizable loss” in first quarter 2009.

Some of the factors contributing to Delta’s losses are the high cost of the Delta-Northwest merger, bad bets on fuel costs and challenges facing the airline industry in a recession when demand for travel softens.

The fourth quarter net loss amounted to $2.11 per share. A year earlier, Atlanta-based Delta reported a $70 million net loss, or 18 cents per share. Delta shares plunged Tuesday to close at $7.93, down 20.1 percent.

The loss included a more than $900 million charge for equity awards to employees as part of its merger with Northwest Airlines.

Delta also had a total of $506 million in fuel hedge losses in the fourth quarter. The company said it would have reported a $167 million profit excluding special items if it had bought fuel at market prices, which plummeted during the quarter, resulting in a loss on the previously negotiated contracts, known as “hedges.”

“Our fuel hedges turned out to be an expensive insurance policy in the short term, but we continue to believe that a systematic fuel hedging program is the most prudent way to mitigate the impact of volatile fuel prices,” Anderson said. The annual loss, which amounted to $19.08 per diluted share, included the fourth quarter special items and $7.3 billion in non-cash goodwill and other write-downs.

The company had $6.1 billion in total liquidity as of Dec. 31, 2008, including $1.1 billion posted as collateral for hedges. Executives said they expect to build cash this year.

The company announced that it plans to take 40 to 50 mainline aircraft out of its fleet as it cuts flight capacity by 6 to 8 percent this year. The airline has a total of 1,147 aircraft in its fleet, including about 850 mainline planes.

Bookings are weak in the second half of January, as well as in February and March.

“The recession is clearly causing leisure customers to rethink or postpone some of their discretionary travel decisions until they see signs that the economy is starting to show some light,” Bastian said.

The company is seeing the most weakness at its Cincinnati and Detroit hubs, and in its Delta Shuttle operation with flights from Boston and Washington, D.C., to New York. Atlanta as well as Minneapolis and Salt Lake are looking comparatively better, Bastian said.

“On the corporate side, companies continue to trim travel budgets,” Bastian added. International travel has also slowed, particularly flights to London, the Middle East and India. Delta is canceling its flights to London from Seattle and Detroit and its second daily flight from Atlanta to London’s Gatwick Airport.

The Delta-Northwest merger closed Oct. 29. When comparing the combined operations of Delta and Northwest, operating revenue was flat for the fourth quarter compared with a year earlier. Cargo revenue fell 24 percent, or $89 million, due to Northwest cuts in freighter capacity. Other revenue grew 17 percent, or $121 million, primarily from baggage fees.

Combined operating expenses increased 23 percent, including special items, fuel hedge expenses and $33 million to account for a decline in the value of Northwest pension plan assets.