Delta raises fares, cites rising fuel prices

By Kelly Yamanouchi

The Atlanta Journal-Constitution

Just two weeks after announcing plans for growth this year, Delta Air Lines is trimming the forecast and joining other carriers in raising fares to offset higher fuel costs.

Delta's No. 2 executive, Ed Bastian, told analysts Thursday that Atlanta's biggest carrier, along with others, has boosted fares four times in the past 45 days.

He also said Delta expects capacity growth of 3 to 5 percent in the current quarter, down from its earlier projection of 5 to 7 percent. The cutback is in part because of storm-related cancellations but also due to "tactical decisions" related to rising costs, he said.

Bastian said full-year capacity growth will be about 1 percent, the bottom end of its initial 1 to 3 percent forecast.

Some analysts had questioned Delta's growth plans during its earnings announcement last month, in which Delta also said it plans future aircraft purchases to replace as many as 200 aging narrow-body planes in coming years.

Assuring investors the airline is taking a conservative approach, Bastian told analysts at a Raymond James investor conference in New York on Thursday: "Obviously it's a tough climate... We have not just the tools to address fuel prices; we also have the will."

Bastian said fuel prices are "the No. 1 thing on our minds" and added that synergies from Delta's 2008 merger with Northwest Airlines allow it to "squeeze out flying" while retaining revenue.

He said the recent fare hikes "are clearly designed to cover the ramp-up that we've seen in fuel prices." He said fares must cover the price of fuel, and if they do not, "that will inform where the capacity needs to come out."

Delta plans to speed up retirement of older aircraft, retiring its last 35 DC-9s and all remaining Saab aircraft inherited from Northwest over the next 12 to 18 months. The carrier is also pulling 60 of its 50-seat regional jets out of the fleet over the next 18 months.

"As you see fuel prices move, we'll be taking [aircraft] out of markets that are less profitable," Bastian said.

Stifel Nicolaus analyst Hunter Keay, in a note to investors, called Delta's adjustments to reflect fuel prices "immensely positive."