Delta says flight capacity to stay level in 2010

By Kelly Yamanouchi

The Atlanta Journal-Constitution

Delta Air Lines said it expects to keep its flight capacity flat in 2010, after cuts in 2009 to cope with reduced travel demand.

Atlanta-based Delta's 2010 plans will keep its flight capacity -- the number of seats in the air, essentially -- at 7 percent below 2007 levels.

"If we don’t see the revenue environment continue to strengthen and materialize," the airline can pull back its flight capacity next year, Delta president Ed Bastian said during the company's investor day Tuesday in New York. Bastian said the airline will pull about 70 planes from its fleet next year, mostly regional aircraft, and is phasing out DC-9s inherited in the Northwest Airlines merger. Meanwhile, it may acquire more MD-90 jets.

The company expects to close the books on 2009 with a $1.5 billion annual loss amid what Delta has called "the worst economic environment in our history." The loss, which includes special items, is projected on $28.1 billion of operating revenue, up from about $22.7 billion last year.

"There’s a fairly significant fuel hedge loss that’s embedded within those numbers," Bastian said, referring to the practice of locking in fuel purchases at prearranged prices.

Delta's chief executive, Richard Anderson, said the hedges were put in place as Delta prepared to close the Northwest merger last year. Given the volatility of fuel costs, "we really needed to take that issue off the table going into the merger," he said.

The hedges cost Delta roughly $1 billion from locking in prices higher than where market rates ended up. "We'll take responsibility for that decision," Anderson said.

Delta also said it expects to close the year with $5.3 billion in cash, an improvement from its previous estimate.

Next year, it expects its pension funding obligations to increase to about $700 million from $200 million this year, due to the decline in investment markets.

Delta is still working to complete the combination of its operations with Northwest. It expects a single operating certificate from the Federal Aviation Administration at the end of the month, a milestone that will allow Delta and Northwest to operate as a single carrier. It just finished combining pricing systems and expects to merge reservations systems this winter.

With those tasks and others in process, "we have not been able to maximize the value proposition of the merger yet," said Glen Hauenstein, Delta's executive vice president of network planning and revenue management. Delta aims to get $600 million in additional benefits in 2010 from the Northwest merger.