Delta still in cost-cut mode

By Kelly Yamanouchi

The Atlanta Journal-Constitution

Delta Air Lines doesn't expect to see key revenue measures improve before the middle of next year, which means it will continue cutting costs, an executive told analysts in New York on Wednesday.

The Atlanta-based airline is in the middle of axing $200  million in overhead costs, mainly through cuts in back-office functions and salaried employees, Chief Financial Officer Hank Halter said at a Morgan Stanley conference that was also Webcast.

It is also completing the shutdown of the freighter business it inherited from its merger with Northwest Airlines, Halter said, adding that the cargo plane business lost about $150 million last year.

Halter also said the company has retired about 75 aircraft to the desert over time. Amid the weak economy, demand for travel is slow and fewer travelers are paying for first class and business class, so airlines have been pulling aircraft from their fleets and parking them in the desert.

Even if the economy recovers, it could take months to bring the aircraft back into service because of the time to get them overhauled and the lead time needed for airline scheduling, Halter said. That would likely lead to hiring more employees, he added.

"If aircraft start coming back, it's not going to be first quarter 2010," he said. "If there's a modest recovery, it's probably mid-year before" that shows up in key revenue figures.

Some of the planes, especially older models that are less efficient, would stay parked even then, he said.

Halter also expressed a hope that competitors will hold back from significant expansion next year.

"The challenge for the industry is to make sure we don't come back and flood the market," Halter said. "We don't want to see the industry do that if the demand isn't there to support the capacity."

Travelers are holding onto their money, Halter said.

"They need to get comfortable that the recession is clearly behind us," he said. "If they're not spending, they're not flying."

Halter said Delta still expects to receive a single operating certificate from the Federal Aviation Administration by the end of this year in the merger with Northwest.