Delta sees ‘09 as bleak for revenues

Delta Air Lines expects airline industry revenue to decline 8 to 12 percent next year, which is significantly greater than in past economic downturns except for the aftermath of the Sept. 11, 2001, terror attacks.

Delta president Ed Bastian on Tuesday called it “an unprecedented level of decline in the amount of airline industry revenue, but it’s also related to what we’re seeing going on across other economic sectors.”

The company expects revenue at its Detroit hub to fall even more because of the auto industry’s struggles, according to Jim Cron, Delta’s senior vice president of global sales and distribution. Cron and Bastian spoke at a meeting with investors.

Airline traffic volume, driven by demand from business and leisure travelers, often follows the direction of the economy.

“Consumers and businesses during a recession tend to tighten their belts, and tighten their belts means they won’t buy as many airline tickets, in terms of how it translates to us,” Delta chief executive Richard Anderson said in a message to employees last week.

Past downturns in the 1980s and 1990s led to declines in airline industry revenue closer to 1 to 2 percent, while the decline after Sept. 11 was about 17 percent, according to Bastian.

Atlanta-based Delta announced last week it plans to cut its capacity by 6 percent to 8 percent in 2009, by grounding planes and other moves. That will amount to fewer flights for travelers.

Fairfax, Va.-based airline consultant George Hamlin of ACA Associates said after the cutbacks were announced that they appeared “prudent and appropriate.” The impact on fares remains to be seen.

“In good times, if you reduce capacity, you should see fares go up,” Hamlin said. When demand is down, it’s not as easy for airlines to raise fares.

But the airlines have the benefit of lower fuel costs, and Bastian said he expects the airline to be “solidly profitable in 2009.”

The International Air Transport Association forecasts that the United States is the only region not expected to report larger losses in 2009 than in 2008. North American carriers are expected to post a “small profit” of $300 million in 2009.

The association expects industry revenues worldwide to decline to $501 billion next year, down $35 billion from the forecast for this year.

“We face the worst revenue environment in 50 years,” said the association’s chief executive, Giovanni Bisignani, in a written statement.

Along with its capacity cuts, Delta plans to shrink its workforce through voluntary early out and retirement packages that employees can sign up for starting in January, saying it hopes to avoid furloughs.

Meanwhile, Delta is seeing the effects of the stock market declines in its pension plans, and as a result expects its pension costs to increase..

As for costs of Delta’s merger with Northwest Airlines, Bastian said the company expects its costs of integration to be about $500 million in cash, down from a previous estimate of $600 million.

Separately, Delta’s top executive for route planning, Glen Hauenstein, indicated the newly merged airline may not keep all the orders for Boeing’s new 787 aircraft that it inherited from Northwest.