Delta Air’s Cuts, Slumping Demand Signal More Reductions Needed

Delta Air Lines Inc. and Continental Airlines Inc. said trans-Atlantic travel demand is still weakening because of the recession, suggesting that U.S. carriers may need deeper reductions in flying.

Delta, the world’s largest carrier, said today it will trim an additional 10 percent of international seats in the last four months of 2009 and that it may eliminate more jobs. Continental said traffic to Europe is down “significantly” while Southwest Airlines Co., which flies only in the U.S., reported that March has been even slower than February.

Their comments indicate that the industry’s contraction isn’t over after the biggest U.S. airlines cut 29,400 jobs and parked more than 500 jets since the start of 2008 as part of plans to shrink seating capacity by about 10 percent.

“We are encouraged to see Delta responding to worsening passenger demand, and expect most mainline peers to react with similar reductions,” Standard & Poor’s analyst Jim Corridore in New York wrote in a note today. He rates Delta as “buy.”

Any further capacity cuts at Houston-based Continental would be done “in tandem” for domestic and international flights, President Jeff Smisek said at a JPMorgan Chase & Co. airlines conference in New York.

Continental didn’t change its previous forecast for seating capacity in its main jet operations to decline by 3.5 percent to 4.5 percent for the full year.

Overseas, Domestic Routes

“The trans-Atlantic is weak from a business travel perspective,” Smisek said. “We look on a market-by-market basis and trim capacity where we think it’s appropriate, and that includes domestic capacity as well.”

The “worsening global economy” is deepening Atlanta-based Delta’s pullback overseas, Chief Executive Officer Richard Anderson and President Ed Bastian said in a memo to employees today. The airline didn’t say how the cuts may alter its forecast for reducing flying by 6 percent to 8 percent in 2009.

Delta will have to “reassess our staffing needs,” Anderson and Bastian wrote, without giving details. New reductions would add to the elimination of almost 2,100 jobs with a buyout program in February, which followed 6,000 cuts at Delta and its newly acquired Northwest Airlines.

The Bloomberg U.S. Airlines Index rose as much as 7.1 percent on optimism that cost savings will help preserve projected profits. Continental led the gains, climbing 94 cents, or 15 percent, to $7.38 at 12:01 p.m. in New York Stock Exchange composite trading.

Dwindling Traffic

The six biggest U.S. carriers posted a combined 11 percent drop last month in passenger traffic, or miles flown by paying passengers. UAL Corp.’s United Airlines fell for the 18th straight time, while AMR Corp.’s American Airlines was down for the 12th month in a row.

Southwest’s February traffic tumbled 6 percent, its sixth decline in eight months. The Dallas-based carrier will break a 20-year growth streak this year as it trims flying by 4 percent.

“It appears the first week of March is weaker still than what we had in February,” CEO Gary Kelly said at the JPMorgan conference.

Southwest’s unit revenue, or how much it takes in for each passenger flown a mile, was down about 7 percent in the first week of this month compared with a year earlier, he said.

“I don’t see that we’re stable on the revenue front at this point,” Kelly said.