Delta Air Lines Goes for a Latin Flair

The third-largest carrier wants international flights to account for 35% of its systemwide revenue by the end of this year, up from about 20% in June 2005.

Ten years ago the dominant airline at what was then the world's second-busiest airport offered just 14 international flights, including only three to Latin America and the Caribbean.

For Delta Air Lines (DALRQ:OTC BB), that historical lack of international flying means there's plenty of opportunity to expand from Atlanta's Hartsfield-Jackson International Airport, now the planet's busiest.

Delta is moving fast. The third-largest carrier wants international flights to account for 35% of its systemwide revenue by the end of this year, up from about 20% in June 2005. This summer, Delta will offer more than 1,000 daily departures from Atlanta to nearly 230 destinations, 67 of them international. Of those, 42 are in Latin America and the Caribbean, as Delta bids to become the No. 2 U.S. carrier in the region.

Delta hasn't failed to notice that many in the airline business question its rapid buildup. During a conference call last week, for instance, Continental Airlines (CAL:NYSE) President Jeff Smisek said that "unlike some of our Johnny-come-lately competitors and imitators, we've been committed to international expansion for a decade."

A company representative says Smisek was referring to "all of the carriers who have recently jumped on the international expansion bandwagon." Spirit CEO Ben Baldanza said in a recent interview that Delta knows it can no longer rely on its domestic service. "And if the devil you know doesn't work, then try the devil you don't know," he said.

"The markets are out there," says James Sarvis, Delta's director for Latin America and the Caribbean. "The opportunities are out there. Some will stick, and some will not. Of course, the good thing about being an airline is you can move your resources."   Like Newark

Among routes that have stuck, Sarvis cites Atlanta to Managua, which Delta started flying in December. "It's a new market in a new country where Delta never flew before, [and] we're very encouraged by the results," he says. Sarvis wouldn't say whether the flight is profitable, but he noted that load factor and revenue are better than expected.

Similarly, he says, Delta began service to Liberia, Costa Rica, in 2002 with three flights a week, and now flies nine a week during the peak winter season. "Before, nobody could tell you where Liberia was," he says. "Now, Liberia has exploded."

Delta knows that much of Continental's recent success has resulted from building international capacity at its hub at Newark Liberty International Airport, like Hartsfield a major airport that once failed to capitalize on its international potential.

Last August, Delta hired Glen Hauenstein, an architect of Continental's expansion, as an executive vice president. Continental is currently the No. 2 U.S. carrier to Latin America and the Caribbean, with service to 77 destinations in 23 countries.

Delta has looked south before. Fifteen years ago, the carrier made a tentative deal to become a 45% partner in a revived Pan American World Airways, which would serve Latin America from a Miami hub. The deal collapsed when Delta pulled out at the last minute, citing higher-than-anticipated costs.

The world today is a different place. In particular, Sarvis cited two changes. First, Atlanta's Hispanic population has skyrocketed in recent years, creating strong demand for nonstop travel to Latin America. At the same time, Delta's decision to phase out low-fare subsidiary Song has freed up jets for international service. Some of Song's 48 Boeing 757s will be used on short-haul routes to markets including Bogota, Columbia; Quito and Guayaquil in Ecuador, if approved; and Liberia.   Could Make Sense

AMR (AMR:NYSE) unit American Airlines dominates Latin America from its Miami hub, long a crossroads for connecting passengers between Europe and Latin America. Miami's strengths include not only a broad array of international connections, but also plenty of local traffic to and from Latin America.

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