American, Delta, other airlines expect to cut flights, jobs

June 12, 2009
Adjustment to fall schedule warranted, officials say


Jun. 12--American Airlines Inc. and Delta Air Lines Inc. said Thursday that they are going to cut their flying capacities even deeper at the end of summer, and the reductions will bring job cuts.

Other carriers speaking at an investor conference also suggested that they'll be making more cuts later this year, on top of sharp reductions they've already implemented.

"The cuts we implemented last year have been helpful, and as a result we did not make major changes to our summer schedule," said Gerard Arpey, American's chairman and chief executive. "But looking forward, we think an adjustment to our fall schedule is warranted. So we are making additional cuts beginning in late August."

In a message to American employees, executive Jeff Brundage said the reduction in flying will also mean elimination of about 1,600 jobs, including 1,200 flight attendants.

"These are trying times in the airline industry and our economy," wrote Brundage, senior vice president of human resources. "The recession has taken a disproportionate toll on airlines, and there is no easy way to announce yet more bad news."

Delta president Ed Bastian unveiled more cuts on Delta's international routes, with the Atlanta-based carrier suspending service from Atlanta to Shanghai and to Seoul, South Korea; from Cincinnati to Frankfurt and London Gatwick; and from New York to Edinburgh, Scotland.

"Customer demand for international travel has fallen significantly," Bastian and Delta CEO Richard Anderson told employees in a memo Thursday. "Accordingly, we plan to reduce our international capacity by an additional 5 percent from what we announced in March, for a 15 percent total reduction in international capacity."

The Delta executives told employees that the capacity cuts would require the airline to look at reducing the number of employees, although they said they hoped to avoid involuntary reductions.

What Southwest sees

Speaking at a New York City conference sponsored by Bank of America and Merrill Lynch, airline executives took turns repeating the same general refrain: Revenue was way down, business travelers were staying away, and they didn't know when the economy and the airline industry would bounce back.

Although most said they see no sign that their business is deteriorating further, they also could see scant evidence that a recovery of any sort is just over the horizon.

"Based on the trends we're seeing so far in June, I certainly don't expect to see things get any better," Southwest Airlines Co. chairman and chief executive Gary Kelly said. "If anything, with harder comparisons, I think that June's unit revenue will be down more than May."

Southwest reported last week that unit revenue, or revenue per seat mile flown, declined about 9 percent in May compared with unit revenue from a year before, after being flat in April.

Acknowledging that it's difficult to project very far into the future, Kelly said, "I'm not expecting things to improve based on what we're seeing right now."

As previously disclosed, Kelly said Southwest plans to operate 6 percent less capacity in 2009 than in 2008, with deeper cuts later this year. Through May, Southwest's capacity is down 3.4 percent.

Pressed for his outlook on the economy, the Southwest executive said there doesn't seem to be much bullish evidence out there to suggest that the economy is coming back, and with it, higher-fare business travelers.

"The green shoots -- they're pale green, if they're green," he said. "I think it's crazy to bet on anything improving soon."

Matching demand

The cuts implemented over the last year have reduced capacity significantly, with the nation's nine largest carriers operating 8 percent less capacity in May than a year earlier.

But Delta and American indicated they need to go deeper to match demand better to the supply of airplane seats, and others indicated they may have their own cuts in the wings.

US Airways Group Inc. president Scott Kirby said his carrier may reduce more flying atop the 4 percent cut it has already made.

"We don't have an announcement to make today, but I expect that we will reduce some of our seasonal trans-Atlantic flying and probably some marginal reductions in domestic flying as well sometime soon," Kirby said.

Among the largest U.S. carriers, United Airlines Inc. has made the biggest reductions in capacity, cutting 12.3 percent through the first five months compared with 2008. Even so, Greg Taylor, United's senior vice president, wouldn't rule out additional cutbacks.

"We have more flexibility around capacity," Taylor said. "We can do more than this if we decide that's the right thing to do."

Last year, airlines were struggling with high fuel prices. Though fuel prices have been on the rise, they are much lower now than in June 2008.

This year, the problem is revenues. Southwest's 9 percent drop in unit revenue looks good compared to Delta's estimate that its passenger revenue per seat per mile will drop 20 percent in the second quarter.

Reacting to a drop in demand and revenue, Arpey said American will cut its mainline capacity 7 percent for the second half of the year, two percentage points more than it previously had planned to reduce flights.

The airline will reduce capacity 5.5 percent on international routes -- an increase from the 2 percent reduction the carrier projected in April. Domestic capacity will be down 7.5 percent, one percentage point lower than the April estimates.

For the full year, American's capacity will be down 7.5 percent from 2008, one point deeper than earlier projected. Domestic capacity will be off 9 percent, unchanged compared to the April estimates, while international capacity will be down 4.5 percent, an additional two points.

"We are not sugarcoating the magnitude of what we, along with every other airline, are up against in this economic climate," Arpey said.

American Airlines said it would reduce capacity about 7 percent in 2009 and would need to cut about 1,600 jobs, including 1,200 flight attendant jobs as of Oct. 1.

Delta Air Lines said it will reduce international flying 15 percent this fall and will need to cut an undetermined number of jobs.

American will step up its plan to replace its aging McDonnell Douglas MD-80 jets. It now plans to acquire 31 Boeing 737-800 jets in 2009, up from 29. In 2010, it will acquire 45 of the jets, up from 39.

Other airlines said they're prepared to reduce capacity more if warranted.

Terry Maxon