Delta can't afford to fly - Fare hikes were not enough, so several flights from SLC will be cut
By Paul Beebe
The Salt Lake Tribune
With jet fuel prices refusing to retreat from record heights, Delta Air Lines is doing more than just raising fares, and some of the measures will hit Salt Lake City travelers this month.
On Tuesday, Delta will end nonstop service from its Salt Lake City International Airport hub to airports in Birmingham, Ala.; Des Moines, Iowa; Fayetteville, Ark.; Memphis, Tenn.; Milwaukee; and Sioux Falls, S.D. The airline cited high fuel prices, its biggest single expense.
Later in January, Delta will trim one flight a day to another 12 airports, including Washington Dulles in Virginia, Vancouver International in British Columbia, Kansas City, Omaha, as well as destinations in California, the Pacific Northwest and the Midwest. In total, Delta is cutting its Salt Lake capacity - the number of seats available to passengers - by 3 percent this year.
The action is part of Delta's larger goal to trim systemwide domestic capacity this year by 5 percent, cancel or reduce flying some aircraft and cut an unstated number of jobs to offset fuel prices that climbed nearly 60 percent in 2007 and may have wiped out the carrier's operating profit in the final quarter of the year. Also contributing to a lesser extent is a slight softening of demand for domestic travel.
Delta hopes the actions will save $400 million in 2008 and allow it to hang on to the financial recovery that began after huge losses and cutthroat competition from low-cost airlines drove it into bankruptcy in 2005.
"Given this, we are adjusting domestic capacity to reduce flying at off-peak times and to long-haul destinations that are served infrequently and can be better served via [other Delta hubs]," spokesman Anthony Black said in an e-mail.
Capacity will be scaled back "with minimal customer impact," Black said.
Others aren't so sanguine. Many Delta flights are already crowded. Drawing down the supply of available seats could make its aircraft even fuller. And that's likely to push fares higher. Moreover, some destinations that have been a nonstop flight away will be harder to reach.
"One never likes to lose any airline service, but with fuel prices as high as they are, it's not a surprise," said Michael Marnach, executive director of the Sioux Falls airport. The loss means 10,000 annual South Dakota travelers will have to find another way to reach Salt Lake or bypass the city altogether, he said.
If there is a common denominator, it's that all the affected routes are served with a mix of 50-, 70- and 76-seat gas-guzzling Bombardier regional jets that Delta and others say are inefficient to fly on long-haul routes where demand is limited.
"They are more costly on a per-seat basis. A majority of the agreements Delta has with its regional partners [such as SkyWest Airlines] calls for the cost of fuel to be passed from the partners to Delta. The high cost of fuel has reduced the number of markets where a regional jet can make money," said Michael Boyd, an airline consultant in Evergreen, Colo.
The cuts mark a turnaround from past airline practice. When demand for travel flagged, airlines often kindled interest in flying with fare cuts or promotional packages. That's changed. Now, airlines park some of their planes to bring down costs and pack the remaining aircraft with passengers.
Delta, for instance, intends to ground 35 of its regional jets in the first quarter.
"We think . . . one of the best ways to manage the fuel crisis is actually not to fly the aircraft," Ed Bastian, Delta's president and chief financial officer, told analysts last month.
While capacity cuts may shore up Delta's finances, consumers will feel the pinch of higher ticket prices. Major airlines, including Delta, successfully raised fares 17 times in 2007, said Rick Seaney, chief executive officer of FareCompare.com, a Dallas-based online travel site.
"With oil slipping over the $100 per barrel mark today and legacy airlines continuing to drastically reduce capacity, consumers should brace themselves for continued airfare hikes in 2008," Seaney said Wednesday.
Whether Salt Lake travelers can expect more capacity trims is unclear. In his remarks to analysts last month, Bastian said Delta would take more steps to reduce the supply of domestic flights if fuel prices don't stabilize.
Black said the airline "will continue to invest in new services and destinations" from Salt Lake.
"It's really hard to know. The wildcard we're dealing with is the cost of fuel. We may see future decreases until oil prices can level out," airport spokeswoman Barbara Gann said.
In June, Delta will begin flying from Salt Lake to Paris. The airline's first transatlantic route between Utah and France is another element of the carrier's capacity plans. While domestic capacity will fall this year, international capacity is expected to increase at least 15 percent. Delta will add more than 20 new international routes this year as it continues to expand its overseas flights, where profits are higher and competition from low-cost carriers is less.
"It's literally a retreat from the domestic market," said George Hamlin, managing director of Airline Capital Associates, a Virginia-based firm that forecasts airline trends.
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