Executives of major U.S. airlines, already seeing signs of slumping travel demand, said Tuesday they were ready to cut more flights, and Delta Air Lines hinted at more job losses as the carriers jockey to survive the deepening recession.
DALLAS — Executives of major U.S. airlines, already seeing signs of slumping travel demand, said Tuesday they were ready to cut more flights, and Delta Air Lines hinted at more job losses as the carriers jockey to survive the deepening recession.
U.S. airlines have been helped by a sudden drop in jet-fuel prices, and they already cut capacity this fall to further reduce costs and drive up fares.
But traffic has fallen even faster than the supply of seats, especially since the stock market went into a nose-dive.
“October was a bang-up month, almost unexplainably strong,” said Southwest Airlines Chairman and Chief Executive Gary Kelly. “The trends changed in November.”
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Capacity cuts are bad news for Boeing.
With fewer jets needed, airlines will return some airplanes to lessors, swelling the availability of used jets and reducing the market for new ones. They may also defer new orders from Boeing, in some cases pushing them so far out as to be effectively canceled.
Last month, Southwest Airlines, Boeing’s best customer, said it had returned 11 older leased 737s to the lessors. And it deferred the delivery of four new 737-700s from 2009 until 2016.
Delta, the world’s largest carrier, said Tuesday that it will reduce capacity another 6 to 8 percent next year. Delta and its Northwest Airlines unit will cut U.S. capacity 8 to 10 percent.
In a memo to employees, Delta CEO Richard Anderson and President Ed Bastian said they are analyzing the impact of reduced flying on jobs, and “as in the past, we will offer voluntary programs to adjust staffing needs.” They did not elaborate.
Earlier this year, Delta sharply cut U.S. capacity and aimed to cut 2,000 jobs, although more than 4,000 workers took voluntary severance. Delta and Northwest have 75,000 employees.
American Airlines and its feeder carrier American Eagle plan to cut capacity 6 percent next year, with an 8.5 reduction in U.S. flying by American itself, said treasurer Beverly Goulet.
Even Southwest, which saw the pullback of other airlines as an opportunity for growth, is cutting back. Kelly said Southwest would drop unprofitable routes and trim first-quarter capacity 4 to 5 percent, although that’s slightly less than the airline’s previous goal of a 5 to 6 percent reduction.
Analysts have already factored in some further cuts in capacity. But Ray Neidl, an analyst for Calyon Securities, said “demand seems to be falling a little more than expected.”
The economic slowdown has hurt demand for the airlines’ most lucrative seats.
United said it would reconfigure its international planes to cut premium seats by 20 percent while adding seats in coach. Continental Airlines said it too was seeing weaker demand for first- and business-class seats on international flights, which had been a strong part of the business.
Airline executives speaking at a Credit Suisse investor conference in New York also vowed to raise more cash to head off a financial crisis.
Kathryn Mikells, the chief financial officer of United Airlines, said it will raise about $300 million in cash during the fourth quarter. United said Monday it plans to sell up to $200 million in new stock partly to pay down debt.
Falling oil prices help airlines by lowering the price of jet fuel. But some carriers have been forced to put up new collateral on hedging deals that they struck to protect themselves from high-priced fuel.
Delta’s Bastian said his airline hasn’t been able to fully realize the benefit of the steep drop in fuel prices because of bad bets on hedges when oil was more than $140 a barrel over the summer.
Based on the current price of oil around $47 a barrel, Delta is expected to be forced to put up $1.1 billion in cash collateral at the end of this month to cover those hedges. Every $5 drop in oil prices means Delta must put up another $130 million in collateral, Bastian said.
Last week, UAL said it expected to record $370 million in hedging losses in the fourth quarter. The company mortgaged aircraft leases to get more breathing room on cash reserves from lender Chase Bank.
Meanwhile, Alaska Air Group is looking for ways to increase revenue.
There may be a few markets where the Seattle-based company — which operates Alaska Airlines and Horizon Air — can increase fares, Brandon Pedersen, vice president of finance, said at the Credit Suisse conference Tuesday.
He reaffirmed the company’s previously announced plans for capacity cuts that will extend into next year. In September, Alaska Airlines said it would cut capacity by 8 percent this winter while Horizon Air expects to reduce capacity in the fourth quarter by about 20 percent. Those cuts may spur Alaska Air to shed two to four Boeing jets “if market conditions warrant,” Pedersen said.
Despite all the gloom about travel demand, airline stocks rose Tuesday on another decline in oil prices. The benchmark price of oil for January delivery fell $2.32 to settle at $46.96 a barrel on the New York Mercantile Exchange.
Shares of Alaska Air climbed $2.15, or 10.2 percent, to $23.32. Delta rose 51 cents, or 6.4 percent, to $8.47; UAL shares gained 70 cents or 7.8 percent, at $9.64; AMR added 42 cents, or 5.2 percent, at $8.45; Continental rose 91 cents, or 6.6 percent, to $14.78; and Southwest picked up 40 cents, or 5 percent, at $8.33.
Information from Seattle Times aerospace reporter Dominic Gates and Bloomberg News
is included in this report.