Delta's plan to slash $2.5 billion targets benefits, possible pay cut

Advertiser News Services

Delta Air Lines will slash benefits, outsource more contracts and ramp up the use of small regional jets, amid a host of other cost-cutting measures, as it works to eliminate $2.5 billion in expenses by 2005.

Michele Burns, Delta's chief financial officer, outlined some details of the Atlanta-based carrier's cost-cutting plan at an airline analysts' conference hosted by the Salomon Smith Barney brokerage firm yesterday.

Burns said Delta's "action plan" to return to profitability includes additional capacity cuts, expanding alliances with other airlines, improving employee productivity and streamlining operations with new technology.

The airline will also cut up to 8,000 jobs. Delta announced the job cuts Oct. 17.

At the same conference, the head of Northwest Airlines, which has cut $1.1 billion in fixed costs since early 2001, said that more cost-cutting is ahead as the industry continues to battle a slow economy and lower passenger traffic.

Chief Executive Richard Anderson said he expects capacity to remain flat in 2003. Anderson had previously forecast a 3 percent increase in capacity in 2003. As a result, Northwest will seek savings from suppliers and airport authorities at its hubs in Minneapolis and Detroit. The goal is to lower the airline's cost per available seat mile, or CASM, a closely watched measurement in the industry.

Meanwhile, Burns warned that Delta's recovery won't happen quickly. "We're not expecting a miracle," she said. "We've got a lot longer to go in this marathon."

She also said the airline had not ruled out asking employees for salary cuts.

"We have not taken labor concessions off the table," she said, but added that executives are "attempting to look at every other alternative first."

Rival United Airlines has been pushing for $5.8 billion in salary cuts from employees during the next 5 1/2 years as it fights to stay out of bankruptcy court. US Airways, which filed for Chapter 11 protection in August, has secured $850 million in pay cuts and may ask for more.

Delta has the smallest union-represented work force of the major carriers. Only Delta pilots have union representation, which means that the carrier would be able to enact pay cuts more easily than many of its competitors.

The major airlines are struggling to overcome one of the worst financial crises in the history of the industry. The carriers have been hit with a deep slump in business travel, an intense fare war with low-cost carriers and continued fallout from the Sept. 11 terrorist attacks.

Delta lost $909 million in the first nine months of 2002. The major carriers combined are forecast to lose up to $9 billion this year. Low-fare carrier Southwest Airlines, based in Dallas, is the only large airline expected to make a profit this year.

Delta's stock closed at $10.89 per share yesterday, down 3 percent on the New York Stock Exchange.

American Airlines, based in Fort Worth, Texas, has pledged to cut between $3 billion and $4 billion in costs in its own quest to survive. The carrier has identified about $2 billion in reductions so far, which include 7,000 job cuts.

Some of the elements of Delta's cost-cutting plan that Burns detailed included:

• A review of employee health and pension benefits, with increases in premiums and co-payments.

"It gives us the ability to manage our healthcare costs," which have risen quickly in recent years, Burns said. Higher co-payments have employees "more focused on their healthcare spending," she said.

• Updating the flight schedule to wring every bit of cost savings possible. That includes increasing the number of large groups of airline landings and departures from eight to 12 daily at Delta's hub at Hartsfield Atlanta Airport.

"There's a lot of meat behind cost-effective schedule development," she said.

• Use of new technology in boarding, baggage and other systems to streamline operations and save money.

• Replacing even more main-line flights with smaller regional jets, which are cheaper to operate and can be more profitable on less popular routes.

• A plan to outsource some reservations duties to private contractors.