Posted on: Sunday, June 8, 2003

Delta strategy includes self-service options

Bloomberg News Service

Delta Air Lines Inc., the third-largest U.S. carrier, is installing 400 check-in kiosks at airports and using "lean" maintenance techniques to reach its target for $2.5 billion in savings and new revenue by 2005.

Atlanta-based Delta announced the target last year, saying it wanted to cut 15 percent of the cost to fly each seat one mile, excluding fuel expenses. The unit cost last year was 10.3 cents compared with 7.4 cents at discount rival Southwest Airlines Co.

"We believe this change puts us in a position to be very competitive with all carriers," Delta's chief financial officer Michele Burns said in an interview.

Delta and major U.S. rivals have sought to reduce costs since 2001 when passenger traffic declined because of lower corporate travel spending and the Sept. 11 attacks, leading to losses the past two years. The war in Iraq and severe acute respiratory syndrome have crimped demand this year, too. Discount airline competition has also hurt results.

Details of Delta's plan released last week show $785 million coming from customer service initiatives, such as providing more self-service options at airports; $1.2 billion in operational and product initiatives, such as starting a low-cost unit called Song; and $500 million from the workforce, including changes in employee benefits.

Among the maintenance changes, Delta is now moving aircraft engines through repair shops in a more rational manner with specific tools nearby, Burns said. It's also improving productivity by decreasing the amount of time a plane sits at an airport gate between flights.

The proposed savings don't include wage and benefit reductions that the company may get from its pilots. In April, Delta proposed cutting hourly pay for pilots by 22 percent after larger rivals such as UAL Corp.'s United Airlines and AMR Corp.'s American Airlines negotiated lower pay rates.

"I would expect to see a little bit more on the labor side," said Kent White, an analyst at Thrivent Financial for Lutherans, which owns Delta debt and has about $57 billion in assets under management.

Delta is still waiting for a response from its pilots on whether their union will enter negotiations.

Separately, Delta said passenger traffic in May declined 9.4 percent over last year on a capacity decrease of 12.4 percent.