Delta Follows American, United in Cutting Growth Plans
NEW YORK (AP) _ The nation’s three largest airlines, now global superpowers after buying choice pieces of fallen rivals, agree it is time to stop growing so fast.
Delta Air Lines, taking a cue from American Airlines and United Airlines, announced Wednesday it will cut capital spending by about $5 billion as it buys 100 fewer planes through 2001.
Delta also will eliminate an unspecified number of jobs from its work force of 79,000, but hopes no layoffs will be necessary.
The Atlanta-based mega-carrier intends to fine-tune operations, making more seasonal adjustments in flight schedules and scrapping some unprofitable flights.
The cutbacks will affect the Boeing Co. and McDonnell Douglas Corp. as Delta chooses not to exercise options that expire Friday for 10 MD-88s and two B-757s. Delta spokesman Neil Monroe said his carrier would also cancel some firm orders for planes.
Boeing and McDonnell Douglas said it would take time for them to assess the impact of Delta’s move.
The announcement came less than a week after Delta reported a $151.6 million loss for the first three months of 1992, nearly twice as big as its losses a year earlier.
″Delta has one of the best earnings records in the airline industry, but since late 1989 losses have escalated,″ Chairman and Chief Executive Ronald W. Allen said in a statement. ″These losses are primarily due to the economy, the need to match uneconomical fares of troubled competitors and increasing operating costs affecting the industry.″
The cutbacks come several months after a huge deal in which Delta purchased the trans-Atlantic and European operations of now-defunct Pan American World Airways, as well as the Pan Am Shuttle, which caters to business travelers on the East Coast.
Pan Am stopped flying in December, a day after Delta said it would provide no more money for a plan to keep Pan Am alive as a smaller carrier that would have concentrated on serving Latin America.
Delta now faces lawsuits from Pan Am, its creditors and former employees, but with the major purchase that made Delta a major global airline behind it, the carrier has concluded it is time to slow down.
Delta said about $3 billion of the $5 billion in capital spending cuts will occur during the next four fiscal years, ending June 30, 1996. The cutbacks apparently will slow but not stop the carrier’s growth, which is what American and United are trying to do.
American’s planned cuts in capital spending come to $8 billion, while United’s cuts come to $6.7 billion, with all the carriers saying they will take fewer aircraft deliveries in coming years.
As the airlines went through a period of extreme financial turbulence that killed off Pan Am, Eastern and Midway and pushed TWA, America West and Continental into bankruptcy, the so-called Big Three - American, Delta and United - were able to take advantage of the situation.
American got lucrative London routes from TWA, while United picked up Pan Am’s London routes as well as most of Pan Am’s vast route system in Latin America.
As Delta seeks to control costs, Allen promised a plan to ″consolidate certain facilities, to streamline some hub city flight complexes, improve personnel productivity and make greater use of part-time and contract personnel.″
Monroe said, for example, the carrier might use more part-time workers during the peak times at its hubs, when flights are connecting in the morning and afternoon. Delta should face no problems using more part-time and contract workers because its work force is not unionized.
The airline said it hopes reductions in the work force will be accomplished through attrition as employees quit or retire. Delta would not discuss how many jobs it plans to eliminate.
Delta will also focus on more shifting of its flight schedules on a seasonal basis. The carrier already does this on trans-Atlantic routes, where traffic is heavy in the summer and light in the winter.
Allen said that as Delta takes delivery of fewer planes, it will retire older planes more slowly so the fleet can keep growing ″without a significant change in capacity growth.″
One analyst who follows aircraft manufacturers, Michael Rosen of Smith Barney, Harris Upham & Co., said Delta’s move probably won’t be too harmful for the planemakers.
″It’s not as bad as it could have been and certainly has been expected,″ Rosen said.