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VOL. 127 | NO. 210 | Friday, October 26, 2012

Delta Looks Ahead to December Refleeting

By Bill Dries

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Delta Air Lines executives are about to refleet. Leaders of the Atlanta-based airline with a hub in Memphis will roll out details at a December investors day conference in Atlanta.

Delta Air Lines executives announced this week they intend to “refleet” next year, which will mean replacing many 50-seat jets used for regional flights with newer jets that can carry more passengers. Delta, which has a hub at Memphis International Airport, will announce details at a December investors day conference in Atlanta.

(Daily News File Photo: Lance Murphey)

But during Delta’s third-quarter earnings conference call this week, they talked in broad terms of a domestic fleet restructuring. It involves removing 50-seat aircraft and replacing them with “mainline” aircraft that are 76 seats and larger with the first arrivals in the refleeting next summer.

The details in December should include where the 50 seaters will leave and when and more importantly which airports get the newer and larger aircraft.

Delta Chief Financial Officer Paul Jacobsen described the moves as “comprehensive structural changes to the way we do business.”

“They are not easy and they will take some time and take some up-front costs to implement,” he added. “But when we are complete, we expect them to take our earnings power to the next level.”

Jacobsen and other Delta executives said the company is still exploring whose balance sheet the new aircraft will be on.

The refleet marks Delta’s move to a long-term strategy after capacity cuts Delta first announced in March 2011.

The capacity cuts were a reaction to a steep climb in fuel prices.

The reaction at Delta and other airlines has changed the airline industry.

Until then, Memphis International Airport officials have said Delta had general plans to expand or grow its Memphis presence.

That changed dramatically in the environment that meant larger changes for the industry and a ripple effect among regional air carriers including Memphis-based Pinnacle Airlines Corp.

It began in March 2011 when Delta President Ed Bastian went public with the changes to come at a JP Morgan Chase & Co. conference in New York. The week before he alerted Memphis leaders that Memphis would take about a 20 percent cut in flight activity.

Even then, Delta’s philosophy was distinctly different from its competitors. Delta CEO Richard Anderson immediately said the capacity cuts would be permanent even if fuel prices improved markedly.

The refleeting is a next chapter from that abrupt beginning.

“We’re going to reduce the number of airplanes we have on the enterprise,” Anderson said Wednesday. “We’ll be able to produce the same number of seats, but we’ll do it with fewer airplanes – fewer takes offs and landings.”

The move to refleeting began in June when Delta and the Air Line Pilots Association reached a contract agreement after just two months of negotiation, much faster than many observers expected.

The agreement allowed Delta to drop 50 seaters it flew and that its contract regional carriers like Pinnacle fly with the Delta brand much quicker. At the same time, the pilots got assurances about more flying because Delta agreed to buy more 717 aircraft that it would fly.

This week Anderson again cited the union contract as an important step in the accelerated departure of 50-seat aircraft from the Delta fleet.

Memphis International has been hit hard by the two rounds of cuts in Delta service, especially regional air service.

Another casualty has been Pinnacle Airlines, which filed for bankruptcy in April and then had to scrap its first reorganization plan in June following the ratification of Delta’s new contract with the pilots’ union.

Pinnacle CEO John Spanjers told employees the more rapid move by Delta away from 50 seaters put Pinnacle at a competitive disadvantage as it and other regional carriers compete for a piece of Delta’s long-term reality.

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