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Delta's New World Order

The biggest surprise in the airline industry may be taking off in Atlanta.

Conventional wisdom has it that Delta Air Lines (DALRQ) is trapped in a downward spiral, fueled by a flawed strategy to boost revenue by throwing capacity at any international destination with an airport.

A top Delta executive disagrees, saying the airline industry will abandon that view in just a few months.

"The second quarter will drop some people's jaws," says Executive Vice President Glen Hauenstein in an interview. "It will change they way people think about how this airline is digging out from a $2 billion loss last year."

Hauenstein, who oversaw the international expansion behind the turnaround of Continental Airlines (CAL), has mapped out a similar strategy for Delta.

"We have international expansion as far as the eye can see," he says, adding that the airline's goal is to do 50% of its business overseas within three years. That exceeds the carrier's previously announced intent to have international flying account for 35% of systemwide revenue by the end of this year, up from about 20% in June 2005.

Steady Build

Delta had a good day on Wednesday. The company's pilots voted to approve a three-year contract agreement that is expected to save Delta $280 million annually, and the bankruptcy court approved the deal.

Meanwhile, the airline reported improved financial results for April. It lost $27 million, compared with a $163 million loss in the same month a year earlier. Costs per available seat mile were 7.26 cents, a 3.8% decline. Passenger revenue per available seat mile was 10.97 cents, representing a 17.1% improvement.

"While our progress is encouraging, we're still at the bottom of the industry in terms of financial performance," says Chief Financial Officer Ed Bastian. "We have a plan for long-term viability, and it's working, but we still have a lot of work to accomplish before declaring victory."

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