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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 - Get Report), 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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