Delta's Quarter Leaves Investors Unimpressed

Restructuring Plans

Delta also updated investors on its major restructuring of the Dallas-Fort Worth hub, where it swapped large planes for smaller, more efficient regional jets. By reducing the number of seats per plane, while increasing frequencies, Delta said it has cut capacity and improved profitability at the hub. In fact, Reid said Dallas has shown the most financial improvement of any Delta hub, which is why Delta plans to turn its attention to Salt Lake City in January 2004.

Because Delta is moving away from larger jets in many markets and also because demand is not expected to snap back to boom levels, the company announced plans to sell 11 planes (with an option of 10 more) to an undisclosed third party, while continuing to defer deliveries of jets. If the full agreement were put in play, Credit Suisse First Boston analyst Susan Donofrio said that Delta would take just two 777s in 2005, followed by two in 2006.

Last, Delta said it would continue to add flights in its code-share partnership with Continental (CAL) and Northwest (NWAC). (Under the code-share agreement, the trio agrees to sell tickets on each other's flights and share the revenue.) Through the third quarter, Delta offered 450 flights through the agreement, which will expand to 650 by the end of the year.

In the end, Delta's three-pronged effort to boost profits and reduce costs may require wage concessions from employees if Delta is going to reach its goal of having costs at 8.5 cents a mile by 2005. Recently announced work-rule changes for flight attendants will save the company between $70 million and $80 million, but salary cuts will have a more immediate impact.

"If Delta had the cost structure of American Airlines [with pilot salaries], we would have had an operating loss of $46 million vs. $172 million," said Michele Burns, CFO.

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