Rivals Eye Delta's Revival Plan

Delta Air Lines' (DAL Quote - Cramer on DAL - Stock Picks) plan to cut costs by $5 billion over the next two years will have an immediate impact on the rest of the airline industry, where a number of players are teetering on the brink of bankruptcy or, even worse, liquidation.

The nation's third-largest carrier is ready to unleash a radical restructuring, dubbed the "Delta Solution," which will result in the termination of a key hub, an expansion of its low-cost Song unit, the elimination of as many as 7,000 jobs and the largest overhaul of its flight schedule in the 75-year history of the airline. From top to bottom and coast to coast, Delta's restructuring will be felt in airport lobbies, employee lounges and in the boardrooms of rivals, too.

In an industry where copycatting is creative management, Delta's overhaul plan may become the de facto blueprint for fixing an airline, an aggressive update of the "Turnaround Plan" used by AMR (AMR Quote - Cramer on AMR - Stock Picks), parent of American Airlines. Expect Northwest Airlines (NWAC Quote - Cramer on NWAC - Stock Picks), which is also negotiating with its pilots union, and Continental Airlines (CAL Quote - Cramer on CAL - Stock Picks), which just announced a plan to cut costs by $200 million annually, to pay close attention to Delta's successes and failures -- and act accordingly.

While Delta's plan will affect the industry landscape, it directly affects the fortunes of three particular carriers: American, AirTran Airways (AAI Quote - Cramer on AAI - Stock Picks) and JetBlue Airways (JBLU Quote - Cramer on JBLU - Stock Picks).

With Delta downsizing its Dallas/Ft. Worth hub while eliminating all service from two other Texas cities, Amarillo and Lubbock, in the next four months, American stands to be a big winner, losing one more competitor in a market that it dominates. All told, Delta will drop all 31 of the 52 mainline flights from DFW, where American has 72% market share, while reducing all of the 202 regional flights currently serving its former hub.

"Delta's reduction of service at DFW is likely to drive a greater proportion of traffic to American," said William Greene, airline analyst at Morgan Stanley, in a note. "Earlier this month, American announced 2005 schedule changes to expand service domestically from DFW." (Morgan Stanley does and seeks to do business with the companies covered in its research reports.)

But what's good for American will be bad for AirTran and JetBlue, in the eyes of analysts.

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