US airlines fly into financial turbulence


Capacity cutbacks, fare sales and another round of Wall Street housekeeping have chipped away at US airlines, underscoring the financial hurdles facing the industry in the second half of the year.

Delta Air Lines, America's third-largest airline and the only airline to fly to the Gulf, said it will cut capacity by 1.4 per cent by removing 10 aircraft from scheduled service in response to steep fuel prices, a slowing US economy and the high cost of maintaining older planes.

The Atlanta-based company said six aircraft will be dropped from the schedule on September 1, followed by another two aircraft on November 1 and two on December 1. Seven Boeing 727 aircraft will be permanently retired, the company said, as it accelerates a phasing out of the 72 Boeing 727s in its fleet, which it expects to complete by mid-2005.

"Capacity will be reduced on routes particularly impacted by the current economic environment, but where Delta has an appropriate level of service to retain our traffic and recapture revenue," said Frederick Reid, Delta's president and chief operating officer.

Northwest Airlines chief executive Richard Anderson said that workforce reductions were inevitable as the No. 4 US carrier cuts back on its operations. Anderson would not provide details.

The US airline industry is grappling with the sharpest revenue decline in two decades as a slowing US economy curtails lucrative corporate travel. Higher yield business travel provides as much as two thirds of airline revenue.

Aviation experts see no quick cure for the industry's ailments.

"Given the stickiness of corporate travel policies, we expect little revenue improvement for the remainder of 2001, even should the economy rebound," Salomon Smith Barney airline analyst Brian Harris said in a note to clients.

Several major US carriers have warned they would post wider-than-expected second-quarter losses as Wall Street analysts downgraded forecasts for the industry's yearly performance.

Market analysts fired off further cuts in their estimates reflecting the slim prospects for a swift return to robust airline revenues. UBS Warburg senior airline analyst Sam Buttrick estimates the airline industry will lose about $900 million to $1 billion for the year.