Dive in demand could prompt Delta to cut 767 fleet

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Delta Air Lines today revealed details of the fleet changes it made during the third quarter, and assured analysts that the carrier is prepared to make further alterations - including to Boeing 767 widebody capacity - should it become necessary in the event of a severe dip in demand.

The SkyTeam alliance member is also forecasting "a modest loss" in the fourth quarter "along the lines of what we saw" in the third quarter, when the company posted a net loss of $50 million, Delta president and CFO Ed Bastian said today during an earnings conference call.

In the three months ended 30 September Delta permanently grounded two Boeing 757-200 aircraft entered into sale/leaseback arrangements on four of the type and sold a single 757-200.

The Atlanta-based carrier also permanently grounded three Bombardier CRJ100/200 aircraft "pending return to lessor" and sold one CRJ100.

Additionally, it purchased four 757-200s that were previously leased and accepted delivery of four 737-700 aircraft.

At the end of the quarter, Delta's entire mainline and regional fleet, both owned and leased, totalled 576 aircraft with an average age of 12.9 years. This figure includes three Boeing 767-300s and two Boeing MD-88s that have been temporarily grounded.

For the fourth quarter, Delta anticipates that system-wide domestic capacity will be down 12% to 14% over the same period in 2007, while international capacity will be up 13% to 15%. Bastian notes that the carrier is starting to see a softening in international markets and that Delta is "looking hard at all of our capacity but particularly our international capacity".

Also during the fourth quarter Delta expects a delay in the scheduled delivery of at least two Boeing 737-700s and one 777-200LR due to the current Boeing machinists strike. It continues to expect its merger deal with Northwest Airlines to close in the fourth quarter.

Looking ahead to 2009, Delta anticipates a decline in demand due to the current economic crisis.

The carrier is still finalizing its capacity plans for next year but "will take action as necessary", says Delta CEO Richard Anderson. He notes that Delta has "a lot of airplanes that are paid for". As such, the ability to change capacity in response to demand "is effectively a cashless exercise for us and we are going to be doing that both domestically and internationally".

While there are no plans for any large-scale pull down of capacity in international markets, the carrier is prepared to take 767s out of the fleet should the need arise.

Anderson points out that the cost per available seat mile (CASM) ownership cost of Delta's 767 fleet "is by far probably the most efficient" given the company's prior reorganization in terms of its capital cost.

"We can get the cost out quickly. We demonstrated that earlier in the year when we took about 15 airplanes out. We go very diligently and really attack all of the fixed costs that go with each one of those airplanes. I think we've demonstrated that we'd do that and we'd do it again," says Anderson.

He adds: "Given that the capital ownership of the 767-300 is as low as it is, we don't have to bring those airplanes back and won't bring those airplanes back to the domestic system just to add capacity for the sake of adding capacity."