DAVID FIELD WASHINGTON
It was widely expected that the bitter 89-day pilot strike at Comair, the Delta Connection regional affiliate, would change the shape of the airline industry. It will, but perhaps not in the way that was thought.
Comair, now recovering from the strike after a mid-June contract agreement, will be rebuilt to look very much like its old self, despite predictions that Delta would shrink or even sell it. Instead it is Delta that will change shape, shrinking and abandoning some major markets to focus on its home hub of Atlanta.
The Comair job action over wages, retirement and work rules was expected to spur a sell-off by majors of their regional subsidiaries. It did, but not at Delta. Instead, the first big regional spin-off will be at Continental Airlines, which said in early July that it would float some of its Continental Express subsidiary in a $320 million deal.
Delta, though, will keep the regionals Comair and Atlantic Southeast Airlines, says chief executive Leo Mullin. "It still turns out to be a good acquisition for us financially," he told Wall Street analysts in announcing a $90 million second quarter loss. Without the Comair strike, Mullin says Delta would have made a $70 million profit in the quarter despite its revenue decline being the largest year-over-year drop in two decades.
Delta chief financial officer Michelle Burns blames Delta's net deficit in the quarter "two-thirds on the situation at Comair and one-third by the overall economic slowdown." The total cost to Delta of the Comair strike was put at $195 million, while rebuilding it will cost $200 million, $125 million of that in the third quarter and the rest in the second quarter, says Mullin.
Delta will abandon a high-profile business market, the Washington-Boston shuttle route, although it will keep the shuttle's two main legs, those between New York and both Washington and Boston. Affiliate ACJet will operate the Boston- Washington service with 32-seat Fairchild Dornier 328JETs. The downgrading of the route from Boeing 727s to 32-seaters is a symptom of the precipitous drop in business travel and tough competition as American Airlines recently entered the route alongside Delta and US Airways. This fall-off led Delta to announce it will retire nine Boeing 737-300s in addition to seven 727s it already planned to take out of service starting later this year.
While some of Delta's cutbacks may seem notable, it is not alone: second-quarter loses pushed other majors into definite cutback plans, with warnings that more may come. Northwest, for example, is laying off 1,500 workers. American's chief financial officer, Tom Horton, noting that the industry's second quarter loss will be only the second such deficit in 30 years, says the disturbing decline in high-yield traffic may lead to further capacity cuts.
Source: Airline Business
