Delta puts hiring freeze on S.L.

0 Comments | Deseret News (Salt Lake City), Dec 5, 2007 | by Harry R. Weber Associated Press

ATLANTA -- A Delta Air Lines Inc. executive said Tuesday that the nation's No. 3 carrier is freezing hiring in certain areas, as part of a cost-cutting move aimed at dealing with high fuel prices that will weaken the company's fourth-quarter results.

The hiring freeze applies to the airline's Salt Lake City operations, Delta spokesman Anthony Black said. There are no plans for layoffs for any of the 3,400 existing employees in Salt Lake.

The airline also intends to reduce some flights, although specific details were not available Tuesday. Black said routes would probably not be eliminated.

President and chief financial officer Ed Bastian said at the Calyon Securities U.S. Airline Conference in New York that high fuel costs will "dampen" Delta's operating margin -- the ratio of operating income to sales revenue, expressed as a percentage -- in the quarter ending Dec. 31.

He said Delta's current projection for operating margin is flat to minus 2 percent. Previously, the company projected an operating margin of 3 percent to 5 percent for the quarter. For all of 2007, Bastian said, Delta is still projecting an operating margin of around 6 percent.

The company did not provide any updated profit, sales or earnings- per-share projections for the fourth quarter.

Cost cuts will be key to helping Delta deal with higher fuel prices, Bastian said, noting that jet-fuel prices are up nearly 50 percent since the beginning of 2007. He suggested there could be job cuts, but he didn't offer any numbers or specifics.

Delta shares fell 5.2 percent Tuesday after Bastian's comments. Shares of several other major carriers also fell after they outlined plans Tuesday to slow their growth and cut costs to deal with higher fuel prices and the prospect of an economic slowdown that could hurt air travel.

"We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices," said Southwest Airlines Co. chief executive Gary C. Kelly.

Kelly's comments came as Southwest announced its capacity would grow 4 percent to 5 percent next year. It had initially forecast growth of 8 percent and later scaled back to 6 percent.

Executives for some carriers also said they are actively planning for airline mergers, although they were careful not to discuss specific combinations.

"We are not standing around waiting for consolidation to happen. We're interested in that," said Jake Brace, the chief financial officer of United Airlines.

Brace said United, a unit of UAL Corp., has no plans to expand its flying in the highly competitive U.S. market, but intends to expand about 15 percent internationally over the next three years.

Bastian said Delta will cancel or reduce flying of some aircraft. Capacity for 2008 is expected to still be up 2 percent, reflecting a decline in domestic capacity of 4 percent to 5 percent and an increase in international capacity of 15 percent. By 2009, he said, 40 percent of Delta's flying will be international.

Delta has initiated a hiring freeze on any non-customer facing positions. It also wants to improve self-service kiosk options for customers and increase the number of people buying tickets online, Bastian said.

Delta is still evaluating whether to sell any non-core assets, including regional feeder carrier Comair Inc., Bastian said. No decision on Comair has been made.

Meanwhile, Bastian offered little insight into whether Delta will combine with another airline. He said that the board of the Atlanta- based company is still evaluating whether to enter into a deal.

Bastian said the value to shareholders of remaining a stand- alone carrier versus a combination are being considered. He did not say when the review would be complete, and analysts at the conference did not ask him to elaborate.

Amid increased speculation about industry consolidation and Delta's possible role in it, two of the airline's executives have left in the last three weeks: vice president of operations Joe Kolshak and vice president of corporate communications Jeff Battcher.

Delta has said Bastian would keep his dual role of president and CFO instead of the airline hiring a separate CFO.

Last month, Delta denied reports that it was talking to UAL Corp.'s United Airlines about a combination. Since then, it has said little about the issue, and United's top executive recently refused to fully address the issue.

Contributing: Josh Loftin, Deseret Morning News