Tuesday, March 22, 2011

Delta Air Lines Inc. won't fly as much as originally planned in the second half of this year because of the crisis in Japan and rising fuel costs.

That includes suspending flights to Tokyo and less flying this year in the U.S. and across the Atlantic. The nation's No. 2 airline said Tuesday that 2011 profit will be reduced by $250 million to $400 million because of a sharp drop in demand for flights to Tokyo.

Delta posted a profit of $593 million last year, its first since 2007. Analysts polled by FactSet expect the airline to nearly triple that this year to about $1.58 billion.

For Delta, as well as American, United and Continental, the disruption to Japan service comes as high fuel costs have forced them to raise ticket prices and rein in spending. The airlines have implemented eight across-the-board fare increases so far this year; Delta led four of those. Fuel costs have tracked a 38 percent increase in the price of oil since Labor Day.

Delta President Ed Bastian, speaking at the JPMorgan Aviation, Transportation and Defense conference in New York, said fare increases alone won't be enough to cover rising costs. The airline also needs to save money through service reductions and taking old, gas-guzzling planes out of its fleet.

This is the second time this year that Delta, which is based in Atlanta, has cut back on its scheduled amount of flying. United Continental Holdings Inc., the parent of United and Continental, has also scaled back its plans.

Overall flying in the second half of the year will drop 4 percentage points. Flights to the Pacific region will grow just 5 percent, down from a planned 13 percent increase.

Delta plans to reduce Japan flying by about 15 to 20 percent through May because of slower demand as the country recovers from the March 11 earthquake and tsunami. That includes suspension of service to Tokyo. Last week, Delta said it's putting new flights from Los Angeles and Detroit on hold. Those started in February. But the airline assured it would restore service there as demand picks up again, likely by this summer. Besides Tokyo, Delta also flies into Nagoya and Osaka.

The airline will also slash transatlantic flights by about 4 percent, compared with a 1 percent decrease previously planned. Flights to Europe are the only spot in Delta's network where fare increases haven't caught up with the rise in fuel prices, Bastian said. Without being specific, he said flight reductions would likely come on routes that doubled up with Delta's partners Alitalia, KLM and Air France.

In the U.S., Delta now expects to reduce flying by about 3 percent. Delta's previous forecast was for a 2 percent increase. The biggest hit to domestic service will come in Memphis, Tenn., where Delta plans to cut departures by 25 percent.

The airline also said it will retire 120 of its least-efficient aircraft over the next year to 18 months, mostly smaller planes.

Delta shares fell 20 cents, or 2 percent, to $9.97. Shares of AMR Corp., the parent of American, dropped 3 percent while United Continental shares slid 2 percent.


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