Airlines Fall As Size Of Delta Capacity Surprises

http://news.investors.com/article/611798/201205171430/delta-trims-atlantic-flights-amid-rising-oil-costs.htm

Airline stocks sold off as Delta Air Lines (DAL) announced plans to cut capacity on its trans-Atlantic routes 5% after Labor Day.

The Transportation-Airlines group, which had been bucking the market sell-off as lower crude futures suggest fuel costs should decline, fell more than 3% on the larger-than-expected cutback.

Speaking at an industry event, Delta President Ed Bastian said the latest reduction will bring the company's total capacity — the number of seats it sells — down by 3% to 4%. The second-largest U.S. airline had earlier said it planned to reduce capacity by 2% to 3%.


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Delta shares tumbled 6.9% to 10.94.

No. 1 U.S. airline United Continental (UAL) slid 5.4%. US Airways (LLC) lost 4.4%. The domestic cargo and passenger carrier is trying to merge with bankrupt giant AMR, parent of American Airlines. US Airways President Scott Kirby, in a pitch for the deal, said at an industry event Thursday that the merger would resolve a pilot seniority issue that's been simmering since the merger of US Airways and America West in 2005.

"This is a way to have a fresh beginning," Kirby said at a Bank of America/Merrill Lynch investor conference in Boston. "I think this is the way out of the box ... ."

Among discount airlines, Southwest Airlines (LUV) edged up 0.5%. But no-frills Spirit Airlines (SAVE) shed 6% and Irish budget carrier Ryanair (RYAAY) fell 6.6%.

Delta's move comes amid a flurry of cost-cutting moves by airlines to trim costs and offset rising fuel prices.

Trade group International Air Transport Association in March cut its forecast for airline profits.

"Not by a lot, but the sharp rise in oil and fuel prices since the December forecast has caused us to downgrade our forecast for net profits this year from $3.5 billion to $3 billion," IATA said in its report.

Southwest Air said Thursday it will defer delivery of 30 Boeing (BA) 737-800 jetliners it was slated to receive over the next two years, to reduce capital spending by more than $1 billion.

"Until we hit our return-on-capital target, we don't plan to grow our fleet," Southwest CEO Gary Kelly said at the company's annual shareholder meeting.

The airline industry in the last few years has been hit by rising fuel costs and lower passenger traffic in a sluggish global economy. Airlines have countered by slashing capacity to cut costs, while also raising fares when they're able to.

The moves have paid off. The Transportation-Airlines group had advanced 143% from its June, 20, 2009, recession bottom to the end of Wednesday, and had risen 37% since early August.