Delta Offers Buyouts to Half Its Work Force

March 18, 2008 — -- In yet another sign of tough economic times, Delta Airlines has announced it will offer voluntary buyouts to half of its employees.

In a memo to staff today, Delta CEO Richard Anderson said high fuel prices and a weakening economy have prompted the airline to offer buyouts to about 30,000 eligible employees. The carrier's goal is to eliminate 2,000 jobs -- about 1,300 from the front line and 700 from administrative and management positions.

"We must act quickly and decisively, as speed in execution leads to success," the memo stated. "With fuel expected to remain at approximately $100 per barrel for the foreseeable future, we must take action to keep Delta strong."

The Delta memo said its 2008 fuel bill is expected to increase by nearly $900 million compared to its business plan, which was based on $90-per-barrel fuel.

To stay afloat, the airline also announced that it would reduce its domestic capacity by an additional 5 percent by August.

Like other struggling airlines, Delta has already upped airfares and fuel surcharges this year to survive rocky times.

"Basically, the airlines have been raising fares almost constantly, every week or every other week, since Labor Day to try to compensate for fuel costs," said Rick Seaney, CEO of Farecompare.com, an airline ticket research site.

Airlines have also considered retiring some aircraft or turning to airplanes with smaller seating capacity to stay in business, according to aviation consultant Robert Mann. On Monday, an update from Delta's pilot's union indicated that talks of a merger with Northwest, also intended to boost the airlines, were increasingly unlikely.

Given the industry's recent turmoil, aviation economist Darryl Jenkins said today the announcement was to be expected.

"I think next week at this time, you'll see a lot of airlines announcing plans for cuts," Jenkins said. "It's not surprising, you know? Jet fuel at $110 a barrel is a category killer. A large percentage of your routes that were at one time profitable are not even remotely profitable."

Mann, a former American Airlines fleet planner who now runs his own aviation consulting firm, said investors can expect more of the same at today's JP Morgan Aviation and Transportation Conference.

"I suspect you'll see the later presenters at the JP Morgan conference trot out the same slides with different logos on them," Mann said. "Nobody's immune."

Mann said recent aviation news is reminiscent of the "doom and gloom" of the early '80s, when major U.S. carriers faced a crisis.

"You saw a lot of people about ready to lose their jobs, and indeed that happened," Mann said. "We're kind of headed into that spiral again."

On Capitol Hill, the Senate Commerce Committee recently postponed its hearing on the financial state of the airline industry, but hopes to revisit the issue this spring.

"While the rise in fuel and the weakening economy present near-term challenges, our long-term view remains that consolidation may be the right course of action," Delta said in its memo.