Delta sees room for more mergers in airline industry
ATLANTA, USA – A case could be made for further industry consolidation in the US airline industry, but it’s unclear whether the Obama administration would allow it, the CEO of Delta Air Lines Inc told investors at a conference yesterday.
CEO Richard Anderson didn’t hint whether the world’s biggest airline, which bought Northwest Airlines last year, has the appetite for another acquisition. But he suggested there is room for more mergers in the industry.
“If a transaction were to occur, economics should prevail,” Anderson said. “I think the case can be made ultimately, but it remains to be seen what this administration’s take will be.”
He said the current Democratic administration is more focused on regulatory issues than the Republican one that preceded it.
Some analysts have speculated in the past that Alaska Air Group Inc or JetBlue Airways Corp could be appealing targets for Delta. There also has been talk in recent years of possible combinations between Continental Airlines Inc and United Airlines and between American Airlines and US Airways Group Inc.
But no merger deals have materialised since Delta bought Northwest.
In the meantime, Delta, based in Atlanta, is focused on expanding its international prowess through alliances.
It has a joint venture with Air France-KLM and it is trying to lure Japan Airlines away from its alliance with American and into Delta’s SkyTeam alliance. Japan Airlines has yet to make a decision on its future course. On Friday, the US and Japan reached a landmark agreement to relax limits on flights between the two countries.
At yesterday’s investor conference, Delta said it expects to increase its cash balance in 2010 despite more than US$1.1 billion in pension expenses and funding requirements planned for next year.
The airline said it projects it will end 2010 with US$5.4 billion in unrestricted liquidity, up from the US$5.3 billion it expects to end this year with.
Just a week ago, Delta said it expected to end 2009 with US$5.1 billion in liquidity. President Ed Bastian said the higher projection was due to improving revenue and booking trends.
Delta said capacity will be flat in 2010 compared to this year. Bastian said that if the positive revenue trends were to abate, Delta can pull back capacity.
Delta is targeting US$600 million in new cost savings and productivity enhancements next year. It also plans to make a big investment next year in customer servicing training across the airline.
Ancillary revenue, which includes bag fees and other add-on charges, has been a key source of revenue for airlines.
The positive projections about next year come after a difficult 2009 for Delta and much of the rest of the US airline industry, which faced weak demand for air travel, especially among business travellers. Bastian described the environment airlines have faced as the “worst economic storm of our lifetime”.
“People weren’t travelling at any price,” Bastian said. “Now, we have the market moving.”
Delta forecast a US$1.5-billion net loss for 2009. Excluding special items, the net loss for this year is expected to be US$1.1 billion. Delta’s fourth-quarter and fiscal year ends December 31.
