2nd Qrtr Numbers

[Beer Guzzler]

Early predictions are BAD .. Estimates are for a loss in the range of $350-360 Million..

All while CO & AA made money this Qrtr..


Delta to tell extent of loss

 

[WNrforlife]

This pig is toast. Stick a fork in it

 

[Flying Titan]

$382 Million.

 

[luv2fly]

Dismal to say the least. Sadly enough, I don't think there is any way BK can be avoided. Hope I am wrong.

 

[WorldTraveler]

luv2fly,
yes, you are wrong. Delta dramatically improved its performance. There are a number of cost categories that came down despite higher revenues and more passengers: labor, contract carrier arrangements, aircraft rent, selling expenses, and pension costs. The result is:
- Mainline unit costs decreased 3.9 percent compared to the June 2004 quarter; excluding fuel expense and special items, mainline unit costs decreased 14.3 percent compared to the prior year quarter (1,2)
- Delta's second quarter operating loss was $129 million, including a
$385 million year-over-year increase in fuel expense.

Those are very healthy reductions in costs despite the fuel environment. Further, I challenge you to go back and look at AMR's financial reports for the periods shortly after their turnaround began. You will see that they were whacking costs at a rate very similar to what Delta is doing today. Delta's non-fuel CASM is one of the lowest in the legacy sector of the industry which says DL is very competitive w/ other airlines who don't have fuel hedges.

Obviously, the challenge continues to be the balance sheet. No company can continue to sustain losses of any size but there will continue to be plenty of companies willing to loan money to airlines unless only one or two airlines are performing so far below the average of the industry. Right now, Delta is not significantly worse in its performance than other airlines (keep in mind that neither AA or CO is predicting full year profits while DL still has cost reduction initiatives in the pipeline that will come through later in the year). In fact, compared with NW and possibly US, DL looks pretty good. However, NW hasn't really begun its turnaround plan while DL started a couple years after AA and CO and thus won't be at the same point for another year or so.

It's all about timing.

Keep in mind that AA and CO still face significant revenue erosions as LCCs continue to attack their networks; DL and US are getting pretty close to being "bottomed out" with respect to LCC exposure.

Finally, DL like AA before it, has been able to cut costs just as dramatically as UA has and managed to stay out of bankruptcy. BK has cost UA hundreds of millions of dollars and hasn't dramatically changed UA's competitive position. Consider also that DL has over $8 BILLION in tax assets as a result of the losses it has incurred. Those assets exceed by several billion dollars the amount of DL's pension underfunding. Therefore, it doesn't make a whole lot of sense for DL to terminate their pension plans by going into bankruptcy since BK almost always results in a loss of tax assets - as UA will find out. DL will not be paying taxes for years after UA has to - and probably long after every other airline - and those savings will go directly to DL's bottom line.

DL is making very good progress. They will find money to support their liquidity needs because there are companies that can make money by loaning money to them. The only real wild card is pension funding and I still believe Washington will provide legislation that will help airlines rather than watch them all go through bankruptcy in a short-sighted attempt to reduce costs and manage their immediate cash flow.

 

[Bear96]

Like clockwork.

 

[Flufdriver]

WorldTraveler...you crack me up...pour youself another tall glass of "Kool-Aid" and sell your 3 dollar stock. I HATE to see anyone in BK, yes even DAL...but it's over......you can SPIN all you want!!!!

 

[HGIEFOswitch]

Delta's cost cutting isn't enough. It doesn't solve the following problems...

1) CVG and SLC are weak O/D markets w/ mediocre connecting traffic.
2) Poor West Coast presence
3) Too many 50 seat RJ's.
4) Tiny Asia presence (1 flight ATL-NRT)
5) W/o LHR, JFK internation operation at great risk against AA/TW when new T8/9 opens this year. B6 eroding DAL domestic. DAL terminal is too outdated.
6) 20 bil in debt w/ 2 bil in cash....much of it restricted.

 

[WorldTraveler]

One thing I've learned since following this industry nearly 30 years ago is that Delta has always been the underdog - never had the sexy route structure, large markets, or political connections but somehow has outlived some of the big names of the industry including its far-better healed competitor Eastern and become the third largest airline in the US. There's something about Delta's DNA that many of you simply do not understand.

HG,
let me address each of your issues.
1. CVG and SLC have small LOCAL markets but they are very efficient and carry extraordinary amounts of connecting traffic - far beyond the size any comparably sized city has for service by any other airline anywhere in the world. Name a city comparable to CVG that has daily service to five Europe destinations during the peak summer travel season? Delta knows how to build hubs very well; they just scale them to the size of the local markets. ATL is a much bigger city and has far more air service by one carrier and its affiliates than any other city on the planet.
2. I'd like to see DL have a stronger west coast presence but that doesn't doom it. CO has even less presence in the western US but no one thinks they are on the verge of failure. There is a principle that good people and businesses make the best of the cards they are dealt. Delta has done an extraordinary job with the smaller business markets/larger leisure markets and increased low cost competition it faces.
3. To most of us, 400 RJs seem a bit excessive but that is how DL has developed its smaller secondary cities with so much connecting traffic. More recently, DL has deployed dozens of RJs in point to point flying overflying not only DL's hubs but also other airline's hubs. In the airline business, the carrier that has nonstop service usually dominates the market. DL's RJs allow it to serve dozens of markets nonstop that no one now or in the future will serve. Those are markets DL owns. There are never too many assets for something that profitably allows DL to own those markets. Based on the loads DL carries in and out of Florida and the statistics DL provides the DOT, they do in fact take ownership of the markets they begin unique RJ service in. If you doubt that, just look at the shrinkage going on by US Airways in the SE. DL not only has a stronger hub structure serving those cities but also has point to point RJ service to the top markets. Point your cursor over to the US board and read what US employees have to say about what DL has done to Greensboro, a former US stronghold. It's just one of many.
4. see #2. same logic. DL is the dominant airline to continental Europe and serves a number of markets which no other airline serves. Right now, Asia is not what DL does. NW doesn't do South America but Delta does. CO and UA don't do the SE but DL does.
5. I'd like to see London (actually any airport would do) from the NE on the DL network. New terminals won't make or break DL or any airline. Actually, AA will be paying more than $20 per passenger for their terminal at JFK; there is no way AA can be competitive with B6 in many markets when 10% or more of the average fare ends up in terminal expenses. Also, JFK is one of the few terminals in DL's network that are significantly below par. Given the terminal building boom that is going on and the growth of LCCs, DL's antiquated facilities at JFK might look pretty attractive when it comes to competing. As DL stabilizes financially and their presence at JFK grows, I'm sure they'll commit to even more improvements at JFK ABOVE and BEYOND the ones that are in the pipeline now.
6. False. Most of DL's cash is NOT restricted. read the financial statements before you make assertions like that. Your credibility goes to pieces when you spout inaccuracies. Let me point you in the right direction:
http://biz.yahoo.com/prnews/050721/clth013a.html?.v=1
Like all legacy airlines, DL has a significant amount of debt. Unlike others, DL has considerable flexibility by being largely non-union that allow DL to do things like change pensions without getting into the battles such as have happened at UA and now NW. DL will be spending alot of money on debt service but will be able to do that because of the productivity of their employees and their more efficient operation.
In fact, just six months into DL's restructuring, it has achieved a CASM BELOW AA and CO's mainline operation. Did you catch that? DL is a lower cost producer than either AA or CO, the two airlines everyone thinks will be most likely to win.
In this business, the lowest cost producer wins and it also gets rewarded with being able to manage more assets.
DL also has considerable tax assets (mentioned in a previous posting) that will allow DL to avoid paying income taxes for years to come. Bet you didn't bothe to notice that JetBlue will send a check to Uncle Sam and his friends that amounts to a whopping 45% of their income before taxes. Doesn't that just suck working so hard and giving almost half of it to the government.

No, life is no bed of roses for DL but to think that any of the six reasons you mention will send them off the edge is itself not in touch with reality.

 

[StraaightTaalk]

Only WorldTraveler could compare two companies that made a profit, with a company that lost northwards of 300 million in the same period, and say that the losing company is better off. Talk about living in a dream world!

 

[Bear96]

In fact, just six months into DL's restructuring, it has achieved a CASM BELOW AA and CO's mainline operation.  Did you catch that?  DL is a lower cost producer than either AA or CO, the two airlines everyone thinks will be most likely to win. 

[post="283154"][/post]​

That's nice. Thanks for shouting for the benefit of us dolts. Maybe if you scream it loudly enough, DL will quit losing so much money. Sounds pretty simple. Get costs low enough, and the money just rolls in, right? Any idiot should be able to see that.

But wait, what's this? DL has such low costs, and is still losing gobs of money? So if it were as simple as cutting costs, DL should obviously not be posting massive losses, right? So, let me think for a minute here, hmmm .... there must be something more to it.

Wait -- wait -- don't tell me ...

Isn't cost only half the equation? And isn't it pretty meaningless without considering that other half? You know, maybe the part that begins with .....

R

?

 

[luv2fly]

Only WorldTraveler could compare two companies that made a profit, with a company that lost northwards of 300 million in the same period, and say that the losing company is better off.  Talk about living in a dream world!

[post="283169"][/post]​

I don't think he claimed they were better off. He merely stated CASM. It is truthful that not all of DL's cost cutting measures have taken effect, which makes the previous statement even more impressive. AA's cost savings measures were implemented before DL, and CO's has always been low relative to the industry.
I agree that WT's assessment is optimistic, but there just as many of you that seem to dismiss the costs savings that DL has achieved and those that have not taken effect yet. A bit too pessimistic. Perhaps that is the competition in some.

 

[WorldTraveler]

I see that big green ink does help get the point across.

Yes. costs are only half of the equation but right now it is probably the most important half because LCCs have removed much of the pricing power from the legacy carriers. And as luv2fly points out, Delta has not completed its transformation plan and yet has accomplished more in six months than some airlines have done in two years or more and others with the benefit of bankruptcy. And DL's employees still have pensions!

Delta does have an inferior network from a revenue generation standpoint - limited access to traditionally premium revenue domestic markets (although those continue to fall faster than bowling pins on a Friday night) and a smaller international network which has limited access to some of the most protected and profitable markets such as Asia and London.

However, if I am an investor contemplating investing in the airline industry, I am going to be much more willing to invest in a company that has low costs and is maintaining its present network and growing where it can rather than retreating from its markets as a couple carriers that begin with U are doing. Further, when consolidation starts taking hold, Delta will be able to make a much more compelling case than other legacies that it can effectively manage (ie make money for an investor) some of the premium revenue markets that may become available.

Finally, if Delta has been able to cut costs this dramatically OUTSIDE of bankruptcy, you don't want to know what it can do with the benefits of bankruptcy on its side. If the lowest cost producer chooses to go into bankruptcy and further cut costs and shore up its balance sheet, everyone else is in serious trouble.

 

[Bear96]

And DL's employees still have pensions!

[post="283243"][/post]​

Really? How many front-line DL employees (besides the pilots) still have defined benefit pensions? It's my understanding they lost those years ago.

Most airline employees have some type of defined contribution set-up, so I take it that is not what you are referring to, since such a revelation wouldn't have required an exclamation point.

 

[Bear96]

However, if I am an investor contemplating investing in the airline industry, I am going to be much more willing to invest in a company that has low costs...

Great! Then DAL's stock must be doing swimmingly ...

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