Thu Dec 6, 2007 12:22pm EST
By Chris Reiter
WASHINGTON (Reuters) - Delta Air Lines Inc (DAL.N: Quote, Profile, Research), which has been a vocal proponent of airline mergers in recent months, is confident it can still be profitable if it remains independent, its chief financial officer said on Thursday.
"When you look at consolidation, you have to look seriously at your stand-alone option," Edward Bastian said at the Reuters Aerospace and Defense Summit in Washington. "We feel very comfortable that our stand-alone plan is viable."
"The plan is working on all facets except one -- the price of oil," he said.
Delta earlier this week said it plans to reduce domestic capacity by 4 percent to 5 percent in 2008 because of concerns about high fuel prices and a softening U.S. economy. The No. 3 U.S. carrier also said the surge in fuel prices may cause it to post an operating loss in the fourth quarter.
By cutting back on unprofitable routes and increasing capacity on lucrative international flights, Delta believes it can overcome higher fuel costs.
"I do think that the business model could be profitable and should be profitable at (an oil price of) $90 a barrel, but it will be a challenge," said Bastian, who is also Delta's president.
With the U.S. economy softening, airlines may struggle to pass along rising costs, he said.
"I'm more concerned about the underpinning of the domestic economy (than oil)," said Bastian. "We're all on the edge of our seats."
Delta has been at the center of recent merger speculation. Speaking at the Reuters Summit this week, Doug Parker, the chief executive of US Airways Group Inc (LCC.N: Quote, Profile, Research), tipped Delta as the trigger for a round of industry consolidation.
Mergers are seen as a way to stabilize the volatile industry by allowing airlines to cut costs and raise fares.
Delta, which has denied talks with United Airlines parent UAL Corp (UAUA.O: Quote, Profile, Research), has set up a board committee to evaluate its strategic options, including mergers. Bastian reiterated that Delta is open to a deal.
"We think that the right transaction for our constituents could make a lot of sense. That's why we're studying it hard with our board," he said.
But even as Delta considers linking up with another U.S. airline, it is pushing ahead to beef up its operations. The top priority is overhauling its aging terminal at New York's John F. Kennedy International Airport.
"We're not going to be slowing down any of our Delta decisions due to consolidation," said Bastian. Overhauling the JFK terminal is "our No. 1 priority as a company ... it is key to our strategy as we grow."
Bastian said the company hopes to make a decision on the project, which could have a price tag in the billions of dollars, early next year.
"We've got financing firms in place to assist with the effort," he said.
(For summit blog: summitnotebook.reuters.com/)
(Additional reporting by John Crawley; editing by John Wallace)
© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
By Chris Reiter
WASHINGTON (Reuters) - Delta Air Lines Inc (DAL.N: Quote, Profile, Research), which has been a vocal proponent of airline mergers in recent months, is confident it can still be profitable if it remains independent, its chief financial officer said on Thursday.
"When you look at consolidation, you have to look seriously at your stand-alone option," Edward Bastian said at the Reuters Aerospace and Defense Summit in Washington. "We feel very comfortable that our stand-alone plan is viable."
"The plan is working on all facets except one -- the price of oil," he said.
Delta earlier this week said it plans to reduce domestic capacity by 4 percent to 5 percent in 2008 because of concerns about high fuel prices and a softening U.S. economy. The No. 3 U.S. carrier also said the surge in fuel prices may cause it to post an operating loss in the fourth quarter.
By cutting back on unprofitable routes and increasing capacity on lucrative international flights, Delta believes it can overcome higher fuel costs.
"I do think that the business model could be profitable and should be profitable at (an oil price of) $90 a barrel, but it will be a challenge," said Bastian, who is also Delta's president.
With the U.S. economy softening, airlines may struggle to pass along rising costs, he said.
"I'm more concerned about the underpinning of the domestic economy (than oil)," said Bastian. "We're all on the edge of our seats."
Delta has been at the center of recent merger speculation. Speaking at the Reuters Summit this week, Doug Parker, the chief executive of US Airways Group Inc (LCC.N: Quote, Profile, Research), tipped Delta as the trigger for a round of industry consolidation.
Mergers are seen as a way to stabilize the volatile industry by allowing airlines to cut costs and raise fares.
Delta, which has denied talks with United Airlines parent UAL Corp (UAUA.O: Quote, Profile, Research), has set up a board committee to evaluate its strategic options, including mergers. Bastian reiterated that Delta is open to a deal.
"We think that the right transaction for our constituents could make a lot of sense. That's why we're studying it hard with our board," he said.
But even as Delta considers linking up with another U.S. airline, it is pushing ahead to beef up its operations. The top priority is overhauling its aging terminal at New York's John F. Kennedy International Airport.
"We're not going to be slowing down any of our Delta decisions due to consolidation," said Bastian. Overhauling the JFK terminal is "our No. 1 priority as a company ... it is key to our strategy as we grow."
Bastian said the company hopes to make a decision on the project, which could have a price tag in the billions of dollars, early next year.
"We've got financing firms in place to assist with the effort," he said.
(For summit blog: summitnotebook.reuters.com/)
(Additional reporting by John Crawley; editing by John Wallace)
© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
