The Next Phase Of Industry Restructuring

WorldTraveler

Corn Field
Dec 5, 2003
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Deregulation roots
In the 27 years since the US domestic airline industry was deregulated, pundits have long predicted that the industry would evolve into two or three megacarriers along with several niche carriers and several well-heeled low cost carriers. Since the US economy was strong for much of the 1980s and 1990s, there was plenty of business to be had for any airline that had even a halfway intelligent business plan. Most of the airlines that failed in the first twenty years of deregulation had long-term problems that eventually caught up with them; there were a few really good ones that were acquired by other airlines and now live on in the lineage of some existing carriers.
The turn of the millennium marked the beginning of the shakeout in the US airline industry. Some of the largest US airlines reported record profits during the late 90s and labor wanted much more of the rewards. However, as often happens in the highly cyclical airline industry, decisions that are made when the industry is at the top of the cycle cannot be justified soon after they were made when the business starts changing. As the dot com boom started busting in 1999 and into 2000, lots of money disappeared from the economy. The wealth that fueled $2000 business trips was no longer available. Labor, however, had already begun to extract the profits that fueled the legacy airlines in the late 90’s; American, Delta, and United all had multiple years with $1 billion net profits – heady times indeed.

Surprises begin
United’s employees won fat pay raises in return for the investment they made when UAL became the US’ largest employee-owned company, an experiment that failed because it did not distribute wealth to employees as they expected, instead increasing animosity between employees and management. In the circle of airline pattern bargaining, Delta was next on labor’s hit parade and ALPA was determined that historically wealthy Delta could and would cough up big bucks to maintain the labor peace which was the norm rather than the exception at Delta. Ominously, Delta signed its rich pilot contract months after business travel started to fall off in early 2001 and just weeks before 9/11.
9/11 … not all of the problem
9/11 stands as one as one of the most pivotal dates in western civilization for many regards. Its effect on the airline industry was swift and expected. Major carriers who had already seeing falling demand for costly business fares moved into survival mode very quickly. Employees were laid off by the thousands and planes were parked. Trying to stem its losses and protect its core franchise, American quickly dismantled much of its TWA acquisition. While losses continued through the winter of 2001-2002, traffic began to rebound in the spring of 2002. The always optimistic managers of the legacy airlines interpreted this upturn as a return of the glory days and stopped making the tough choices that could have kept the industry from further disintegration. As summer ended, traffic fell off but more importantly business passengers didn’t increase their purchase of high price tickets. The airline industry was being propped up by leisure rather than business customers in a pattern which mirrored a lack of business spending in the larger US economy.
9/11 provided a window of opportunity for a new breed of airlines – and they would ultimately be the force that changed the airline industry. As legacy airlines hunkered down and cut capacity, the new breed of low cost carriers were well-financed and well-run businesses that recognized and responded to the growing number of leisure passengers. While previously confined to a limited number of markets, LCCs grew to a point where they quickly controlled pricing throughout the domestic industry. They now served enough of the country that consumer expectations about what they should pay for air travel dictated pricing even in markets where the LCCs didn’t fly. Because LCCs covered so much of the country, there were reasonable alternatives available for consumers to obtain low fares.
The shakeout starts
A year after 9/11, it was apparent that the airline industry would not return to the days of high fares. Airlines that were most dependent on those fares, including United and USAirways, immediately felt the pain. USAirways was particularly hard hit because so much of its network involved short flights that business passengers increasingly found difficult to take because of the lengthy check-in and security process; less secure ground transportation became a much more attractive alternative to air travel. US made a relatively quick trip through bankruptcy but competitors salivated at invading US’ rich northeast markets while the patient was at its weakest; US couldn’t cut costs fast enough and ended up in bankruptcy where it would shrink its operations further and undoing decades of employee wage gains.
United’s obligations became more than it could handle and it succumbed to bankruptcy, partly attracted by the opportunity to quickly slash labor costs in bankruptcy. United’s bankruptcy was particularly painful for the industry because United was more typical than not of the industry. While United’s employees have sacrificed dearly, they have remarkably continued to run a good airline operation and that has emboldened management at other airlines to slash employee costs. Many analysts had long said that airline employees were overly compensated for their skillset when compared with other industries; having thousands of employees on the street and those left fearful they might be next gives airline managements a great deal of motivation to aggressively cut one employee expenses, the largest cost for most airlines and one of the few that can be quickly changed – and bankruptcy made the process even faster.
You can’t turn on a dime…
In all fairness, it is very difficult for an airline to change its business plan. Its assets are obtained under long-term contracts, making it possible to change prices quickly and incrementally move assets around its network. Large scale restructuring of an airline’s network can only happen in bankruptcy and even then require several years or multiple bankruptcies.
United recognized that its best chance for survival required it to reduce capacity in as many money-losing domestic markets as possible. The low cost carriers largely carried point-to-point passengers rather than relying on connecting passengers as did many of the legacy airlines. Because all of United’s biggest markets are in large cities, it was much more able to walk away from a lot of costly connecting traffic while continuing to serve local markets. Its rich international network still had growth potential while its domestic network was more than large enough to provide all the feed needed for its international flights. United and USAirways restructuring plans would lay the foundation for restructuring in the rest of the industry: slash employee pay, turn pension plans over to the government, close hubs with low local traffic, replace mainline flights from hubs to medium and small cities with regional jets, and increase international flights where low cost carriers are less able to serve. American has used a similar formula out of bankruptcy but implemented it early enough in the current crisis to allow it to gain critical recovery time; Continental had fewer cost problems since it runs a much leaner operation as a result of its double bankruptcies over a decade ago.
Airlines were able to put a lot of capacity in the air when revenues were high, which they were in the late 90s. Carriers like USAIrways and United have been able to get costs down to levels that should be sustainable given the current fare environment. However, fuel prices are now threatening to undermine much of the progress made so far in cutting costs. They also will fundamentally change the industry for all players and for consumers. Although it is the legacy airlines that first began hedging fuel, most sold their hedges in yet another blunder in yet another example of their inability to understand the market. Most low cost carrier hedges will expire or wind down in the next six months and will not be replaceable at the levels which currently are far below market prices. While many point to Southwest’s fuel hedging as the elixir that will keep it out of trouble, it must be remembered that Southwest has a fixed amount of fuel hedged at very low prices that will not increase; additional and unplanned growth for WN in the near term will be at the same fuel prices that the legacy carriers pay. Since Southwest has acknowledged that it would not be profitable without its fuel hedges, it is doubtful they will add a significant amount of unplanned capacity unless fares go up to levels high enough to cover fuel costs.
As the industry contemplates what has to happen for it to return to profitability, it is clear that there is too much capacity in the industry. However, all capacity is not the same. Generally, international capacity has a higher potential of being profitable with Asian and Latin capacity having higher profit potential than that deployed to Europe. Capacity in business markets is preferable to leisure markets while nonstop capacity is preferable to connecting capacity; connecting business capacity can be profitable but it is hard to imagine how an airline can be profitable with connecting leisure capacity. Leisure fares are largely set by low cost carriers, either as a result of direct service or because of the proximity of non-LCC cities to a city served by an LCC which requires legacy carriers to offer similar fares. Yet, LCCs do not build their network around leisure passengers and do not take very much connecting leisure traffic at all.
The next focus
Delta and Northwest are in the greatest danger right now because they are more dependent on connecting traffic than the other legacy carriers. Although both Delta and Northwest have historically been well run, they both have been fairly late to transform their business models based on the new reality which dictates going for higher revenue business passengers while shunning connecting passengers – and requires much lower costs than either of them have at present. Delta is by far the largest carrier of connecting passengers and many of them are carried to Florida; it is simply unsustainable for Delta to carry thousands of leisure passengers to Florida via connections in its hubs at current fare levels. And if fares are raised to levels that are high enough, most of the passengers will no longer fly. Although Atlanta is a very large local market in its own right (one of the top five in the US), Cincinnati and Salt Lake City are very small markets and have far more service than they should given the size of the local market; like USAirways in Pittsburgh, much of the connecting service will have to be pulled out of CVG and SLC. Delta has historically had little access to the nation’s top business routes; Delta’s route system was built around mass transportation and low fares; Delta has been able to create a market for itself by stimulating a huge amount of traffic. Delta’s formula is about to change, however. Northwest is not immune from criticism, either. Like Delta, NW’s hubs are built around carrying large amounts of connecting traffic. Northwest has always been more international focused, though, and it does carry a lot of international connections. However, NW is unique among US airlines in that most of its international traffic is carried between two hubs – Amsterdam and Tokyo. In both cases, NW has to offer double connecting service where many of the routes can be served on a single connect basis by other carriers. Since carriers prefer the fastest en route time, NW is at a revenue disadvantage. Additionally, NW’s costs to carry a passenger over a route that another carrier can serve on a single connect basis are higher than the single connect carrier. Connecting passengers through AMS requires sharing costs and revenues while Tokyo (NRT) is one of the most expensive cities in which to operate. Back on the domestic side, NW’s DC-9s may be paid for but they are very fuel inefficient; airlines will increasingly find it difficult to use fuel-inefficient aircraft as oil stays above $60/bbl where it is expected to do. Further, UA and US have shed some of their oldest, most fuel-inefficient aircraft during bankruptcy so already have a fuel efficiency advantage.
While very painful, chapter 11 bankruptcy has worked to allow United and USAirways to cut costs, shed excess assets, and craft a viable business plan. United, particularly, has demonstrated by its recent financials that it can make money in the current environment. USAirways continues to be assaulted by LCCs and will likely continue to face a difficult revenue environment. Employees have given much and likely will not be capable of giving more without significant losses of people.
Delta and Northwest are very likely on the doorstep of bankruptcy. It is possible that an investor could come forward and provide the financing needed to turn both companies around (independently) in return for acquiring significant equity. However, the case for transformation in bankruptcy is very compelling, even for the managements of those airlines. Delta has probably reached a cash crisis that necessitates a chapter 11 filing and NW is probably not far behind. Many of the contracts surrounding their aircraft, ground facilities, and employees restrict the ability of DL and NW to complete the significant restructuring of their operation that is needed. When compared with United and USAirways, NW and DL have significant obligations which could be shed in bankruptcy.
I expect that Delta will move fairly quickly to significantly downsize CVG and SLC. In so doing, they will probably park 75-100 mainline aircraft, most of which are nearing the end of their leases or are fully depreciated owned aircraft. I also expect that DL will dispose of close to 100 regional jets; since Comair is the only owned carrier left, they will probably bear much of the burden although I expect Delta will reject its contract with Mesa (since it was entered into as much as a means to get rid of the FRJs which were inherited from FlyI and the contract for which can now be rejected in bankruptcy). Republic and ASA/Skywest will be largely retained because there are financial incentives for DL to continue to work with them. I expect that Delta will also pull a significant amount of capacity out of Florida. While Song may not be completely eliminated, its focus will be refined since it has yet to prove that it has returned the investment made in it. I expect that DL will become much more international, with a particular push into the Caribbean and Latin America and into more European markets from New York City and possibly Boston. I believe Delta will attempt to not terminate its pensions but will freeze them; terminating pensions after asking for political help could bode very poorly for DL so I expect they will attempt to craft a business plan that keeps the pensions as long as Congress passes pension reform that allows them to stretch out their obligations for at least 15 years.
Like DL, NW will be driven into BK as cash declines and it certainly will given high fuel prices and uncompetitive labor costs. I expect that NW will use BK to expedite the job of cutting labor costs and will get rid of surplus facilities. While more of its network than DL’s is probably sustainable given current fares and prices, NW will increasingly be at a disadvantage if other carriers cut labor costs and eliminate older aircraft. I therefore expect that NW will shrink its fleet although most of its oldest equipment is owned so bankruptcy is of little help in shrinking the fleet. Northwest’s shortage of newer aircraft will be corrected as newer aircraft, including the 787 arrive, but that is still years away. It will remain to be seen if NW terminates pensions but, like Delta, would be committing political suicide if it terminated pensions after a pension reform bill is passed.
United and USAirways have demonstrated very recently that airlines can be turned around in bankruptcy, although UA’s success is more noteworthy. Given that both companies have historically been fairly adept at cost control, they should be able to very successful in getting their costs down to levels comparable with LCCs. As they remove unproductive capacity and move other capacity to more productive routes (particularly for DL), they both stand a very strong chance of significantly increasing their revenue performance in addition to the cost advantages that bankruptcy provides.
Consolidation possible
Industry experts have long said that the industry needs to consolidate into a couple megacarriers. American is likely to survive and adapt while United has demonstrated that it will be able to restructure and effectively compete. Longer term, DL and NW face some significant issues. While both could restructure themselves and compete effectively as smaller carriers, they both could lose significant mass when compared with UA and AA. While CO, DL, and NW do have a codeshare arrangement that helps to fill in the holes in each others’ route systems, revenue cannot be shared. The DOJ has also just indicated that it does not support expanded antitrust authority for Skyteam, leaving Northwest as the “odd man out†in the alliance game. Further, NW doesn’t have any real alternatives since Europe is moving rapidly toward an industry centered on and allied around BA, AF, and LH. Delta has the potential to expand into additional top revenue markets at JFK but NW is hard-pressed to find opportunities to expand and diversify its route system.
While many pundits have speculated about consolidation scenarios, it seems rather certain that carriers will continue to control their destiny. Despite nearly 3 years in bankruptcy so far, United was able to maintain its right of exclusivity in developing a plan of reorganization and it is very likely that Delta and NW will be able to do the same; even outside of BK, it is unlikely that any mergers will occur without the acquired’s consent. So far, there are no indications that any of the remaining top five legacy airlines are willing to give up their independence. However, if Delta did, it could potentially be attractive to any of the other four. Despite some people’s contentions, DL has a very valuable franchise, including dominance of the southeast and a #1 or #2 market position in most cities east of the Mississippi. DL is a leading airline to Europe and many of its routes are to cities not served by other US carriers. Finally, ATL is the world’s largest hub, one of the top five local travel markets, and a growing international gateway to Latin America, all traits which a number of carriers could find attractive. Not to be underestimated is the fact that Delta’s employees are virtual angels compared with other airline employees (trivia question: when was the last DL strike?) I believe there would be significant antitrust issues with Delta/AA and DL/CO mergers because of their combined strength in the NE and/or NYC specifically (including the Northeast). DL is really most attractive to UA or NW and has little overlap with either, particularly if CVG and SLC are reduced in size. In the US transcon markets which DL has just entered, there is more than enough competition besides DL and UA. UA would clearly like to add DL to its portfolio since DL’s route system almost completely rounds out the missing pieces in UA’s. system. However, since UA is now focused on emerging from bankruptcy, it is doubtful they would be in a position to acquire anyone for a couple years. Northwest faces a restructuring of its own which will occur either inside or outside of bankruptcy. NW has a number of strengths of its own, including dominance of much of the Midwest and significant rights to Asia, likely with much more potential than the present route system indicates. NW has a strong position to Europe although its role will likely change as KLM is absorbed into Air France. If DL and NW both end up in bankruptcy, either company could take the lead in a merger of both out of bankruptcy. If only one goes in, the one that stays out has a much better chance of going in although both company’s finances are pretty tattered at this point to attract many investors. A merger after separate trips through bankruptcy might be very appropriate.
Success seems certain
While creditors can control a great deal of a company’s decisions while in bankruptcy, success in bankruptcy depends on development of a solid business plan. United has proven that there are financiers willing to invest in airlines that have good solid business plans. Delta and Northwest may have started their restructurings behind other airlines but they appear capable of doing what needs to be done to turn around their businesses. Apart or alone, they will succeed. Sometimes going last has advantages and I believe DL and NW will be able to decisively use bankruptcy to their advantage. It is possible (although I believe remote) that one or the other could restructure outside of bankruptcy but their business plan will have to that much stronger to overcome the debt, costs, and current contracts which now burden them. Both could choose to give up their independence but it is certain they will do so from a position of strength.
 
WorldTraveler said:
Deregulation roots
In the 27 years since the US domestic airline industry was deregulated,

Please DO NOT quote an entire (long) post to add one line of comment. It takes up too much room and is unneeded, especially when its the previous quote. You can use the quick reply or add a reply buttons instead. Thanks.
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As always, very informative. Keep up the good work.. :up:
 
WT,

Did you have to "pen" the Gettysburg Address ??

Your somewhat of a "quirky dude", but knowlegable none-the-less !!

I could see a NW/DL "union", with NW the survivor(Imagine DL employees in a UNION).

The main obstacles would be
1. which hubs would stay, with the exceptions of NRT-DTW-ATL, and JFK(focus city) ??

2. Massive fleet UN-COMMONALITY !!! DL/Boeing NW(primarily) A-B !!

Anyway, paint us a "picture" World Traveler, on a NW-DL link-up .

NH/BB's
 
<<UA would clearly like to add DL to its portfolio since DL’s route system almost completely rounds out the missing pieces in UA’s. system. However, since UA is now focused on emerging from bankruptcy, it is doubtful they would be in a position to acquire anyone for a couple years.>>

Using your quote as a premise for some speculation, I would just point out that United would come out of C-11 with 5.8 Billion dollars in cash ( 2.8 Billion presently plus 3.0 Billion in exit financing). That pretty much will leave United, and also American, as the two airlines in the position to in a position of strenght to chart their own future.

I hesitate to predict what will happen, but I think it is pretty clear who some of the deciding players will be.

Wishing everyone the best,

Globetrotter11
 
Interesting reading.

The rise of the internet and transparent pricing is another major cause of the loss of pricing power. Furthermore, newer LCCs without the burden of old expensive legacy software have been able to leverage advances in technology to run a more streamlined operation, in both fare distribution/ticketing to operations. Without the internet I don't think the massive growth of the LCCs that we've seen in the past 5 years would have happened as fast.
 
Geez, reminds me of having to write all those essays in college. :)
A few things to note.
The DB plans has already been frozen and replaced with a DC plan.
I would suspect the amount of aircraft parked would be around the 50-75 range. I am curious how you arrived at the 100 aircraft number? I see all 767-200's and 737's being parked. The MD-88 will be phased out over the next few years but DL will eventually have to replace them with something. All of the domestic 767-400's will fly international as they should be doing already. DL will expanded it's latin america and carribean presence.
There is a strong rumor, as you pointed out, that DL will reject approximately 100 RJ's. I can only hope.
I have to disagree with you on the Song issue. I do not think it is going away any time soon. If anything I believe it will be expanded. It is also possible that Song could be fragmented and sold to another carrier. Perhaps an LCC. In either case it will continue to exist or grow in one form or another.
 
I just don't see how any carrier is in the financial position to merge with DL. Plus, I just don't see where DL brings that much to the table in any merger.

Other than ATL, the rest of DL isn't all that desirable. The JFK-Europe operation has been falling apart for years, BOS is a mess, CVG is too small, SLC is too small and the Florida flying is low-yield. DL's overall franchise is primarily as a leisure airline...not a franchise that most business oriented airlines (AA, CO, UA, NW) would want.

AA and CO are rebounding and would gain little by getting stuck merging with DL. UA is on the path to recovery and a merger with DL would likely only derail that progress. NW might be the most likely, but I think a merger between the two would be a disaster. NW has many problems as you noted and a merger with DL isn't going to solve them.

The best thing for the other majors is to let DL get liquidated. They could then pick out the pieces they want and discard the rest. I think Grinstein realizes this which is why he has gone to such extremes to keep DL out of BK.
 
Globetrotter11 said:
Using your quote as a premise for some speculation, I would just point out that United would come out of C-11 with 5.8 Billion dollars in cash ( 2.8 Billion presently plus 3.0 Billion in exit financing). That pretty much will leave United, and also American, as the two airlines in the position to in a position of strenght to chart their own future.
Without changing your basic conclusion, I would note that United will have "only" $4.5 billion in cash upon its exit from Chapter 11 (assuming the carrier accesses the entire $3 billion immediately) -- the $5.8 billion you calculated does not take into account the required repayment of $1.3 billion in outstanding DIP financing.
 
<<Without changing your basic conclusion, I would note that United will have "only" $4.5 billion in cash upon its exit from Chapter 11 (assuming the carrier accesses the entire $3 billion immediately) -- the $5.8 billion you calculated does not take into account the required repayment of $1.3 billion in outstanding DIP financing.>>


Cosmo,

You are right, as usual. You have an excellent grasp of numbers :D

Thinking back a few years, it seems that most airlines has had tremendous reversals of fortunes. It may be a while longer before we will know what the new landscape will look like. I feel for the employees cought up in this turmoil.
 
I have a news flash for you. If Delta goes into BK, they are going to ruin the industry as far as future borrowing is concerned. They have so much debt to shed that it will muddy the rest of the industry when they try to shake it off. They will be a lot smaller, and have nothing going for them except that AF likes to do business with them. NW is not buying anybody. They are in the same boat and would be lucky to not liquidate when they go in. If UA chews up the remaining debt that's available at competitive rates, DL and NW, if they both file for BK, are screwed and they will be begging to be bought out. I could see NW going in with AWA and US but not DL. DL's future will be with CO if they don't already marry UA.
 
I'm glad this work has stimulated some good conversation.

luv2fly,
I believe DL will reject the remainder of the 737-200 and -300 leases, most of which were due to expire in the next couple years. The 762s will be grounded but they are all owned. I believe DL will also reject some of the 767-300 non-ERs, some of which are over 15 years old. Further, I believe DL will start getting rid of the MD-80 fleet now. The MD-80 is not an economical aircraft at current fuel prices. If you're going to go through bankruptcy, get rid of everything that doesn't make sense for the next 5-10 years if they can be reasonably be replaced. I also believe DL will look at renewing its fleet with either the EMB 190 family and with Airbus. I am quite certain DL will make it clear to Boeing that Airbus has been far more willing to throw money at struggling airlines. While Boeing has probably been doing the right thing, Airbus would dearly love to gain another US customer, particularly if there is even a possibility that DL and NW could grow closer. I do expect DL will reject leases on a ton of RJs and probably the Mesa contract also. DL needs new generation RJs, not 400 of the narrow tubes they have now which support three hubs and a large point to point Florida operation which may or may not be viable. It is certain that DL's moves will cause the bottom to drop out of the RJ market so they will make sure they benefit from the reduced lease prices and the surplus of young flyers.

For those who argue that NW has problems, that is the whole point of bankruptcy. Again, bankruptcy succeeds if a company recognizes the need for a change in its business plan and goes into bankruptcy with a sound plan to strengthen its business in all areas. I believe DL and NW both recognize the error in their previous business plans but are limited in their ability to change course because of the contracts which were shaped by their business plan from decades ago.

Markus,
I think your bias completely is devoid of any connection with reality. For years, analysts concluded that ATL was the most profitable hub in the world = and that was after AirTran moved into the market. DL is fully capable of running a very profitable hub in ATL with low cost fares; their problem is they have too much capacity and have been forced to fill seats with fares that could not cover costs. There is absolutely no indication that UA will chew up anywhere close to all of the available financing in the market. DL's revenue performance will absolutely take off if they cut 20% of their aircraft capacity which is what the numbers we are talking about amounts to. However, DL has already shown that it can eliminate large numbers of aircraft and redeploy the remainder in a more revenue productive fashion.

DL Flyer,
remember that people were calling for UA's liquidation not too many years ago. I can almost guarantee you that DL will get its house in order much faster than it took DL. They have already achieved lower costs than any other legacy carrier and that number will certainly go lower. Further, as has been pointed out, their revenue performance will improve. I don't think they will have any trouble convincing investors that they have one of the most solid business plans in the industry. Remember that DL has just brought in two former Continental network execs; I can pretty safely guess that their formula for DL will be similar to what they did at CO: more Latin and Europe with a focus on New York City where DL has already put alot of attention. DL's focus on NYC will make it incompatible w/ CO.

Yes, it is possible that UA could try to buy DL out of bankruptcy. However, UA successfully put off calls to terminate its exclusive right to develop a plan of reorganization. DL can fully be expected to do the same unless DL believes that it is not in its best interests to remain independent. Hostile takeovers have never worked in the airline industry in the few cases where they have been tried.
 
WorldTraveler said:
I also believe DL will look at renewing its fleet with either the EMB 190 family and with Airbus. I am quite certain DL will make it clear to Boeing that Airbus has been far more willing to throw money at struggling airlines.
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Airbus???? That's the best joke I have heard all week! Scarebus are a piece of ####!
 
Nice informative post WT

But you lost me on the capacity reductions.

Why on earth would Delta pull capacity when they will see enourmous cost savings after the Chapter 11 processs?

The entire domestic system goes from being vulnerable to LCC encroachment to an LCC killer.

This has always been an industry where battles are won the the extreme margins. Delta would beat their margins after Chapter 11 and size just helps leverage the advantage.
 
If capacity doesn't make sense, it doesn't make sense whether in bankruptcy or not. Yes, DL will achieve signficant cost reductions and will be the cost leader in the legacy sector but if connecting capacity or to/from Florida doesn't make sense, it doesn't make sense whether in bankruptcy or not.

As UA has shown us, DL will shift capacity from domestic to int'l routes. DL still has significant opportunities to Latin America as well as to other points in Europe. Capacity can't really be significantly removed from the system but it certainly can be reallocated.

BOB...
sorry you don't like Airbus. I would sure prefer Boeings but money does talk and Airbus seems to be able to throw it around. DL will have ot make some fleet decisions and I'm certain that if Boeing doesn't talk the language DL wants to hear, Airbus will.