"Emergent Delta Keeps Global Goals"

Tuesday, March 27, 2007

Emergent Delta Keeps Global Goals
By Ted Reed
TheStreet.com


In bankruptcy, Delta (DALRQ) transformed itself into an international
airline. The carrier will emerge around April 30, company executives said
Tuesday, but there will be no slowdown in its ambitious international
growth. 

Going forward, Delta expects to open markets from its Atlanta hub to London
Heathrow Airport and to Shanghai. Already the leading transatlantic carrier,
Delta plans to focus this year on growth in Asia. Over the longer term, it
will build international traffic in Los Angeles and keep growing at New
York's Kennedy Airport. 

"This company is not going to look the same coming out of bankruptcy as it
looked going in," CEO Jerry Grinstein said Tuesday during an investor
conference Web cast. "It has gained an enormous amount of momentum." Shares
in the new Delta will begin trading in early May. 

More than any other airline, Delta used bankruptcy to remake itself.
International flying will reach 40% of capacity this year, up from 20% when
it filed. Its revenue per available seat mile is now 96% of the industry
average, up from 86%. 

For the first quarter, Delta expects to lose $25 million to $30 million,
after losing about $350 million in the same quarter a year earlier, said CFO
Ed Bastian. For 2007, the company expects pre-tax income of $816 million,
excluding reorganization items. International capacity will grow 14% to 16%,
with overall capacity up 2% to 4%. 

The recently approved Open Skies agreement should create opportunities for
Delta to serve London's Heathrow Airport from both Atlanta and New York. Not
only will Delta seek routes on its own, but alliance partner Air France
(AKH) could also provide Delta with some of its Heathrow slots. "I don't see
Air France flying from Heathrow to New York, but I think they would be happy
with their code on our flights," Grinstein said. 

Glen Hauenstein, executive vice president, said he would fly to Paris
Tuesday in an effort to secure Heathrow slots, "to determine what the market
is and how we can acquire them in the most cost-effective way." Not serving
Heathrow, "is like fighting with one hand behind our back," he said. 

Among U.S. carriers with a major international presence, only Delta lacks a
China route. It has filed for the authority to fly an Atlanta-Shanghai route
in 2008. "We fully expect to get China next year," Bastian said. "Shame on
us if we don't." Additionally, Delta will begin Atlanta-Seoul flights and
New York-Mumbai flights this year. 

Grinstein said Los Angeles should provide another gateway to Asia. A
domestic carrier has an opportunity because Los Angeles "has a huge
international base of traffic, and 90% of that is carried on foreign
carriers," he said. 

Boosting its New York presence is Delta's No. 1 priority. Combining totals
at LaGuardia and Kennedy airports, Delta has the most service, but "we're
not getting our share of the premium," Bastian said. "New York has to be our
second base of profitability (after Atlanta)" Delta will spend money in New
York, he said. It will not match the $1.1 billion American (AMR) has spent
on a new Kennedy terminal, after committing the money before the Sept. 11
attacks forced a cutback in airline spending. 

Asked about consolidation, Grinstein said it generally occurs during an
industry downturn. Given the strong airline economy, "I think it is going to
be deferred for several years, three or four years," he said, adding that
six network carriers is not too many. If there are mergers, Delta is more
likely to be an acquirer than an acquiree, he said. 

Meanwhile, Bastian acknowledged that Delta benefited from a recent hostile
takeover attempt by US Airways (LCC) , because employees united to oppose
the bid. "It didn't feel (beneficial) at the time, but having a common enemy
to focus on is one of the greatest rallying cries," he said.

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