“Delta’s Revenue Takes a Hit from Strikes in Hollywood and the Auto Industry

Delta, the world’s second-largest airline, said Tuesday that the Hollywood writers’ strike and auto workers’ strikes are denting business travel. The news comes as the airline industry continues to cope with soaring fuel prices, slowing economies, and fierce competition. Delta is not alone in its struggle. Earlier this month, United Airlines warned of weak demand for business travel in the ongoing third quarter. In its most recent quarterly financial report, Delta reported a year-over-year decline in revenue of 7 percent to $9.2 billion for the quarter. Passenger revenue was the largest contributor with an 8 percent year-over-year decrease to almost $9 billion. The airline giant blamed the decreasing revenue on three factors: the writers’ strike, automakers’ strikes, and rising fuel prices. Chief Executive Officer Richard Anderson said the writers’ strike and auto workers’ strikes had an adverse effect on business travel going into the third quarter. He also said the fuel price crisis, which has caused companies to pay an additional $800 million in the third quarter, contributed to the weak demand for business travel. The airline did note that its premium and leisure travel segments were relatively strong, with leisure traffic increasing 7 percent in the last quarter. To counter the current industry situation, Delta has taken major steps such as reducing domestic capacity by 8.6 percent, cutting its workforce by up to 8 percent, and drastically reducing its fuel hedging program. Delta’s efforts haven’t been entirely in vain. The airline reported adjusted earnings per share of $1.37 for the second quarter, which beat analysts’ expectations of $1.25. This was a marked improvement from the $0.46 reported in the same quarter in the previous year. Despite Delta’s positive report, the industry writ large is facing continued headwinds. According to the Air Transport Association, airlines will pay $65 billion for jet fuel in 2008, an increase of 50 percent from last year. The shortage of business travel, however, is the most pressing issue for Delta, and the airline continues to search for ways to offset lost revenue. In the mean time, the airline has announced that it entered into agreements with three banks to provide up to $1.5 billion in loan financing. The move is seen as a proactive measure to deal with the changing market conditions, and ensure that Delta can thrive in the current business climate. Furthermore, the $1.5 billion in financing should provide the airline with the capital cushion needed to weather the current environment. It should also help offset the effects of rising fuel prices and weak business travel. Ultimately, Delta’s success in the coming months will depend on the airline’s ability to manage its cost structure and attract passengers to fill its seats. For now, the airline is hopeful that the Hollywood and auto strikes will soon be resolved so that business travel can once again increase.