Delta Air Lines Inc. will trim planned growth for the second half of 2016 and delay delivery of four jets as the carrier attempts to reverse a revenue decline that has extended more than a year.
The second-largest U.S. airline will hold expansion to less than 2 percent as it pares domestic capacity increases to 2.5 percent in the fourth quarter from at least 4 percent during the first nine months of the year. International capacity will be flat to down, Delta said in a U.S. regulatory filing Monday, citing rising fuel prices and weak foreign economies.
Delta and other U.S. airlines have been hurt by the weak euro, which has fallen 17 percent against the dollar in the past two years, while a surge in seating capacity between the U.S. and Europe kept fare increases in check. Revenue from trans-Atlantic flights accounts for as much as 20 percent of Delta’s total revenue, President Glen Hauenstein said in an April call with analysts.
“Broad commercial initiatives should result in Delta being the first network carrier to return to positive unit revenue growth later this year,” the airline said in the filing, which was prepared for a presentation to investors.
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Delta is trying to reverse five straight quarters in which passenger revenue for each seat flown a mile, a critical yardstick for airlines also known as unit revenue, declined from a year earlier. The cuts will remove about one percentage point of planned capacity expansion in the fourth quarter.
The moves show that Delta is growing responsibly and not simply adding seats when costs are relatively low, said Paul Lambert, an analyst at Tocqueville Asset Management in New York.
“For an established airline like them, they should not be growing capacity faster than world GDP,” he said, pointing to weak global economic growth. “I would expect other airlines to do the same.”
The Atlanta-based airline will delay delivery of Airbus Group SE A350 wide-body aircraft to 2019 and 2020 that originally were to arrive in 2018. The postponement will better match the delivery schedule to the rate of expected improvements in international markets, Delta said.
While still historically inexpensive, the price of jet fuel has increased 67 percent from a 12-year low on January 20, according to data compiled by Bloomberg. Delta has said it expects to pay $1.48 to $1.53 a gallon in the current quarter, up from the $1.33 in the first.