Delta Air Lines CEO Richard Anderson said Jan. 18 that he expects it will take Delta “the better part of the year” to choose a manufacturer or manufacturers for its potentially massive narrowbody fleet order, but he also made it clear that Boeing could have a tougher sell to make than its competitors.
Anderson praised Bombardier and Airbus for their work on the CSeries and A320NEO, respectively, with new engines that should significantly improve fuel efficiency.
“When you think about where fuel prices are going, this industry needs more efficient airplanes, and a 20% fuel efficiency [gain] at $95 a barrel for fuel is a very important development,” Anderson said during the airline’s conference call on fourth-quarter earnings. “So we’re excited about the work that Bombardier and Airbus are doing.”
When prompted for remarks about Boeing, however, Anderson was more subdued. “They’re staying with legacy equipment, as I understand it,” Anderson says. “They’ll be in the running, but their numbers are going to have to match up against the efficiencies of the next-generation airplane.”
“The numbers will speak for themselves,” he added.
Delta issued a request for proposals from aircraft manufacturers near the end of December for the “potential replacement” of 100 to 200 domestic narrowbody aircraft, with options for as many as 200 more. Delta says it is looking to take the first delivery in early 2013 and wants large, medium and small narrowbodies (Aviation Daily, Jan. 18).
Anderson made his Jan. 18 remarks about the manufacturers as Delta reported a $19-million fourth-quarter profit and $851-million full-year profit for 2010—or $158 million and $1.4 billion, respectively, when excluding special items—on a 14% increase in revenue to $7.8 billion. But Delta executives cautioned that the recent runup in fuel prices could add $1 billion to its costs this year, and emphasized that is prepared to adjust its existing plans to increase its capacity this year by 1% to 3%.
Rising revenue from recently implemented fare increases and the prospects for even higher ancillary revenue “give us guarded confidence we are moving in the right direction,” Anderson says.. But “we are watching fuel prices and are prepared to adjust capacity, with flexibility provided by a significant number of paid-for airplanes.” The airline currently is 36% hedged on expected fuel consumption for 2012.
Delta already is planning a significant reduction in its fleet, which it already has cut by getting rid of more than 100 aircraft over the past two years—primarily Saab turboprops, 50-seat regional jets and DC-9s. The airline said Jan. 18 it plans to remove another 100 over the next 18 months as it continues to increase the average size of aircraft in its fleet.
Delta CFO Hank Halter says the $1 billion increase in fuel costs would apply if fuel prices stay at the current level. That includes an anticipated $350 million increase in fuel expenses for the first quarter, but Delta still is expecting to finish the quarter with a 1% to 3% operating margin. The January snowstorm in Atlanta, however, will cost the airline about $30 million in net revenue.
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