Delta cuts capacity deeper as economy bites

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By Kyle Peterson

CHICAGO (Reuters) - Delta Air Lines , which bought a rival carrier, downsized and cut 2,000 jobs this year, said on Tuesday it would trim 6 percent to 8 percent of its capacity in 2009 as travel demand wanes.

The latest round of cuts by the world's largest airline extends a trend among U.S. carriers fighting for profits as economic recession across the world erodes travel budgets.

"Obviously it's soft," Delta President Edward Bastian said at a webcast investor presentation, referring to the outlook for demand.

"The revenue environment is as cloudy as it's ever been," he said at the Credit Suisse Group Global Airline Conference. Bastian declined to predict when demand would stabilize.

The airline industry announced huge capacity cuts in the first half of 2008 as oil and fuel prices rallied to record highs in July. Energy prices later retreated, pushed lower by economic crisis that also dampened demand.

While airlines were generally unprofitable in the third quarter, industry experts say the chance for a return to profitability is greatly improved by cost savings and pricing power derived from the downsizing.

Delta, which this year merged with Northwest Airlines, said its domestic capacity would fall 8 percent to 10 percent in 2009, and international capacity would fall 3 percent to 5 percent. Systemwide, that means a reduction of 6 to 8 percent, the company said.

The carrier, which in June announced plans to reduce its capacity by 13 percent in the second half of 2008, said the new target included previously announced cuts. Capacity reductions affect the number of seats for sale and are achieved by cutting flights or replacing large planes with smaller ones.

Delta said it was analyzing how the capacity reductions would affect staffing. In March, the company announced 2,000 job cuts and said it would offer voluntary severance packages. The carrier said it would again offer such packages to meet staffing needs.

UAL Corp Chief Financial Officer Kathryn Mikells said the parent of United Airlines is braced for weaker demand as the economy slumps and that it was satisfied for now with its own capacity cuts.

"At this point, we continue to be very comfortable that they are the right actions for this environment," Mikells said at the Credit Suisse conference. United announced earlier this year it would cut fourth-quarter mainline capacity by up to 16.5 percent.

Continental Airlines Treasurer Gerry Laderman said yields are suffering under the weight of recession.

Economic weakness is punishing airlines around the world, and some major carriers appear ready to consolidate in response. British Airways on Tuesday said it is in merger talks with Australia's Qantas , a move the airline hopes would help it cut costs.

BA, currently attempting an alliance with AMR Corp's American Airlines, also is in merger talks with Spanish airline Iberia .

(Additional reporting by Bill Rigby and Mark McSherry in New York)

(Reporting by Kyle Peterson; Editing by Lisa Von Ahn, Dave Zimmerman)

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