RELATED Delta CEO says fares to rise
By Dan Caterinicchia
WASHINGTON — Domestic airlines need to raise fares by 15 percent to 20 percent just to break even at current fuel prices, the chief executive of Delta Air Lines, which seeks to acquire Northwest Airlines, said Tuesday.
"An airline ticket has got to reflect the full cost of fuel," Delta Air Lines Inc. CEO Richard Anderson told reporters, adding that such an increase was likely to depress demand and prompt carriers to further trim their flight schedules.
Cost-cutting measures "have largely been exhausted," Northwest Airlines Corp. CEO Doug Steenland said.
Since Dec. 20, carriers have raised fares nine times, according to BestFares.com, and a number of airlines in recent weeks have also raised fees for checking a second bag and other amenities.
When asked if a combined Delta-Northwest would be profitable in its first year, Anderson returned to a common theme: "It will all be a product of fuel prices ... and stay tuned for earnings tomorrow and you’ll see what a dramatic effect it’s had."
United Airlines parent UAL Corp. on Tuesday became the third large carrier to report a first-quarter loss due largely to soaring fuel costs, following American Airlines parent AMR Corp. and Continental Airlines Inc. The cost of jet fuel in New York last Tuesday was $3.73 a gallon, compared with about $2.06 a year earlier.
United also said it is cutting flights and 1,100 jobs. Delta and Northwest report first-quarter results Wednesday, while US Airways Group Inc. reports Thursday. Southwest Airlines Co. is the only large carrier to have reported a profit.
Steenland and Anderson said they were in Washington to meet with lawmakers on the two committees holding hearings Thursday about their proposed combination, and with representatives from the states where they are based. They told reporters they are confident the Justice Department will not require them to give up any gates or slots on the few routes where they do overlap because ample competition exists in those cities.
The carriers filed paperwork with antitrust regulators on Monday, Steenland said.
Any concerns about competition on international routes were answered earlier this month when the Transportation Department granted Northwest and Delta preliminary approval to share revenue and coordinate schedules across the Atlantic, he said. The two carriers, along with Air France-KLM and two other airlines in the SkyTeam Alliance have sought immunity to essentially operate as one airline across the Atlantic. The Transportation Department’s final ruling is due April 30.
Northwest does not fly to Latin America and there is no overlap between the companies in the Pacific region. "From an international perspective, the competition question I think is settled, and it is beyond dispute that there is no issue," Steenland said.
Delta’s stock-swap deal to acquire Northwest, if approved by regulators and shareholders, would create the world’s biggest carrier. But shares of both airlines are down sharply since the deal was announced late on April 14, and the deal has lost $1.17 billion, or about 32 percent, of its value. At midday Tuesday the offer was worth $2.46 billion, or $8.90 per Northwest share, a premium of 14.8 percent.
Both executives said they have not received other offers since their combination was announced, although neither would discount the possibility of entertaining them in the future.
"Both boards will meet their fiduciary duty obligations under Delaware law," Steenland said.
Elsewhere, Steenland said Continental has bought out Northwest’s so-called "golden share" in the airline for $100. That opens the door for Continental to combine with United or other suitors. Both Steenland and Anderson said they had no opinion on a possible United-Continental pairing.
On the labor front, the airlines’ goal remains to reach a new collective bargaining agreement, with combined seniority lists, for their pilots. But the CEOs agreed the combination can get done without such an agreement. The two carriers tried and failed to get a pilot seniority integration deal before announcing their combination plan.
Shares of Atlanta-based Delta fell $1.40, or 17 percent, to close at $6.80 Tuesday after hitting a new low of $6.70 earlier in the session, while Eagan, Minn.-based Northwest dropped $1.59, or 17.6 percent, to $7.67 after hitting a fresh low of $7.22.