Delta Eyes Cost Savings, Fleet Shifts While Awaiting C Series

 - January 12, 2018, 11:36 AM
Delta plans to base all its MD-88 narrowbodies in Atlanta by this summer. (Photo: Sean Broderick)

Delta Air Lines reiterated its intent to take delivery of its Bombardier C Series aircraft without paying tariffs, and has begun taking steps to account for the delays caused by the international trade battle that the carrier's order triggered.

"We're waiting to hear the results of the International Trade [Commission report] that is scheduled to roll before the end of January," Delta CEO Ed Bastian said on a January 11 earnings call. "Once we know what that is, then we will set our plans accordingly," he continued, underscoring that Delta harbors "no intent to pay any tariffs on the C Series."

Schedules called for the first of the 75 CS100s, ordered last year, to enter Delta's fleet starting in the first half of this year. With that timeline now unrealistic, Delta is modifying its fleet plan accordingly.

"We do know that we will not be taking the C Series according to the current schedule, which would be taking delivery this spring," Bastian said. "We have to invest in maintaining some aircraft, particularly MD-88s, to keep them around a little bit longer than we were otherwise anticipating."

Delta last year said Delta would base the initial C Series aircraft in New York, from where they would serve high-demand routes that currently feature larger regional jets. The plan supports the carrier's fleet-wide upgauging strategy, which includes retiring smaller RJs.

"With 60 new aircraft to be delivered this year, our upgauging strategy is set to produce some of the greatest efficiency gains in Delta's history and will play a key role in returning our cost to a better level," said Bastian.

Delta's 2017 cost-per-available-seat-mile (CASM) excluding profit sharing rose 4.7 percent year-over-year. The company's target stands at 2 percent or less.

Meanwhile, the airline has moved forward with other cost-savings initiatives as part of a large plan outlined at its December investor day. As of January, it cut the number of markets with four or more equipment types by 60 percent, simplifying the equipment and training needed to support its stations. It also plans to base its entire 140-aircraft MD-88 fleet in Atlanta by this summer—a move that executives believe will save $25 million in staffing and maintenance efficiencies. The company expects its overall efforts to save $200 million this year.

"We've identified other opportunities in network scheduling, hotel spend, and transportation," CFO Paul Jacobsen said. "These are just some examples of the opportunities we have ahead of us, and we feel good about where we are at this stage in the process."

Delta's adjusted fourth-quarter pre-tax income totaled $1.0 billion, up 8.3 percent year over year, despite incurring $40 million in costs from last month's power outage at its Atlanta Hartsfield-Jackson International Airport hub and $20 million from disruptions tied to Winter Storm Benji. 

For the full year, adjusted pre-tax income increased 11 percent from 2016, to $5.5 billion.