Delta Flies Out of Bankruptcy With A New Look
Monday, April 30, 2007SUSIE GHARIB: Delta Airlines emerged from bankruptcy today, with a new look, new international routes and a new credit rating. Delta says its 19-month restructuring resulted in $3 billion in annual cost savings, including reduced labor and pension obligations. The carrier says it rearranged its fleet to fuel an international expansion of routes without buying new planes. Standard & Poor's raised its corporate credit rating on Delta today, saying the company's outlook is stable. Delta's existing stock was canceled today. Shares of the new Delta stock will be issued to creditors and begin trading here at the New York Stock Exchange on Thursday. Well, Delta emerges from bankruptcy into a turbulent market for airline stocks. So far this year, airline stocks are down more than 6 percent, while the S&P 500 is up more than 4 percent. Some analysts expect a strong summer season for the industry, but the question is what happens in the fall. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The good news is airlines have slimmed down and retooled their finances. The bad news, says aviation analyst Richard Aboulafia, is the good news may be coming to an end.
RICHARD ABOULAFIA, AVIATION ANALYST, TEAL GROUP: There is a school of thought that says that you sell at the peak, and this is unquestionably, in terms of the U.S. economy, in terms of broad travel demand, probably at the peak.
GERSH: Southwest and other airlines have cautioned demand is moderating, but analyst Ray Neidl, whose company has had a non-banking relationship with Delta in the last year, says the recent sell off in the industry is an overreaction.
RAY NEIDL, AVIATION ANALYST, CALYON SECURITIES: Right now, airline stocks do look cheap. They've gotten hit hard. I think we're going to have a good four or five month travel period where the airlines make good money, but with the economy and oil prices and capacity, there is a lot of uncertainty beyond Labor Day.
GERSH: Predicting oil prices may be tough, but it's pretty clear there will soon be more seats in the air. The Federal Aviation Administration predicts airline capacity will grow almost 3 percent this year and on top of new start-ups, discount carriers continue to ramp up.
NEIDL: Southwest has indicated that they are not going to be cutting back on their 8 percent capacity growth, which is going to put pressure on the whole industry.
GERSH: Further down the runway, the action is international, where demand remains very strong. The airline industry is likely to be transformed by the open skies agreement signed today in Washington, which allows U.S. airlines to enter new markets in Europe. Aboulafia predicts there will soon be more point-to-point service to Europe from the U.S.
ABOULAFIA: And when you fly directly to these cities like say Milan or Berlin, you can charge more because business travelers will pay extra to fly directly rather than have to change planes in Frankfort or Paris.
GERSH: But to convince passengers to pay up for business class on those international routes, Aboulafia says airlines will have to restore levels of service eroded by years of brutal cost cuts. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
