Citing declining revenues, rising fuel prices and weak travel demand due to the recession and H1N1 flu outbreak, Delta Air Lines Inc. announced that starting in September it will reduce international capacity by 5 percent on top of the 10 percent cuts it outlined in March.
The reduction will target routes that have lost money in the current economic climate, Delta Chief Executive Richard Anderson told the company’s 70,000 employees in a memo June 11.
That includes Delta’s heralded nonstop route from Atlanta to Shanghai, China, which launched in March 2008 with much fanfare.
On its maiden voyage the Shanghai flight carried a business delegation headlined by Georgia Gov. Sonny Perdue and other state officials and business leaders. The route will be suspended in September, as will Delta’s nonstop from Atlanta to Seoul, South Korea, which started in 2006.
Delta said travelers going from Atlanta to Shanghai and Seoul would be routed on nonstop SkyTeam alliance flights or through Detroit and Tokyo-Narita, hubs Delta entered through its merger with Northwest Airlines last October.
Lani Wong, chair of the National Association of Chinese-Americans, called the news “devastating” because of all the hard work that went into attracting the Shanghai flight. Delta won the U.S. Department of Transportation‘s approval for the route in September 2007 after a battle with rival airlines including Northwest and United Airlines Corp. A Delta petition drew the support of 12 governors, 27 mayors and numerous business leaders throughout the Southeast.
Ms. Wong, whose organization often hosts Chinese delegates in Atlanta, noted that the Delta flight was nearly full when she returned from Shanghai on May 29.
But she also said that some Chinese delegations have cancelled trips to Atlanta because of the H1N1 flu outbreak.
Ms. Wong hopes that Delta’s decision is only a temporary move, but she fears that losing the flight will hamper Georgia’s economic development efforts in China.
“On this past trip with the [Metro Atlanta] chamber of commerce to promote Atlanta and Georgia, the selling point was that we have the direct flight from China to Atlanta and we have direct flights from Atlanta to all over the world including South America,” she said.
The Metro Atlanta Chamber has made eight trips to China over the past three years. Officials visited 11 cities in April on their most recent trip.
Chamber President Sam Williams told GlobalAtlanta that the chamber is not giving up on the routes or economic development efforts in China and South Korea.
“We don’t look at the countries as gone,” he said. “Delta just can’t currently justify the routes out of Atlanta during this economy.
“We will continue our international focus. While the loss of the direct flights is a little more of a disadvantage for us now, we’re still committed,” he added.
While the Shanghai route is the only nonstop air link from the Southeast to China, Mr. Williams pointed out that losing Delta’s Seoul flight won’t leave Georgia without a connection to the Korean capital.
Korean Air, a Delta SkyTeam partner, will still operate a nonstop flight from Atlanta to Seoul.
Since it began hiring for its huge plant in West Point, Ga., Korean automaker Kia Motors has used both the Delta and Korean Air flights to send hundreds of its employees for training in Seoul, said Randy Jackson, Kia’s director of human resources at the plant.
Mr. Jackson doesn’t expect that losing the Seoul flight will significantly impede the travel plans of Kia leaders or executives from supplier companies.
Training missions aren’t going to Seoul as often now, Mr. Jackson said.
“The travel we do now is not what I would call in large numbers, I wouldn’t think that by them cutting back it would affect us as long as Korean Air has a flight or someone else,” he said.
Delta’s 15 percent total reduction in international service this year is part of a broader plan to slash overall capacity by 10 percent compared to 2008. In March, Delta projected system-wide cuts of 6-8 percent.
The negative “forces that are affecting the industry” will swallow up the $6 billion in benefits the airline expected this year from lower year-over-year fuel prices and improved operations as a result of the merger with Northwest, the memo said.
The announcement comes less than a week after International Air Transport Association, an airline trade group, nearly doubled its forecast for industry-wide losses in 2009. In March, the association predicted global airlines would lose a combined $4.7 billion this year. As of June 9, that number has been revised upward to $9 billion.
According to the IATA’s report, Asian carriers will be hit hardest as demand plummets in the region.
“Asia-Pacific carriers will post the largest losses at $3.3 billion,” the report said. “Japan, the region’s largest market, is in deep recession. The growth markets of China and India are delivering major losses as export-driven demand slows.”
The China Daily newspaper reported June 8 that Delta’s route to Shanghai was one of only two that are still in service out of the six U.S.-China air services granted by U.S. DOT in 2007. The other is Continental Airlines‘ Newark-Shanghai route.
Delta spokespersons could not be reached by press time.
The Pendleton Group is the presenting sponsor of Global Atlanta's Economic Development Channel. Subscribe here for monthly Economic Development newsletters.
