Delta Air Lines executive urges industry to not increase capacity before rebound takes hold

Delta executive urges restraint on capacity

ATLANTA — A Delta Air Lines Inc. executive urged other carriers Wednesday to be careful not to increase the amount of flying they do too quickly.

Chief Financial Officer Hank Halter said at a New York investor conference that was broadcast on the Internet that even if a modest recovery occurs in 2010, the world’s biggest airline hopes the industry maintains flat capacity.

Capacity is measured by the amount of available seats a carrier offers, times the miles flown.

Halter said Delta could eventually increase capacity 1 percent to 2 percent once demand shows strong signs of coming back. He says demand won’t really gain steam until passengers feel that the recession is firmly in the rearview mirror and it is safe to spend.

“People are holding onto their money still,” Halter said in his presentation during the Morgan Stanley Transportation Corporate Access Day. “When they are flying, they are flying in the back of the aircraft.”

Many carriers have shed capacity over the last 18 months. The impact of the recession on business travel has been especially painful for airlines, which rely on sales of premium seats to boost revenue.

“The challenge for the industry is to make sure we don’t come back and start flooding the market with more capacity … when the demand isn’t there,” Halter said.

The comments came as Delta, based in Atlanta, continues its efforts to lure struggling Japan Airlines away from its partnership with American Airlines and into an alliance with Delta and its SkyTeam partners. Executives from Delta and American were scheduled to be in Tokyo on Thursday to meet with reporters.

Delta and its alliance partners have said a billion-dollar offer is on the table to lure JAL from its affiliation with American. JAL President Haruka Nishimatsu has said he will make a decision on the offer by the end of the year.

American is working aggressively to try to keep Japan Airlines in its oneworld alliance. American, a unit of AMR Corp., which is based in Fort Worth, Texas, has said that if JAL switches from the oneworld alliance it will cost JAL up to $500 million in lost revenue in the first two years after the changeover.

That figure assumes Delta initially will only be able to replace about half the revenue-sharing and other money that JAL currently gets from its oneworld partners, including American.

During the investor conference Wednesday, Halter did not address the status of Delta’s talks with JAL, saying only, “All of SkyTeam would benefit, as would JAL, if JAL would come into the SkyTeam alliance.”