This Delta News is Dragging Air Carriers Lower

Delta Air Lines (NYSE:DAL) announced Thursday it will cut capacity on trans-Atlantic routes another 5 percent after Labor Day this year, a “proactive” measure intended to blunt the impact of weaker European currency and higher fuel costs on its bottom line.

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Speaking on a webcast of a Merrill Lynch transportation conference, airline president Ed Bastian said the company’s total full-year capacity will be down 3 to 4 percent. The airline previously said it would cut capacity — the number of seats it sells — by 2 to 3 percent.

“It’s a proactive measure. We’re not seeing any signs of weakness per se in any one region,” Bastian said. However, he did note weakness in the euro as one factor in the decision, another being rising fuel prices, which continue to be one of the industry’s biggest drags on profits. Many airlines have been increasing prices to offset those costs.

Bastian also said the airline would cut some capacity on its Pacific routes.

Bastian did note strong summer travel demand, as did other U.S. airline executives who spoke at the conference. He also said the company estimates growth in May year-over-year unit revenue of about 7 percent, slower than the pace of improvement in recent months, but still a plus given the alternative.

“We had some very healthy year-over-year revenue improvements in the prior year, and so the performance that we’re generating sits on top of that,” he said.

Delta shares were down 7.51 percent this afternoon as of 2:51 p.m. EDT. The sector was trading sharply lower today, with Alaska Air Group (NYSE:ALK) down 3.41 percent, United Continental (NYSE:UAL) down 6 percent, and US Airways (NYSE:LCC) down 6.11 percent. Discount airlines Spirit (NASDAQ:SAVE) and JetBlue (NASDAQ:JBLU) were also trading lower.

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