Filed under: Bad news, Industry, Competitive strategy, AMR Corp (AMR), Oil, Delta Air Lines (DAL)
Delta (NYSE:DAL) offered buy-outs to 30,000 employees in the hopes that at least 2,000 of them will leave. The company will also cut the number of routes that it flies. According to The Wall Street Journal “the airline was forced to take further cuts because fuel prices have risen nearly 20% over the past three months, increasing its fuel bill for this year by nearly $900 million.”
Delta’s plan is now old news What’s not is that all of the major carriers here and abroad are going to have to make similar moves, putting tens of thousands of airline workers out of work. AMR (NYSE:AMR), the parent of American Airlines, states its fuel bill could be up $4 billion this year.
The airline industry may be headed toward another set of bankruptcies. Most of the huge carriers have razor thin margins and plenty of debt service. There will now be a race of cost cutting against the effect of the recession on traffic and oil prices on margins.
The airline industry has very few outs. If carriers cut too many routes, they open themselves up to competition. If they cut too few, they might have a cost base which they cannot support. That leaves chopping employees as the only way to save a lot of money.
The news of more buy-outs and lay-off is coming, and coming very soon.
Douglas A. McIntyre is an editor at 247wallst.com.
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