5:25 p.m. Thursday, October 22, 2009

Despite signs of improvement in crucial business traffic, Delta Air Lines said it expects to continue cutting both flights and jobs.

The Atlanta-based airline on Thursday posted a $161 million third quarter loss, bringing its net losses for the year to date to $1.2 billion.

The latest loss stemmed from charges related to previous job cuts and Delta's year-old merger with Northwest Airlines. Without those charges, Delta said it would have logged a profit in the quarter ended Sept. 30.

But revenue for the period plummeted 21 percent for Delta and Northwest's combined operations, reflecting the powerful downdraft in travel demand that has hit the industry, forcing airlines to cut flights and drop fares.

Delta executives said they expect to cut flight capacity another 3 percent next year and to continue paring jobs, though they gave no specifics on the latter.

The quarterly net loss, which amounts to 19 cents per share, compares with a year-ago loss of $50 million, or 13 cents a share.

The 2010 capacity cuts will be on top of a reduction of up to 9 percent this year amid "unprecedented revenue declines due to the global recession," Delta said.

The reductions next year will be in domestic flights, according to the airline, which said it plans to keep international capacity flat next year after a 15  percent cut in 2009. Delta also continues to cut 50-seat regional jets and turbo-prop planes from its Delta Connection fleet.

Delta cited improving trends in business traffic and yields, but still foresees continued financial pressures.

"While the revenue environment is improving, we think it will remain challenging for some time," chief financial officer Hank Halter said in an earnings conference call with analysts.

The quarterly loss included $51 million in severance, as Delta continues layoffs of salaried employees to adjust to the decline in revenue. Delta announced the planned cuts in August but did not say how many would be affected. Many of the company's 10,000 salaried employees are at its Atlanta headquarters.

The loss also includes $78 million in costs for Delta's merger with Northwest and $83 million in costs associated with refinancing debt from Northwest. Excluding special items, Delta said it would have had net income of $51 million, or 6 cents a share.

Quarterly operating revenue fell to $7.6 billion for the combined Delta and Northwest operations, a 21 percent drop. Cargo revenue declined 51 percent, in part because of a 38 percent cut in freighter capacity as Delta shutters Northwest's cargo plane operation this year. Meanwhile, Delta's "other" revenue grew by $34 million, or 4 percent, primarily due to increased revenue from baggage fees.

As of Sept. 30, Delta had $5.8 billion in unrestricted liquidity, including $5.5 billion in cash. It expects to end the year with $5 billion in liquidity. Delta completed $2.1 billion in financing last month, suggesting it faces no impending cash crunch despite the continued difficult environment.

The company said it has made better-than-expected progress on cutting costs and reaping revenue benefits from the Northwest merger, and now expects to generate $700 million in merger "synergies" this year. It has also renegotiated more than 600 corporate contracts. Most of the integration of the two airlines' operations, including information technology systems, will be completed by next spring, according to Delta.

But nearly a year after the merger closed, Delta has yet to resolve remaining labor issues, pending the scheduling of union representation elections among flight attendants and ground workers by the National Mediation Board. Meanwhile, the AFL-CIO has proposed a change in rules for NMB elections. Delta executives said there is a question of whether the board has the authority for such a change and raised the possibility of litigation if that happened.