Delta to Shut Comair Regional Unit to Cut Operating Costs

Delta Air Lines Inc. (DAL) will close the Comair commuter unit on Sept. 29 as fuel costs force it to cut flying by 50-seat jets, ending an era in which it relied on wholly owned subsidiaries for some regional service.

Comair accounts for about 1 percent of its parent’s seating capacity, and there will be no disruption for travelers and “no significant adjustments” to the larger airline’s schedule or destinations, Atlanta-based Delta said today in a statement.

The shutdown is part of Delta’s strategy to use more cost- effective planes for 75 percent of the flying done by 50-seaters and help pare spending by $1 billion over the next several years. That means shifting flights to larger aircraft at commuter partners or its own main jet fleet.

“Fifty-seat flying is terribly inefficient and likely unprofitable at current fuel prices,” Fred Lowrance, an analyst at Avondale Partners LLC in Nashville, Tennessee, said in an interview. “It’s a good idea.”

Delta bought Comair for $1.8 billion in 1999, when owning regional carriers was common for the major U.S. airlines. The former Northwest Airlines Corp. and Continental Airlines Inc. both unloaded commuter operations in the first half of the last decade, and Delta agreed to sell its Mesaba and Compass units in 2010 to Pinnacle Airlines Corp. (PNCLQ) and Trans States Holdings Inc.

Shrinking Fleet

Delta plans to reduce its 50-seat jets to 125 or fewer from 350 over the next two years. The carrier operated more than 500 such planes as recently as 2008. Earlier cutbacks already reduced Comair’s fleet to 44 planes.

“The 50-seat RJ fleet was purchased with a fuel-price assumption of $20 a barrel,” Chief Executive Officer Richard Anderson told Delta employees in a recorded message. “Today that number is over $100 and the economics simply do not work. It’s an unfortunate set of circumstances because the Comair operations were not sustainable.”

Delta rose 0.1 percent to $9.42 at the close in New York. The shares have gained 16 percent this year.

Comair’s 1,700 employees will be considered for open positions at Delta and regional partners, a Delta spokesman, Trebor Banstetter, said in an e-mail. Anderson said the shutdown won’t affect pilots, flight attendants or maintenance and reservations workers in Cincinnati, Comair’s base.

The closing follows steps that started in 2010 to reduce Comair’s fleet by 53 aircraft and trim a workforce that numbered 2,600 at the time.

Most of Delta’s regional flying is done under contracts with units of SkyWest Inc. (SKYW), Republic Airways Holdings Inc. (RJET), Pinnacle, Trans States and American Airlines. Pinnacle and AMR Corp.’s American are both in bankruptcy protection.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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