Delta Sets June Deadline to Decide on Investors Returns

Delta Air Lines Inc. (DAL) will decide on returning cash to investors by mid-2013, when it predicts no change in capacity, and will seek to boost unit revenue through gains in corporate travel and fare management.

A share buyback, urged by analysts including John Godyn of Morgan Stanley, would be the first since 2000, when Atlanta- based Delta bought back $500 million of its stock. The world’s second-largest carrier has been focused on lowering its debt to $10 billion before considering shareholder returns. That target should be achieved next year, President Ed Bastian said.

“We need to deploy capital shrewdly, but at the same time we need to make investments for three to five years from now,” Chief Executive Officer Richard Anderson said today on the webcast of an investor presentation in New York. “Our real focus now is to continue to return cash to shareholders while reducing our debt.”

Delta will do a “proper analysis” with its board of directors about how to “return a reasonable amount of cash to shareholders” and reveal its decision at an annual meeting in June, Anderson said.

Delta rose 0.6 percent to $10.72 at the close in New York, after a 5.1 percent jump yesterday. The stock’s two-day gain was the biggest in two months.

The carrier has bought used aircraft including Boeing Co. (BA) 717 jets from Southwest Airlines Co. and MD-90s from Chinese carriers to replace older fuel-guzzling planes it is retiring. Delta owns 90 percent of its fleet and has a “large number of airplanes that are fully depreciated without a monthly payment,” Anderson said. That helps the carrier manage capacity and the associated costs to match demand, he said.

‘Revenue Premium’

Delta will continue to “build revenue premium” in the coming year to compensate for the lack of capacity growth and help mute expenses such as wage increases, the addition of lie- flat seats on widebody jets and the overhaul of its website, according to a regulatory filing.

Yesterday, Delta agreed to buy a 49 percent stake in Richard Branson’s Virgin Atlantic Airways Ltd. for $360 million as they pursue a joint venture for flights between the U.K. and U.S.

Delta is also benefiting from having the integration of its 2008 purchase of Northwest Airlines Corp. completed while competitors such as United Continental Holdings Inc. and Southwest struggle to mesh operations with their merger partners, Anderson said.

Another large merger will likely take place to consolidate the U.S. industry down to four major carriers, Anderson said.

American Airlines parent AMR Corp. CEO Tom Horton said this week that the Fort Worth, Texas-based company is close to completing its bankruptcy reorganization plan and an evaluation of whether to stay independent or merge with US Airways. That combination would surpass United Continental as the world’s biggest carrier.

“The last piece of that puzzle is American and US Airways,” Anderson said.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

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

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