Airline Retires Saab Fleet, Will Apply For Increased Essential Air Service Subsidy In Nine Cities

Delta Air Lines notified the U.S. DOT of its plans to adjust flying in 24 small markets last Friday. In concert with the retirement of Delta's Saab fleet and to halt $14 million in annual losses, the changes will affect Essential Air Service (EAS) markets.

Flights in these markets on average depart with 52 percent of the seats filled, with some locations as low as 12 percent. This compares to a domestic system load factor of 83 percent for 2010. Weak demand in some markets has led to flights occasionally operated with no passengers on board. "While Delta would prefer to continue serving these communities, the new reality of mounting cost pressures faced by our industry means we can no longer afford to provide this service. As we continue to strengthen our business, Delta is retiring the Saab turboprops and some 50-seat jet aircraft, which will hinder the financial viability of serving these smaller markets," Delta said.

Delta has taken a number of steps to respond to added cost pressures. Delta previously announced its intention to reduce capacity this fall by 4 percent and retire 140 aircraft. Delta has reduced its facility costs at 170 airport locations and 10 cargo locations across the system, saving more than $80 million annually. 

The notification provides the DOT the opportunity to select a new carrier to begin service in affected EAS communities within a 90-day period. Delta will continue to serve the affected communities through its Delta Connection partners until the DOT selects a replacement carrier and appropriate funding is available. In some cities, Delta is coordinating with other carriers to bid on the routes. In addition, Delta will to continue service in some subsidized and non-subsidized markets, but the subsidy rate must be higher in order for Delta to fly larger regional jets on the routes in question. A complete list of affected communities is available online. 

The EAS program was created to ensure small communities continue to have access to passenger air service. In some cases, airline service in EAS markets is subsidized by the government. The Airline Deregulation Act of 1978 provides that if a carrier is held in beyond the 90-day notice period, it is entitled to receive compensation "to pay for the fully allocated actual cost to the carrier of performing the ...service ... plus a reasonable return on investment that is at least 5 percent of operating costs; and to provide the carrier an additional return that recognizes the demonstrated additional lost profits from opportunities foregone [by continuing to be held in and providing service]."

Delta will offer customers booked for travel in these markets alternative transportation choices or refunds.

FMI: www.delta.com