Delta Air CEO Sees Pricing Shakeup (DAL)

The head of Delta Air Lines DAL said Wednesday that the airline is looking to shake up the way it prices tickets and hinted it could seek permission to impose fuel surcharges on domestic flights for the first time. Richard Anderson, chief executive, said revising the pricing structure was a key part of efforts to improve the industry's historically tiny return on capital, and comes as rising fuel costs pose the biggest challenge to efforts to boost profitability. A number of airlines have recently started imposing fuel surcharges on international services, but Anderson said regulators had in the past barred such a move for domestic U.S. flights. He noted U.S. rail and shipping companies are able to impose domestic fuel charges. It is rare for an airline executive to comment publicly on pricing policy, with CEOs wary of antitrust laws and mindful of colleagues who fell foul of them during a number of high-profile cases in the 1980s. Setting airline fares has become increasingly sophisticated, but many executives believe they are "leaving money on the table" with an approach that focuses on macro factors rather than further refinement on working out how much flyers are prepared to pay for a particular journey. Anderson's comments came as Delta said it was targeting "solid" profit growth in 2011, leveraging cost cuts with modest capital expenditure as demand conditions moved back to pre-recession levels, especially for premium traffic. The airline kept its 2011 capacity guidance intact with the rise of 1% to 3% focused on more international flying, with its fourth-quarter forecast also remaining unchanged. Delta aims to cut its net debt to $10.2 billion by the end of 2012, with free cash flow focused on debt reduction and improving its product rather than heavy investment in new aircraft. However, it plans to open talks early next year with aircraft manufacturers about replacing older narrow body planes "in the medium term," said President Ed Bastian. Anderson also said it wants to have the balance sheet strength to remain competitive in future industry consolidation.