Tuesday, March 18, 2008

Gas Prices Starting to Hit Employment Numbers

From the WSJ:

Delta Air Lines Inc. unveiled a new plan to cope with soaring fuel prices that includes cutting 2,000 jobs and reducing its number of domestic flights by an additional 5%.

In a memo to employees this morning, Richard Anderson, Delta's chairman and chief executive, and Ed Bastian, president and chief financial officer, said the airline hopes to achieve the headcount reductions by offering voluntary buyouts to about 30,000 employees.

Delta will reduce its number of domestic flights by cutting back on the number of flights on certain routes, by parking up to 45 planes, and other measures. The 5% reduction will now result in a 10% year-over-year cutback in domestic flights by August.

While Delta has already cut some domestic flights, eliminated routes, and made efforts to save on fuel use, fuel prices have climbed nearly 20% in the past three months, the executives said in the memo. The airline's fuel bill for this year is expected to be nearly $900 million higher than Delta's original projections, and more than $2 billion above 2007. Delta's earlier forecast was based on fuel prices of $90 a barrel, and the airline now expects fuel to remain at about $100 a barrel "for the foreseeable future," the executives said.

Those cost increases are pretty hefty. And don't think Delta is alone is this.

And here is more bad news for Detroit:

J.D. Power & Associates cut its forecast for new vehicle sales in the U.S. by 4.8% to 14.95 million, a level last seen in 1994, and said that the sales market will weaken further in the second quarter before beginning a rebound.

The market-research firm, while noting weaker sales in January and February, said much of the outlook reduction was due to slumping consumer confidence and persistent economic turbulence. J.D. Power's prior 2008 sales forecast was 15.7 million; the last time U.S. sales totaled less than 16 million vehicles was 1998.

Sales at the retail level are now seen totaling 12.3 million vehicles this year, down from the old forecast of 12.6 million and 2007 sales of 12.8 million. J.D. Power said, "General economic conditions, coupled with less widespread incentives, are driving the retail decline."

Everybody in some way is getting hit by fuel prices. Well, not everybody -- only people who have to drive or move stuff from point A to point B. Consider those fuel cost increases and Delta's announcement along with these two charts of employment from Econoday: