Leading passenger carrier Delta Air Lines (DAL - Free Report) disclosed plans to shrink operations at the Memphis, Tenn. hub due to low financial gains. The company will take the step on Sep 3, following Labor Day and after the end of the busy season of summer travel.
This move will suspend almost 230 jobs and scale back flights to 60 per day from the current level of 96. The job cut, primarily of airport customer service executives and cargo workers, is nearly 28% of Delta’s total employee base in Memphis. These employees will be given options to seek transfer to other cities, go for retirement or accept severance packages, once they lose their jobs.
Memphis started losing its ground as a prominent airport, after Delta – the second largest U.S. airline after United Continental Holdings Inc. (UAL - Free Report) – acquired Northwest Airlines in 2008. Memphis – which used to serve as a prime hub for Northwest – now stands as one of the lowest profit generating airports for Delta, along with Cincinnati and Salt Lake City.
Delta management, at the time of merger, stated that no hubs would be closed down because of the acquisition. However, under the current scenario, the company is finding it difficult to sustain its activities at Memphis due to a number of reasons.
A few miles to the east, stands the headquarter city of Delta – Atlanta – and the company has transformed the city's Hartsfield-Jackson International into a highly busy and demanding airport. This has vastly reduced the importance of Memphis, which mostly caters to the demand for 50-seat regional jets on most routes. Delta, on the other hand, is retiring these older and smaller jets to mitigate the rising expense on fuel.
This initiative falls under Delta’s strategy to trim its operating expenses and achieve its target of $1 billion in cost savings over the next few years. While the company is scrapping operations in the unprofitable joints, it is constantly introducing services to improve connectivity and expand its global reach.
Delta, which operates in the airline industry with the likes of Southwest Airlines Co. (LUV - Free Report) and JetBlue Airways Corporation (JBLU - Free Report) , currently holds a Zacks Rank #3 (Hold) rating.