Delta Airlines 2009 Annual Report Download - page 11

Table of Contents
Our aircraft fuel purchase contracts do not provide material protection against price increases or assure the availability of our fuel supplies. We purchase
most of our aircraft fuel under contracts that establish the price based on various market indices. We also purchase aircraft fuel on the spot market, from off-
shore sources and under contracts that permit the refiners to set the price.
We use derivative instruments, which are comprised of crude oil, heating oil and jet fuel swap, collar and call option contracts, in an effort to manage our
exposure to changes in aircraft fuel prices.
We are currently able to obtain adequate supplies of aircraft fuel, but it is impossible to predict the future availability or price of aircraft fuel. Weather-
related events, natural disasters, political disruptions or wars involving oil-producing countries, changes in government policy concerning aircraft fuel
production, transportation or marketing, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel
supply shortages and fuel price increases in the future.
Competition
We face significant competition with respect to routes, services and fares. Our domestic routes are subject to competition from both new and existing
carriers, some of which have lower costs than we do and provide service at low fares to destinations served by us. In particular, we face significant
competition at our hub airports in Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-JFK, Salt Lake City, Paris-Charles de Gaulle,
Amsterdam and Tokyo-Narita either directly at those airports or from the hubs of other airlines that compete on a connecting basis. We also face competition
in smaller to medium-sized markets from regional jet operators. Our ability to compete effectively depends, in significant part, on our ability to maintain a
cost structure that is competitive with other carriers.
In addition, we compete with foreign carriers for U.S. passengers traveling to international destinations, as well as between foreign points. International
marketing alliances formed by domestic and foreign carriers, including the Star Alliance (among United Air Lines, Continental Airlines, Lufthansa German
Airlines, Air Canada and others) and the oneworld alliance (among American Airlines, British Airways, Qantas and others) have significantly increased
competition in international markets. The adoption of liberalized Open Skies Aviation Agreements with an increasing number of countries around the world,
including in particular the Open Skies Treaty with the Member States of the European Union, has accelerated this trend. Japan has reached agreement in
principle with the United States on an open skies agreement, contingent upon the successful completion of DOT alliance approval for its carriers. Through
marketing and codesharing arrangements with U.S. carriers, foreign carriers have obtained increased access to interior U.S. passenger traffic beyond
traditional U.S. gateway cities. Similarly, U.S. carriers have increased their ability to sell international transportation, such as services to and beyond
traditional European and Asian gateway cities, through alliances with international carriers.
Regulatory Matters
The DOT and the Federal Aviation Administration (the "FAA") exercise regulatory authority over air transportation in the U.S. The DOT has authority to
issue certificates of public convenience and necessity required for airlines to provide domestic air transportation. An air carrier that the DOT finds fit to
operate is given unrestricted authority to operate domestic air transportation (including the carriage of passengers and cargo). Except for constraints imposed
by regulations regarding "Essential Air Services," which are applicable to certain small communities, airlines may terminate service to a city without
restriction.
The DOT has jurisdiction over certain economic and consumer protection matters, such as unfair or deceptive practices and methods of competition,
advertising, denied boarding compensation, baggage liability and disabled passenger transportation. The DOT also has authority to review certain joint
venture agreements between major carriers. The FAA has primary responsibility for matters relating to air carrier flight operations, including airline operating
certificates, control of navigable air space, flight personnel, aircraft certification and maintenance and other matters affecting air safety.
Authority to operate international routes and international codesharing arrangements is regulated by the DOT and by the governments of the foreign
countries involved. International certificate authorities are also subject to the approval of the U.S. President for conformance with national defense and foreign
policy objectives. 6