Rising fares push Delta past profit estimates

Rising fares push Delta past profit estimates

Delta Air Lines Inc reported a 13.6 percent drop in quarterly profit on Thursday as its operating expenses swelled due to a 38.8 percent jump in fuel costs.

FILE PHOTO: A Delta Air Lines Boeing 737 plane arrives in Salt Lake City
FILE PHOTO: A Delta Air Lines Boeing 737-800 plane arrives in Salt Lake City, Utah, U.S., January 12, 2018. REUTERS/Mike Blake/File Photo

REUTERS: Delta Air Lines Inc topped estimates for quarterly profit and operating revenue Thursday as a rise in average fares trumped an almost 40 percent surge in fuel costs, pushing shares higher.

Delta said it flew 3.2 percent more paying customers in the quarter and both average fares and adjusted total unit revenue - a closely-watched industry measure which compares sales with flight capacity - increased 4.6 percent.

Given the additional fuel costs, however, the airline also said that it planned to cut less profitable flights in its new schedule for the second half of this year.

"With strong revenue momentum, an improving cost trajectory, and a reduction of 50-100 bps (basis points) of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end," Chief Executive Officer Ed Bastian said.

As developing middle classes in the world's big emerging economies including China and India fly more, global air passenger traffic has risen every month this year.

While that has bolstered airlines across the board, they are also facing the fallout of a more than doubling of crude oil prices since early 2016.

The Atlanta-based airline reiterated it expected its fuel bill for the year to rise by US$2 billion after a 38.8 percent jump in fuel costs in the second quarter.

Those costs prompted Delta to cut its full-year earnings forecast to a range of US$5.35 to US$5.70 per share from US$6.35 to US$6.70 per share, months after bigger rival American Airlines Group Inc also cut its full-year outlook.

Delta expects unit revenue to grow 3.5-5.5 percent in the third quarter. The company's board approved a 15 percent hike in dividend for the third quarter to 35 cents.

On an adjusted basis, Delta earned US$1.77 per share in the second quarter, beating an estimate of US$1.72, according to Thomson Reuters I/B/E/S.

Delta's total operating revenue rose 9.6 percent to US$11.78 billion in the quarter, beating analysts' estimate of US$11.72 billion.

Up to Wednesday's close, the company's stock had fallen 11 percent this year.

(Reporting by Arunima Banerjee in Bengaluru; Editing by Arun Koyyur and Patrick Graham)

Source: Reuters