Bloomberg News

Delta Falls After Earnings Miss as Oil Prices Weigh on Airlines

October 25, 2011

Oct. 25 (Bloomberg) -- Delta Air Lines Inc. fell in New York trading after posting a quarterly profit that trailed analysts’ estimates as jet-fuel costs eroded the benefit from rising fares.

Shares across the industry slumped today as well, dragged down by crude oil prices that climbed to a 12-week high. Atlanta-based Delta dropped 5.2 percent, the most since Oct. 3.

Fuel spending at Delta, the world’s second-largest carrier, surged 42 percent to $2.88 billion in the third quarter. Earnings excluding some items slid 18 percent to $765 million, or 91 cents a share, according to a statement. That compared with 94-cent average of 13 estimates compiled by Bloomberg.

“The shares are probably trading on oil,” said Helane Becker, an analyst at Dahlman Rose & Co. in New York who recommends buying the stock. She said earnings were “roughly in line” with her expectations.

Delta trimmed available seats by 1 percent last quarter and said traffic was little changed as some travelers deferred trips. For the fourth quarter, Delta forecast an operating margin of 5 percent to 7 percent, better than Becker’s projection for 4.8 percent.

Holiday bookings “look pretty good,” President Ed Bastian said on a conference call with analysts. The airline has said it will cut available seating capacity by 5 percent this quarter to further lower costs.

Airline Shares

Delta was the third-worst performer today among the 10 carriers in the Bloomberg U.S. Airlines Index, which tumbled 4.4 percent. Delta has fallen 33 percent this year, exceeding the 28 percent drop for the index.

Crude on the New York Mercantile Exchange rose $1.90 to the highest level since Aug. 2, settling at $93.17 a barrel. Jet fuel is refined from crude oil.

Delta said sales rose 9.7 percent to $9.8 billion. Higher third-quarter ticket prices were reflected in an 11 percent gain in yield, or the average fare per mile, while the cost to fly each available seat a mile climbed 13 percent.

The airline’s one-time items included costs and benefits from fuel hedging and foreign exchange, according to the statement. Net income was $549 million, or 65 cents a share, compared with $363 million, or 43 cents, a year earlier.

Delta is the third of the five biggest U.S. carriers to report quarterly results. American Airlines parent AMR Corp. said last week that it had a $162 million net loss, wider than analysts estimated, while Southwest Airlines Co. beat estimates with a profit excluding some items of $122 million.

Earnings Ahead

United Continental Holdings Inc., the world’s largest airline, and US Airways Group Inc. are scheduled to report on Oct. 27.

Analysts are monitoring airlines’ earnings calls for insights into travel demand as a sluggish U.S. economy saps consumer confidence and spending.

Delta and United each initiated fare increases yesterday of as much as $5 each way in most domestic markets, on top of boosts of $2 to $5 last week, Jamie Baker, an analyst at JPMorgan Chase & Co., wrote yesterday in a note to clients.

About half of the attempted domestic fare increases this year were matched by most carriers and thus deemed successful, according to ticket research firm FareCompare.com.

--Editors: Ed Dufner, John Lear

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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