Bloomberg News

Delta Joins Southwest in Forecasting Cuts as Fuel Surges

March 13, 2012

A Delta Airlines Inc. jet takes off at Ronald Reagan National Airport in Arlington, Virginia. Photographer: Andrew Harrer/Bloomberg

A Delta Airlines Inc. jet takes off at Ronald Reagan National Airport in Arlington, Virginia. Photographer: Andrew Harrer/Bloomberg

Delta Air Lines Inc. (DAL) and Southwest Airlines Co. (LUV) curbed their first-quarter forecasts today as surging fuel costs erode profit at U.S. carriers.

The discount carrier now projects a loss in the three months through March, compared with earnings of 3.5 cents a share that analysts estimated previously, while Atlanta-based Delta predicted lower profitability

“We not only expect fuel prices to stay high, but we expect they’re going to continue to rise over the long term,” Delta President Ed Bastian said at the JPMorgan Aviation, Transportation & Defense Conference in New York. The airline cut its operating margin forecast to 1 percent to 3 percent, from as much as 4 percent, amid a $250 million increase in fuel.

Jet fuel has risen every year since 2008, surpassing labor as the biggest expense for most U.S. airlines. Carriers have responded by cutting seating capacity to maintain the ability to raise fares. United Continental Holdings Inc. (UAL), the largest carrier, said it will trim seating as much as 1.5 percent this year because of fuel rather than keeping capacity flat.

“Fuel is the story of the quarter,” Southwest Chief Financial Officer Laura Wright said at the conference. “Based on current revenue and fuel estimates, we currently do not anticipate a profit in the first quarter.”

March Bookings

The Dallas-based carrier expects fuel to average $3.50 a gallon this quarter, 15 cents higher than earlier forecasts, Wright said.

Southwest’s outlook for the full year remains favorable, while “highly dependent” on stabilized fuel prices and an economic environment that will support travel demand and fare increases, she said.

Bookings remain “good,” Wright said. March passenger unit revenue may be up in the “low-to mid-single digits” from a year earlier, she said.

Bookings and yields at Chicago-based United are “doing well” so far in March even with “areas of weakness” such as Europe, Chief Executive Officer Jeff Smisek said today on a webcast.

“The domestic system is doing better than you would expect from reading the headlines in the newspaper, Latin America is doing well,” he said. “We’re comfortable with our bookings for March, comfortable with where we are. Going forward, it’s going to be a function of how the U.S. economy responds and the recovery in Europe.”

The Bloomberg U.S. Airlines Index (BUSAIRL) increased 1.6 percent at 4:05 p.m. as broader markets rose, with all 11 carriers in the index posting gains.

To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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


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