Delta Air Forecasts Profit as Loss Narrows on Increased Fares, Added Sales

Delta Air Lines Inc., the world’s largest carrier, forecast a profit for this quarter as its net loss for the first three months of 2010 narrowed to $256 million on higher fares and improved demand.

The first-quarter loss of 31 cents a share shrank from $794 million, or 96 cents, a year earlier, the Atlanta-based company said today. Revenue rose 2.5 percent to $6.85 billion.

Delta and other U.S. carriers took advantage of the strengthening economy by raising fares and charging more for services such as checking luggage, helping to offset higher fuel costs. Airlines benefited from previous expense reductions such as parking jets and cutting jobs.

“Delta is seeing real encouraging revenue trends and corporate bookings are improving, and those are very good signs for the rest of the year,” said Jim Corridore, an analyst at Standard & Poor’s in New York who recommends buying Delta shares.

Delta said its loss excluding what the company considers one-time items was $192 million, or 23 cents a share. Analysts on that basis had expected a 23-cent loss, the average of 9 estimates compiled by Bloomberg.

“We expect the positive revenue trends to continue and to be solidly profitable in the June quarter,” Chief Executive Officer Richard Anderson said in a statement. “We are encouraged by the improvements we continue to see in the revenue environment.”

Increased Fuel Price

Revenue was projected to be $7.01 billion, the average of 7 estimates. Delta posted a 5 percent decline in cargo revenue after shutting down its dedicated freighter unit last year, and a 4 percent slide in sales from services such as aircraft maintenance and overhaul for other carriers.

Delta slid 2 cents to $13.16 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 16 percent since Jan. 1.

Passenger revenue increased 4 percent in the first quarter on higher fares and demand for travel, which kept planes 2 percentage points more full than the same period a year earlier.

Delta said it will have an operating margin of 8 percent to 10 percent for the three months ending in June, and that it will finish the period with about $6 billion in cash and total liquidity.

The carrier projected an average jet-fuel price of $2.37 a gallon for the current quarter including all hedges and taxes, which would be a 13 percent increase from the average cost of jet fuel in New York harbor during the first quarter.

Shrinking Fleet

“Rapidly escalating fuel prices have the potential to be a major financial headwind,” Chief Financial Officer Hank Halter said today in a memo to employees.

Delta has about 43 percent of its fuel needs hedged for the remainder of the year, he said.

The airline has canceled 400 flights while European airspace has been closed because of a volcanic ash cloud, President Ed Bastian said today on a conference call. The cumulative effect of those grounded flights is about $20 million, he said. Delta will operate about half its normal Europe-to-U.S. flights today, and plans to make all its U.S.-to- Europe flights tonight, he said.

Delta ended the first quarter with 737 aircraft, and plans to eliminate 71 from its fleet this year, most of them regional jets.

Jets on Order

The company has ordered 18 Boeing Co. 787-8 Dreamliner long-haul jets on order, which production issues have delayed for more than two years.

Analysts asked Delta executives on a conference call whether the airline’s order still exists and Anderson said, “technically, yes.” He added that “we’ve been in negotiations with Boeing to figure out what’s going to happen with those positions.”

Delta has negotiated “significant lease-reduction payments” by extending rental agreements on its widebody 747- 400 fleet while adding lie-flat seats to those jets. Delta now has about 180 transoceanic planes with an average age of less than 10 years, Anderson said.

“We’re in good shape” in terms of those aircraft, Anderson said. The company is in discussions with Boeing about the 787s, and Betsy Talton, a Delta spokeswoman, declined to elaborate whether Anderson’s remarks indicated the carrier may cancel or push out delivery dates.

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

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