Delta, US Airways Shares Climb as Earnings Beat Forecasts on Higher Fares

Delta Air Lines Inc. and US Airways Group Inc. (LCC) rose in New York after saying higher fares and full planes produced fourth-quarter profits that topped analysts’ estimates.

Delta, the world’s second-biggest airline, increased 6.2 percent to $9.96 at 4:15 p.m. in New York, the biggest daily advance since October. US Airways, which confirmed today it is exploring merger options with bankrupt American Airlines parent AMR Corp., climbed 17 percent to $7.52, its largest gain since July 2009.

Planes flew more than 80 percent full after carriers cut capacity, allowing both airlines to boost prices and post higher revenue than analysts anticipated. That helped mitigate an average 26 percent gain in fuel prices. Strong travel demand and revenue growth continue so far in 2012, both companies said.

“The fourth quarter marks a turnaround in the space, and the industry has proven that they can be profitable at $100-a- barrel oil,” said Helane Becker, a Dahlman Rose & Co. analyst who recommends buying Delta (DAL) stock and holding US Airways. “We’re getting some very good guidance for the first quarter, and that underscores for us that we don’t think the industry is seeing a downturn.”

Profit Doubles

Profit at Atlanta-based Delta excluding some items more than doubled to $379 million, or 45 cents a share, exceeding a 38-cent average from 15 analysts’ estimates compiled by Bloomberg. US Airways’ earnings on that basis fell to 13 cents a share, topping the average forecast of 3 cents.

Southwest Airlines Co., the largest low-fare carrier, posted a profit on Jan. 19 that also topped analysts’ estimates. United Continental Holdings Inc., the world’s biggest airline, is scheduled to report results tomorrow.

Net income at Delta surged to $425 million, or 50 cents a share, from $19 million, or 2 cents, a year earlier. The results included a $164 million gain on fuel hedges, a $43 million gain related to a slot-trade at New York’s LaGuardia airport with US Airways, $81 million to write down the value of aircraft and $80 million for debt extinguishment and severance.

Fuel costs rose about 5 percent to $2 billion. Revenue gained 8 percent to $8.4 billion for Delta’s main jet operations and regional carriers. The airline forecast a 15 percent increase this month in unit revenue, a measure of fares and traffic.

‘Strong’ Trends

“Overall system demand trends remain strong for the March quarter,” Delta President Ed Bastian said on a conference call with analysts. “Our February trends appear largely consistent with what we are seeing in January.”

In addition to boosting average fares per mile 11 percent, Delta reduced flying on trans-Atlantic routes because of plummeting demand for travel to Europe. The cost to fly each seat a mile rose 5 percent for its main jet fleet.

“The biggest challenge we face in 2012 is stemming the cost creep we have seen over the last few years,” Chief Financial Officer Hank Halter told employees in a memo today. “We are committed to bringing our non-fuel unit costs back down to 2010 levels and are working on identifying changes that will enable us to meet this commitment.”

Delta’s operating margin should increase in a range of 2 percent to 4 percent this quarter, and unit costs excluding fuel should rise 3 percent to 5 percent, the airline said. Delta plans to trim capacity as much as 5 percent in the period.

US Airways

US Airways CEO Doug Parker said the Tempe, Arizona-based airline has hired Millstein & Co., Barclays Plc and law firm Latham & Watkins LLP to help evaluate options for a possible combination with AMR. TPG Capital and Delta Air Lines Inc. also are evaluating bids, people familiar with the matter have said.

AMR declined to comment on Parker’s remarks beyond saying it’s “laser focused” on achieving increased revenue and a competitive cost and debt structure while in bankruptcy.

US Airways’ net income declined 36 percent to $18 million, or 11 cents a share, from $28 million, or 17 cents, a year earlier, the carrier said. The results included $2 million in legal fees related to arbitration of auction rate securities and $1 million in costs tied to its US Airways Express unit.

An 8.5 percent increase in revenue gave US Airways a record $3.2 billion for the quarter. That helped offset a 29 percent boost in its average price per gallon of fuel. The airline is the only major U.S. carrier that doesn’t use hedging, or advance contracts at a fixed cost, to help protect against volatility.

US Airways hasn’t seen any decline in business or leisure travel demand, said President Scott Kirby, who forecast unit passenger revenue growth of 10 percent this month and in February, and “high single digits” for March.

Business Demand

“If anything, the new year has seen a step up in business demand from the already strong level we saw in the second half of 2011,” he said on a conference call. “The pricing environment also remains strong and the industry is successfully recovering high fuel prices.”

The airline will complete the removal of Boeing Co. 737s from its fleet this year as it retires 15 leased aircraft, and it will add 12 new Airbus SAS A321s, Chief Financial Officer Derek Kerr said. Flight and seat capacity will rise about 1 percent in 2012.

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

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.