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Delta Drops After Margin Forecast Trails Estimates

Delta CEO Richard Anderson
Delta Air Lines Inc. CEO Richard Anderson said Delta plans to reduce its fleet by 20 aircraft in 2011. Photographer: Victor Sokolowicz/Bloomberg

July 19 (Bloomberg) -- Delta Air Lines Inc., the world’s largest carrier, fell the most in two weeks in New York trading after its operating margin forecast trailed some analysts’ estimates.

The third-quarter operating margin will be 10 percent to 12 percent, Delta said today in reporting second-quarter earnings. That lagged behind estimates of 13.3 percent by Hunter Keay, a Stifel Nicolaus & Co. analyst, and 13 percent by Michael Derchin, an analyst at CRT Capital Group LLC in Stamford, Connecticut.

“This is a case where people got a little too ahead of themselves on expectations -- their guidance was in the ballpark, but a little light,” said Derchin, who recommends buying the stock.

The outlook provided by Delta, the first major U.S. carrier to report second-quarter results, reflects a cautious view as last-minute business travel remains difficult to predict in the current economy, Derchin said. Shares fell across the industry on investor concern that other airlines may provide outlooks that fail to meet analysts’ estimates, he said.

Delta slid 34 cents, or 2.9 percent, to $11.38 at 4 p.m. in New York Stock Exchange composite trading, the most since July 2. The Bloomberg U.S. Airlines Index, which consists of 12 carriers, lost 1.8 percent and US Airways Group Inc. tumbled 3.7 percent.

Capacity, Fleet

Delta’s second-quarter profit excluding some items was $549 million, or 65 cents a share, trailing the 66-cent average projection of 12 analysts’ estimates compiled by Bloomberg. Revenue advanced 17 percent to $8.17 billion, falling short of the $8.25 billion average of 10 analysts’ estimates.

A year earlier, the company posted an adjusted loss of $199 million for the second quarter.

Delta plans to reduce its fleet by 20 aircraft in 2011, on top of eliminating 90 planes from the fleet this year, Chief Executive Officer Richard Anderson said on a call with analysts and investors. That includes some 50-seat regional jets with leases that are expiring as well as Saab 340 turboprops and DC-9s, said Betsy Talton, a spokeswoman.

Delta had 966 planes as of March, and owned 673 of them while leasing the rest.

Delta said total capacity would be unchanged or rise as much as 2 percent in the current quarter, and advance as much as 7 percent in the final quarter of the year.

President Ed Bastian called the fourth-quarter figure an “anomaly,” citing a higher-than-usual capacity reduction a year earlier related to the H1N1 flu and the recession.

Capacity in 2011 will increase 1 percent to 3 percent, Bastian said.

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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