Delta to Deepen Seat Cuts After Profit Curbed by Fuel Costs

Delta Air Profit Trails Analysts’ Estimates on Rising Fuel
A passenger looks out towards a Delta Air Lines Inc. plane at San Francisco International Airport in San Francisco on July 26, 2011. Photographer: David Paul Morris/Bloomberg

Delta Air Lines Inc., the world’s second-largest carrier, plans further seating-capacity cuts after higher fuel and maintenance costs pulled second-quarter profit below analysts’ estimates.

Profit excluding certain items was $366 million, or 43 cents a share, the Atlanta-based airline said today in a statement. That lagged behind the 44-cent average estimate in a Bloomberg survey, and the shares dropped to the lowest intraday price since November 2009.

Delta’s jet fuel bill jumped by about $1 billion, an increase of about 39 percent from a year earlier, and aircraft maintenance and payments to regional partners also rose. Delta said it will cut capacity by as much as 5 percent after the peak summer travel season ends to further reduce costs, up from a previous plan of 4 percent.

“Delta missed, but it was more important that they are cutting more capacity,” said Helane Becker, an analyst at Dahlman Rose & Co. in New York, who recommends holding Delta shares. “They can set the example, but then everyone else has to participate” in trimming available seats.

Delta fell 41 cents, or 5.1 percent, to $7.61 at 4:15 p.m. in New York Stock Exchange composite trading, the lowest price since November 2009.

Delta is also lowering costs through job reductions; consolidating facilities; and retiring 140 older less-efficient aircraft, which will save $250 million in maintenance costs in the last half of this year.

‘Modest’ Jet Purchase

More than 2,000 employees accepted voluntary buyout and early retirement offers, most of them hourly workers, said Eric Torbenson, a spokesman for the carrier. That’s about 3 percent of the company’s workforce of 80,000.

Delta is considering adding a “modest” number of new jets to replace the oldest ones it’s eliminating, and will do so only if that would improve cash flow or otherwise benefit the carrier’s finances, Delta Chief Executive Officer Richard Anderson said today on a conference call with analysts.

Asked to clarify what “modest means,” President Ed Bastian said: “Modest means living within our means.” He declined to give a more specific figure.

In January, Delta said it may order 100 to 200 narrow-body jets and seek options for 200 more. Delta flew only Boeing Co. planes before buying Northwest, an Airbus SAS customer, in 2008.

Last week, AMR Corp.’s American Airlines agreed to buy 460 new more-efficient jets, splitting a record order between Airbus and Boeing.

Airline Earnings

Including $168 million in one-time costs for items such as severance packages and aircraft retirement, Delta said its net income declined 58 percent to $198 million, or 23 cents a share, from $467 million, or 55 cents, a year earlier. Revenue rose 12 percent to $9.15 billion, compared with a $9.14 billion projection.

Delta is the second of the biggest U.S. carriers to trail analysts’ earnings estimates for the three months through June. AMR Corp. last week posted a $286 million loss, or 85 cents a share, which was wider than the 81-cent deficit estimated by analysts.

United Continental Holdings Inc. and US Airways Group Inc. posted profits last week that exceeded analysts’ estimates.

United Airlines parent UAL Corp. and Continental Airlines Inc. merged in October in all-stock deal, surpassing Delta as the world’s largest carrier.

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