Delta Beats Profit Estimates as Ticket Prices Rise

Delta Air Lines Inc. rose to a six-year high after the carrier posted third-quarter profit that beat analysts’ estimates as more people flew at higher fares and fuel prices declined.

The shares, already the top performer this year among major U.S. carriers, climbed to $25.49, the highest close since April 2007. Earnings excluding some costs and gains were $1.2 billion, or $1.41 a share, the Atlanta-based airline said in a statement today, exceeding the $1.35 average of 15 estimates compiled by Bloomberg.

Delta, the world’s second-largest airline, has been working to control costs under a 2012 plan to cut $1 billion over two years, with steps such as retiring older jets and replacing inefficient 50-seaters with larger planes. Rising ticket prices are helping reap more revenue from each passenger flown a mile.

“All things considered -- a weak job environment, a weak economy -- there is still pretty good demand for air travel,” Bob Mann, president of aviation consultant R.W. Mann & Co. in Port Washington, New York, said in an interview. “Those who are most adversely affected are clearly not in the market, but those who are outside that group seem to be spending and willing to tolerate the price increases and fees out there.”

Delta shares rose 3.2 percent at the close in New York and have more than doubled this year. The 10-carrier Bloomberg U.S. Airlines Index climbed 2.2 percent to its highest close since October 2007. In the index, Delta’s gain this year trails only the 140 percent jump for Spirit Airlines Inc., a discounter whose fleet is less than 1/10th as large.

Profit Outlook

“We expect to set an all-time profit record for Delta in 2013 and in turn expect to improve on that performance in 2014,” Chief Executive Officer Richard Anderson said on a conference call.

Delta forecast an operating margin improvement in a range of 7 percent to 9 percent this quarter from a year earlier.

“Our numbers for the quarter are closer to 7,” Michael Derchin, a CRT Capital Group LLC analyst in Stamford, Connecticut, said in an interview. “If they end up being closer to the high end, that means the entire quarter is going to come in better. We should have a really nice fourth quarter.”

Derchin recommends buying Delta shares.

Delta said the temporary shutdown of the U.S. government this month reduced October revenue by as much as $25 million.

Fleet Costs

Net income rose 31 percent to $1.37 billion, or $1.59 a share, from $1.05 billion, or $1.23, a year earlier, Delta said. The third quarter included $128 million in costs, mainly for “domestic fleet restructuring,” and a $285 million gain related to fuel hedges, Delta said.

Sales rose 5.7 percent to $10.5 billion, led by gains in the U.S. and across the Atlantic.

Delta said its price paid per gallon of jet fuel fell 5.4 percent in the quarter, helped by production from the airline’s Trainer oil refinery. The refinery, bought last year, had a $3 million operating profit, the company said. Yield, or average fare per mile, climbed 4.6 percent.

Delta today told employees it will reduce unprofitable service further at Memphis, Tennessee, a former hub, to about 40 peak-day flights as of Dec. 3. The change will eliminate 186 flight attendant jobs and 126 airport and cargo positions. Workers affected will be offered transfers with paid relocation, voluntary furlough or voluntary retirement, Delta said.

Delta and five other largest U.S. carriers are expected to report combined third-quarter net income of $2.6 billion, more than twice that of a year earlier, according to Savanthi Syth, a Raymond James Financial Inc. analyst. Travel demand that didn’t drop in the usually slow month of September helped boost sales.

American Airlines parent AMR Corp. reported net income of $289 million and a 6.2 percent increase in sales last week. US Airways Group Inc. reports results tomorrow, followed by United Continental Holdings Inc. and Southwest Airlines Co. on Oct. 24. JetBlue Airways Corp. is set for Oct. 29.

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