Delta Increases Fuel-Savings Estimate, Raises Profit Outlook

  • Carrier sees saving $3 billion as prices continue to decline
  • Airline improves unit-revenue forecast as it caps seat growth

Delta Air Lines Inc. expects plummeting fuel prices will let it save $3 billion next year, 50 percent more than projected just a month ago, allowing the airline to add its lowest-fare seats to overseas flights.

The carrier’s Basic Economy fare is being expanded internationally, Chief Revenue Officer Glen Hauenstein said at an investor presentation Thursday in New York. The bare-bones ticket originally was intended for U.S. markets with competition from ultra-low-cost carriers. 

Delta and other airlines have been out of favor with investors this year as fare wars with Spirit Airlines Inc. and other ultra-low-cost carriers crimped revenue. A benchmark gauge of U.S. airline stocks is pointing toward its first annual decline since 2011. Yet lower fuel costs give Delta breathing room to lower ticket prices.

Fuel costs should average $1.45 a gallon in 2016, down from $2.23 this year, Delta estimated.Chief Financial Officer Paul Jacobson said Nov. 19 that Delta would likely see a $2 billion benefit from cheaper fuel next year. A continued drop in fuel prices allowed Delta to increase its savings projection, spokesman Trebor Banstetter said. The carrier spent almost $11.7 billion on fuel and related taxes in 2014, according to its most recent annual report.

The shares fell 2.1 percent to $51.03 at the close in New York, tracking a broad market slump. The stock is up 3.7 percent this year.

Delta also said seating capacity would be unchanged to up 2 percent next year, with any additions focused on growth markets, such as the U.S., the U.K., Mexico and the Caribbean. It expects to reduce seating for the Brazil, Japan and the Middle East markets. When Delta promised on Oct. 14 to keep capacity growth at 2 percent or less in 2016, the shares surged to the highest since January.

The airline improved its forecast for fourth-quarter unit revenue, projecting a 2 percent drop in passenger revenue per available seat mile from a year earlier. Delta previously forecast a 2.5 percent decline. Fare cuts to fill planes has caused sharp drops in the closely watched industry measurement.

The carrier also said it expects to begin paying cash taxes in early 2018. A reorganization of its trans-Atlantic business is expected to lower its tax expense, the carrier said.

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