Delta Air Lines planes grounded in New York.Mark Lennihan/The Associated Press
Delta Air Lines Inc. topped estimates for quarterly profit and operating revenue on Thursday as a rise in average fares trumped an almost 40-per-cent surge in fuel costs, pushing its shares higher by as much as 3 per cent.
The United States’ second biggest airline said it flew 3.2 per cent more paying customers in the second quarter and both average fares and adjusted total unit revenue – a closely-watched measure which compares sales with flight capacity – increased 4.6 per cent.
Bigger rival American Airlines Group Inc. on Wednesday flagged lower-than-anticipated average fares in the United States, raising investor concerns.
Delta posted 2.5 per cent growth in U.S. average fares in the quarter and promised to cut less profitable flights in its fall schedule to further boost metrics.
“Delta is delivering a product that is better than peers and because of that, they seem to be able to get a premium to the industry with respect to pricing,” Cowen & Co. analyst Helane Becker said.
“Delta is now in a position to raise numbers going forward rather than continuing to reduce numbers.”
With the global economy expanding and developing middle classes in the world’s big emerging economies including China and India flying more, global air passenger traffic has risen every month through May this year.
That has bolstered airlines across the board, but they also face the fallout of a more than doubling of crude oil prices since early 2016.
UBS analyst Darryl Genovesi said Delta would have to cut flights more aggressively next year to keep shareholders’ faith.
“We think stock could be weak absent a meaningful 2018 capacity cut. We continue to anticipate a capacity slowdown in 2019,” he said.
The Atlanta-based airline said last month it expected its fuel bill for the year to rise by US$2-billion and reported a 38.8-per-cent jump in fuel costs in the second quarter.
Those costs also drove a cut in its full-year earnings forecast to a range of US$5.35 to US$5.70 a share from US $6.35 to US $6.70 a share, months after American Airlines also cut its full-year outlook.
Delta expects unit revenue to grow 3.5 per cent to 5.5 per cent in the third quarter and the board approved a 15 per cent hike in dividend to 35 cents.
On an adjusted basis, Delta earned US$1.77 a share in the second quarter, beating the average estimate of US$1.72, according to Thomson Reuters I/B/E/S.
Total operating revenue rose 9.6 per cent to US$11.78-billion, beating the average estimate of US$11.72-billion.
“Delta’s 3Q and FY guide truly represents a mixed bag,” JP Morgan analysts said.
“Healthy (unit revenues), an autumnal capacity cut, and a consensus-embracing guide for 3Q. On the other hand … the diminished full-year guide is weaker than what we anticipated, fails to capture consensus, and investors are already expressing displeasure with the magnitude of the capacity cut.”