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Higher fares help Delta, US Air beat estimates

Delta and US Airways both beat the Street.

Lucy Nicholson/Reuters/Lucy Nicholson/Reuters

Delta Air Lines Inc. and US Airways Group Inc. reported stronger-than-expected fourth-quarter results on Wednesday as higher ticket prices helped offset a surge in fuel prices.

Shares of both airlines shot up in early trading on the New York Stock Exchange.

Delta raised average fares 11 per cent, while ticket prices at US Airways also rose. Executives said they were heartened by the strength in demand in early 2012.

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Still, Delta underscored the importance of keeping costs in check two years into the industry's recovery from a decade-long downturn that led to airline mergers and bankruptcies.

"The biggest challenge we face in 2012 is stemming the cost creep we have seen over the last few years," Delta chief financial officer Hank Halter said in a memo to employees.

A spike in fuel costs in 2008 hastened a series of capacity cuts, baggage fees and higher fares across the industry.

"We are committed to bringing our non-fuel unit costs back down to 2010 levels and we are working on identifying changes that will enable us to meet this commitment," Mr. Halter added.

Measures to do so include restructuring contracts with regional carriers and boosting productivity across the airline, Delta executives said during a conference call.

Delta's earnings of 45 cents a share before special items beat the analysts' average estimate of 38 cents, according to Thomson Reuters I/B/E/S.

US Airways reported an adjusted profit of 13 cents a share, trouncing Wall Street expectations of 2 cents.

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Both carriers are exploring a merger with AMR Corp., the parent of American Airlines, which filed for bankruptcy in November, sources have said.

During the call, Delta executives declined to comment on industry consolidation.

Industry executives, including US Airways chief executive officer Doug Parker, have advocated further consolidation in the sector to keep the industry healthy in the face of rising fuel prices, overcapacity and high fixed costs.

US Airways spent $3.4-billion (U.S.) on aircraft fuel and related taxes in 2011, up 41.4 per cent from 2010. Had fuel prices in 2011 remained on par with 2010 levels, US Airways fuel expenses would have been $1.2-billion lower.

Revenue rose 8.5 per cent at US Airways and 8 per cent at Delta.

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