Delta's Profit Rises on Strong Demand and Cheaper Fuel -- Update
January 14 2020 - 10:39AM
Dow Jones News
By Alison Sider
Delta Air Lines Inc. said lower fuel prices and buoyant demand
from holiday travelers helped drive up quarterly earnings, lifting
the carrier to its 10th consecutive year of profit.
The broader U.S. airline industry is also on track to hit a
decade of profits, a record stretch of profitability that is a
striking change from a period when boom times for carriers were
often followed by punishing busts.
Still, Atlanta-based Delta and other airlines face challenges
including new labor deals that could push up costs and a potential
tempering in travel demand. The International Air Transport
Association has said that global travel demand has continued to
rise in recent months but that the rate of growth has slowed.
Delta's chief executive, Ed Bastian, said that trade tensions
contributed to softer demand for corporate travel in Asia and that
travel to and from the U.K. has been affected by uncertainty over
the country's ties to the European Union.
Still, he said he expected demand for air travel to outpace
economic growth domestically. Delta executives said that
corporate-travel demand was up 6% in the fourth quarter from a year
earlier and that demand for pricier premium seats climbed 9%,
outpacing growth in coach.
"The U.S. consumer is quite healthy," Mr. Bastian said.
Delta shares rose 4.4% on Tuesday.
Delta said it expects its unit costs -- the cost to fly a seat a
mile, excluding fuel -- could rise 2% to 3% in the first quarter of
this year, outpacing unit revenue, which it expects to be flat to
up 2%. The airline said unit revenue grew 2.4% in the fourth
quarter of 2019 because of strong holiday travel. Analysts said the
airline's guidance was better than expected.
Delta has also been buoyed by its competitors' diminished
capacity in recent months. Delta is the only one of the four
largest U.S. carriers that doesn't operate the Boeing Co. 737 MAX,
which has been grounded world-wide since March following a pair of
crashes that killed 346 people.
American Airlines Group Inc., United Airlines Holdings Inc. and
Southwest Airlines Co. all have the MAX in their fleets. The
grounding has cost Delta's biggest domestic rivals hundreds of
millions of dollars in lost earnings and has created unprecedented
logistical challenges for carriers grappling with months of
uncertainty about when the plane will be allowed to return to
service.
Delta expanded its domestic flying capacity by 6% in the fourth
quarter. Mr. Bastian has said the situation has been a modest
benefit to Delta but not an outsize source of profits. He said he
doesn't expect the MAX's return to be a major competitive challenge
whenever the plane is cleared to fly again.
"We're not overly concerned," he said.
Delta could soon face higher labor costs as a result of ongoing
contract negotiations with its pilots. Delta has told the union it
wants to seek federal mediation because it says the talks have
stagnated after nine months, according to a letter the head of
Delta's pilots union sent to members last week.
Mr. Bastian declined on Tuesday to comment on negotiations with
pilots.
Delta reported net profit of $1.1 billion in the fourth quarter,
up from about $1.02 billion a year earlier. Adjusted earnings per
share rose to $1.70, which is 20 cents above the upper end of
Delta's previous guidance and ahead of the $1.40 per share analysts
had expected. Delta's total revenue climbed 6.5% to $11.4 billion
in the fourth quarter.
The fourth-quarter profit included a 9 cent boost from unwinding
Delta's investment in Gol Linhas Aereas Inteligentes SA, a
Brazilian carrier, following Delta's agreement in September to take
a stake in Chile-based Latam Airlines Group SA.
Write to Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
January 14, 2020 11:24 ET (16:24 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Delta Air Lines (NYSE:DAL)
Historical Stock Chart
From Apr 2024 to May 2024
Delta Air Lines (NYSE:DAL)
Historical Stock Chart
From May 2023 to May 2024