Delta sees $1.1 billion loss 09; but a better 2010

WASHINGTON Tue Dec 15, 2009 11:58am EST

WASHINGTON (Reuters) - Delta Air Lines Inc projected a $1.1 billion net loss for 2009 due to losses in its fuel hedges, but said revenue trends in the fourth quarter suggested a better 2010.

"There is a fairly significant fuel hedge loss embedded in those numbers," Delta President Ed Bastian told attendants at its annual investor day on Tuesday. He added that the losses were incurred earlier this year.

Delta's shares fell nearly 4 percent to $10.66 on the New York Stock Exchange.

High unemployment has sapped both corporate and consumer demand for air travel this year, leading to a drop in revenue for the global airline industry. Delta, like other airlines, has responded by cutting its capacity.

But executives at the world's largest airline said fourth-quarter trends were showing a marked improvement from earlier in the year. For example, the volume of tickets sold to corporate clients rose almost 15 percent over the last couple weeks, Bastian said.

The company now expects an operating margin of 1 percent to 2 percent for the fourth quarter. Earlier, it was expecting a break-even quarter. It also expects flat capacity in 2010.

In a U.S. Securities and Exchange Commission filing released ahead of its investor day presentation, Delta also indicated that unit revenue would be down 1 percent in December, a smaller rate of decline from previous months.

The airline expects unit revenue to turn positive in the first quarter, on a year-over-year basis. Unrestricted liquidity would be $5.3 billion by year's end, Delta said.

This trend is another data point offering "real tangible evidence that a recovery is under way," Bastian said.

If current trends persist, the airline projects it could see about a 7 percent increase in baseline revenue from passenger traffic in 2010.

CONSOLIDATION NEEDED

The global airline industry is set to lose $5.6 billion next year, due to rising fuel costs, according to new data from industry group International Air Transport Association.

North American carriers are slated to lose $2 billion in 2010, besting their European counterparts who are expected to shed $2.5 billion.

In his opening remarks, Chief Executive Richard Anderson said consolidation would help the industry reach sustained returns.

"Over time, more consolidation will help this business model evolve to a return on capital," Anderson said.

Delta acquired Northwest Airlines last year, and that merger was "a very significant step, a step that ought to be taken in more than just the case of Delta/Northwest," Anderson said.

(Reporting by Karen Jacobs and Deepa Seetharaman; Editing by Lisa Von Ahn and Maureen Bavdek)

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