UPDATE 6-Delta profit misses estimates as fuel costs weigh

* Q4 adj EPS 19 cents vs analyst estimate 24 cents

* Loss expected for current quarter

* Shares off 8.2 pct, other airlines lower (Adds note on fare increases, updates share moves)

By Karen Jacobs

ATLANTA, Jan 18 (Reuters) - Delta Air Lines Inc (DAL.N) reported a lower-than-expected quarterly profit, raising fresh concerns about the strength of the airline industry's recovery in the face of rising jet fuel prices.

The news sent Delta's shares down more than 8 percent and shares of other airlines weakened, with industry leader United Continental Holdings Inc (UAL.N) down 3.3 percent, US Airways (LCC.N) off 6.2 percent and American parent AMR Corp AMR.N down 3.9 percent. The Arca Airline index .XAL fell 2.6 percent.

Delta said it expects 2011 to be profitable as fare increases and baggage fees aid revenue. But some analysts said Delta's relatively weak forecast of a 1 percent to 3 percent operating margin suggests a higher-than-expected loss for the first quarter.

"Demand right now is strong enough where the costs can be passed through, at least to a certain degree," said Ray Neidl, a senior aerospace specialist with Maxim Group. "Beyond that it does create some problems, but the airlines are prepared to take actions."

Analysts currently expect a loss of 16 cents a share for Delta for the first quarter, according to Thomson Reuters I/B/E/S. The first three months of the year are typically the weakest period for airlines.

U.S. oil prices slipped on Tuesday but are nonetheless approaching $100 a barrel [ID:nL3E7CI0D4]. In London, ICE Brent crude for March rose 36 cents to $97.79 a barrel.

"There's concern that oil prices are only going to go up from here," said ITG Investment Research analyst Matthew Jacob.

Industry revenue and profit have improved in the past year, recovering from the recession, which sapped corporate and consumer demand for air travel. Other carriers are due to report fourth-quarter profits this week and next.

REVENUE, CAPACITY CONCERN

Fuel prices are not the only challenge for airlines. ITG analyst Jacob said revenue growth is starting to slow year-over-year as carriers face tougher comparisons. He also expressed concern about plans by airlines to increase capacity this year. Capacity cuts a couple of years ago helped airlines bounce back from the downturn, Jacob added.

For example, Delta said its system capacity would rise 5 percent to 7 percent in the current quarter from a year earlier, mainly because of planned international increases.

"Investors are starting to get a little bit nervous about the industry's overall ability to manage the capacity properly and not grow too quickly and put more pressure on recovery," Jacob said.

Delta said during its earnings conference call that it is prepared to change its capacity plans and would keep retiring less fuel-efficient planes. The carrier said fuel is the biggest issue it faces, with the potential to add an extra $1 billion to costs over last year at current prices. Delta spent $7.6 billion on fuel in 2010.

Delta said recent fare increases, including one it led in the United States over the past weekend, would support revenue in coming months. "We have seen signs that the industry is generating a revenue-based response to rising fuel prices as we need to," company President Ed Bastian said.

Net income at Delta, the second-largest carrier behind United Continental, was $19 million, or 2 cents a share, in the fourth quarter. That compared with a year-earlier loss of $25 million, or 3 cents a share.

Excluding items such as merger costs, profit was 19 cents a share. Analysts on average expected 24 cents.

Winter storms and resulting flight cancellations reduced profit by $45 million. The carrier said storm effects would also hit first-quarter results, adding that winter weather last week led it to cancel 4,000 flights in Atlanta, its biggest hub.

Operating revenue rose 14 percent to $7.79 billion, compared with the $7.74 billion that analysts expected.

Quarterly operating expenses increased 9 percent, or $644 million. Fuel costs rose 13 percent to $1.93 billion, and plane maintenance expenses were up 39 percent as aircraft were returned to service. Costs tied to contracts with feeder airlines rose 25 percent, Delta said.

Delta has cut debt, added passenger amenities such as fully reclining seats, and expanded service to higher-growth markets since it bought Northwest Airlines in 2008. (Reporting by Karen Jacobs; Editing by Gerald E. McCormick and Dave Zimmerman and Steve Orlofsky)