UPDATE 2-Delta Air posts profit as fuel costs tumble

Wed Jul 24, 2013 9:36am EDT

* Adjusted per-share profit 98 cents vs estimate 95 cents

* Second-quarter revenue is flat

* Total expenses fall (Adds estimates, details on fuel, share price)

July 24 (Reuters) - Delta Air Lines Inc reported a higher-than-expected quarterly profit on Wednesday as fuel costs fell and it held down other expenses.

The carrier said "solid" travel demand trends would help it expand profit margins.

Delta is expanding in high-growth markets and has upgraded aircraft seats and food options to entice passengers to spend more. It recently bought a stake in British carrier Virgin Atlantic that will give it more access at London's Heathrow Airport, an important international business market.

The airline, which in May announced its first dividend in a decade and a $500 million share buyback program, bought a Pennsylvania refinery last year to try to gain more control over its fuel costs. The refinery had a loss of $51 million in the second quarter because of costs related to U.S. renewable fuel standards. But Delta added it was reducing fuel costs.

"Production at Trainer has contributed to a substantial change in the jet fuel markets, which is lowering our overall fuel expense significantly," Chief Financial Officer Paul Jacobson said in a staff memo on Wednesday.

Net income at Delta was $685 million, or 80 cents a share in the second quarter, compared with a loss of $168 million, or 20 cents a share, a year earlier.

There were charges of $159 million in the quarter tied to fuel-hedge contracts and Delta's aircraft restructuring.

Adjusted for items, profit was 98 cents a share, compared with 95 cents expected by analysts on average, according to Thomson Reuters I/B/E/S.

Quarterly revenue fell $25 million to $9.71 billion. While passenger revenue rose about 1 percent, cargo revenue slid 11 percent. Other revenue, which includes maintenance and baggage fees, fell about 6 percent as Delta ended some maintenance contracts.

Operating costs dropped 8 percent, with fuel expenses down 21 percent in the quarter. The average fuel price fell to $3.03 a gallon from $3.37 a year earlier, Delta said.

Other costs also fell in the quarter, with plane maintenance material expenses down 14 percent and aircraft rent down 19 percent.

Delta's shares rose about 4 percent, or 82 cents, to $21.28 in early New York Stock Exchange trading. (Reporting by Karen Jacobs in Atlanta; Editing by Maureen Bavdek)

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