UPDATE 3-Delta posts higher-than-expected profit, says outlook 'solid'

Tue Oct 22, 2013 1:52pm EDT

* Quarterly revenue up 6 percent helped by US, Europe

* Refinery posts $3 million profit

* Says bookings for holiday season are strong

* Shares up nearly 4 pct to new high

By Karen Jacobs

Oct 22 (Reuters) - Delta Air Lines Inc on Tuesday reported a higher-than-expected quarterly profit as fare increases and strong demand in the United States and Europe boosted revenue, sending its shares up nearly 4 percent to a new year high.

The U.S. carrier said its revenue outlook looked "solid" through the end of the year and that bookings for the holiday season were strong.

"Delta is leading the pack in unit revenue growth, in executing and in creative thinking," said Jim Corridore, an equity analyst with S&P Capital IQ. "Because of its strong cash generation, the fact that it is well ahead of the competition in its (merger) integration, it is able to do things that competitors can't do."

Corridore said the performance in passenger revenue, which rose nearly 11 percent domestically and 9 percent across Europe, suggested that Delta gained market share. Yield, a gauge of the average fare paid per mile flown, rose about 5 percent to 16.85 cents.

Delta, the second-largest carrier behind United Continental Holdings, said the October government shutdown hurt revenue by $20 million to $25 million. Still, it said margins would expand in the current quarter.

The airline forecast an operating margin, a measure of income to costs, of 7 percent to 9 percent, for the fourth quarter. The upper end of that range is higher than some analysts expected, such as Helane Becker of Cowen & Co, who had forecast 7.1 percent.

Delta, which paid its first dividend since 2003 earlier this year and was chosen to re-join the S&P 500 last month, has upgraded aircraft seats and expanded Wi-Fi and entertainment options to increase revenue. It has also formed partnerships with non-U.S. airlines such as Britain's Virgin Atlantic Airways to gain new passengers, and added flights in lucrative markets such as New York.

Those moves paid off in the third quarter. Delta said corporate revenue gains in banking, financial services and healthcare helped drive the strength it had in the United States, while its joint venture with Air France-KLM bolstered results in Europe. The airline also cited a "double-digit increase" in sales of seat-related products and other services.

To pare costs, Delta has been retiring fuel-guzzling planes, and it bought a Pennsylvania oil refinery last year that helped lower fuel expenses (Story on refinery profit, ).

"We expect to set an all-time profit record for Delta in 2013 and in turn expect to improve on that performance in 2014," Chief Executive Richard Anderson said during a conference call.

Last week, American Airlines parent AMR Corp posted a profit that topped estimates as revenue set a record. The third quarter is traditionally a strong period for U.S. airlines since it includes summer vacation travel.

Net income at Delta came to $1.37 billion, or $1.59 a share, in the third period, compared with $1.05 billion, or $1.23 a share, a year earlier.

Excluding a fuel-hedging gain and a charge from changes in Delta's fleet, profit was $1.41 a share, compared with the analysts' average estimate of $1.36, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $10.5 billion, and passenger revenue was up nearly 7 percent. Passenger revenue per available seat mile, an important measure also called unit revenue, increased 4 percent.

Shares of Delta were up 3.7 percent to $25.60 in afternoon trading on Tuesday after reaching $26.24 earlier in the session. Other U.S. airline stocks also rose, with United Continental gaining 2.3 percent to $31.26 and US Airways Group up 2 percent at $21.64.

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