* Operating profit 28 cents/shr, in line with forecasts
* Revenue up 2 percent; expenses climb 8 percent
* Key revenue measure seen rising in current quarter
* Shares up 3.5 pct
By Karen Jacobs
Jan 22 Delta Air Lines reported a lower
fourth-quarter profit on Tuesday but said it expected better
results this year as it makes targeted investments in operations
and products to drive revenue.
The No. 2 airline behind United Continental Holdings
said an important revenue measure was trending up solidly, and
its shares gained 3.5 percent to $14.09 in afternoon trading.
"Delta has developed as the leader of the industry in
showing that you can improve your profitability while taking out
(seating) capacity," said Barclays airline analyst David
Fintzen. "That's become something of a model for others to
Trimming seating to match demand has helped U.S. airlines
garner higher airfares and post profits. Delta said it would cut
system capacity by 2 to 4 percent in the current first quarter.
Unit revenue, a measure of pricing power and how full planes
are, would likely rise 4 to 6 percent in the current period,
Delta said. It added that for January, that revenue gauge was
expected to jump 5 to 6 percent.
"Going forward, if they can maintain that unit revenue
momentum, that will be very positive," said Fred Lowrance, an
analyst with Avondale Partners.
Special items took a toll in the fourth quarter, as fuel and
compensation costs rose and Superstorm Sandy hurt airline and
oil refinery operations. Delta had a charge of $122 million tied
to the company's restructuring of its aircraft fleet and a loss
of $106 million on debt extinguishment.
Delta cited nearly $100 million in impact from Sandy, which
barreled through the U.S. Northeast in late October and led to
thousands of flight cancellations as New York-area airports shut
down. The carrier said the storm also slowed output at its
Pennsylvania oil refinery, which had a $63 million net loss in
Net earnings fell to $7 million, or 1 cent a share, from
$425 million, or 50 cents a share, a year earlier.
Excluding one-time items, profit was 28 cents a share, in
line with analysts' average forecast, according to Thomson
Operating revenue rose 2 percent to $8.6 billion. Operating
expenses climbed 8 percent, with costs for fuel and related
taxes up 18 percent. Expenses tied to salaries increased 7
Delta has been upgrading plane seats and expanding in-flight
food and entertainment options to entice travelers to spend
more. It has also launched partnerships with non-U.S. airlines
to position itself to win new customers.
Last month, it announced the purchase of a 49 percent stake
in British carrier Virgin Atlantic and plans for a joint venture
that will give it expanded access at London's Heathrow Airport,
an important business travel market.
Passenger revenue rose 3 percent in the fourth quarter,
while unit revenue rose 4.3 percent.
"The investments we have made in our product, technology,
facilities and employees have generated the momentum we've built
in our earnings, but those investments have not come without
cost," Chief Financial Officer Paul Jacobson said in a memo to
He added that the carrier must stay "disciplined with our
spending" and focused on eliminating costs that don't add value
to the business.
Lowrance, the Avondale Partners analyst, said cost pressure
in the first half will come from a labor contract reached with
pilots last year. He said cost controls were crucial if Delta is
to generate higher margins.
"What we want to see ... is a slowdown in the year-over-year
growth in non-fuel costs," Lowrance said.
Other airline stocks rose on Tuesday. United Continental was
up 1.3 percent to $25.12 and US Airways Group gained 2
percent to $14.73. Southwest Airlines was up 2.4 percent