(Reuters) - Delta Air Lines Inc (DAL.N) reported a higher-than-expected fourth-quarter profit on Tuesday, aided by lower fuel costs and increased fares, and its shares gained more than 3 percent.
Delta, the third-largest U.S. airline behind American Airlines Group Inc (AAL.O) and United Continental Holdings Inc (UAL.N), said it would “significantly improve” profitability this year by controlling costs and offering more customer amenities.
The carrier, which cut its capital spending forecast for 2014 to $2.3 billion from $2.5 billion, said that margins would widen. It forecast an operating margin of 6 percent to 8 percent for the first quarter. That’s higher than estimates of 5.4 percent from airline analyst Helane Becker of Cowen & Co and 5.8 percent from Fred Lowrance of Avondale Partners.
“The strong earnings reflect not only what Delta has been doing, including investments in its airports and products, but also the fact that the airline has been able to attract and keep more business travelers,” said Henry Harteveldt, a travel industry analyst with Hudson Crossing LLC in San Francisco.
He said Delta was also managing its business so that it sells fewer seats at deep discounts.
“Delta is going into 2014 from a very solid position,” Harteveldt added.
Passenger revenue gains at Delta were strongest in the United States and Latin America, helped by holiday travel in the fourth quarter. Corporate ticket revenue rose 7 percent from a year earlier.
Profit before one-time items more than doubled in the fourth quarter to $558 million, or 65 cents a share. Analysts on average, were expecting 63 cents, according to Thomson Reuters
Net income totaled $8.5 billion, or $9.89 a share, including a noncash gain of $8 billion from a reversal of a tax allowance. A year earlier, Delta earned $7 million, or 1 cent a share, on that basis.
Quarterly revenue rose 6 percent to $9.08 billion. Yield, a measure of the average airfare paid per mile flown, rose 4 percent to 17.05 cents.
Operating expenses increased 2 percent, while costs for aircraft fuel and related taxes fell 7 percent.
Atlanta-based Delta acquired Northwest in 2008 and bolstered revenue by charging more for seats with greater leg room, replacing 50-seat jets with larger planes that carry more passengers and buying a refinery to reduce fuel costs.
The carrier reduced debt and formed partnerships with non-U.S. airlines such as Britain’s Virgin Atlantic Airways VA.UL and Brazil’s Gol to increase traffic in those higher-growth markets.
The moves enabled Delta to pay its first dividend in a decade last year and start a $500 million share buyback program to boost shareholder returns. Delta rejoined the Standard & Poor’s 500 Index last fall.
Shares of Delta were up 3.2 percent at $32.06 in afternoon trading. The shares have more than doubled since the beginning of 2013.
Reporting by Karen Jacobs in Atlanta; Editing by Jeffrey Benkoe and Chizu Nomiyama