April 23 (Reuters) - Delta Air Lines and US Airways Group posted higher-than-expected first quarter earnings on Tuesday driven by revenue gains and their shares rose despite cautions by both carriers about near-term weakness.
Delta forecast a positive operating margin for the current quarter but added that U.S. government spending cuts and lighter demand from leisure travelers were expected to hurt a key revenue measure in April.
US Airways, which plans to merge with AMR Corp’s American Airlines this year, said its bookings were higher year-over-year for May and the summer, but said business demand has been pressured since spending cuts known as “sequestration” began.
Investors shrugged off the revenue concerns. Delta shares rose 8.3 percent and US Airways gained 3.3 percent in afternoon trading.
“We’re seeing the impacts of consolidation, overall capacity discipline and better operational management showing up the form of improved results,” said Fred Lowrance, an airline analyst with Avondale Partners.
U.S. airlines have merged, curbed unprofitable routes and raised ticket prices to recover in recent years. Carriers are also cutting back flying to match demand and have gained new revenue streams with baggage and food fees, moves that have helped keep profits coming.
But an uncertain macroeconomic backdrop could pose challenges for travel over the next few months.
This week, staff cuts at U.S. air traffic control towers took effect, causing delays at some airports but so far not the widespread chaos some transport regulators had warned about.
“It’s hard to quantify what exactly (sequestration effects) would be,” said Matthew Jacob, an airline analyst with ITG Investment Research.
“Investors are more interested in the profitability continuing and the strong earnings despite what appears to be slowing (revenue) trends,” Jacob added.
Delta mentioned weaker ticket sales in its defense business, which accounts for about 3 percent of overall sales, tied to the sequester. US Airways said its government revenue fell more than 30 percent in March, a result of the budget cuts as well as the Easter holiday shift into March from April last year.
“Leisure demand is still good,” US Airways President Scott Kirby said during a conference call. “Business demand remains volatile, however, and as long as the sequester stays in place I expect the government related demand will continue to be depressed.”
Delta added it expected declining oil prices to help offset the near-term revenue weakness.
“While we are seeing some revenue softness, we are also benefiting from lower fuel costs, allowing us to continue our path of margin expansion even in a sluggish economic environment,” President Ed Bastian said in a company statement.
Delta’s net income was $7 million, or 1 cent a share, for the first quarter, compared with $124 million, or 15 cents a share, a year earlier. Excluding items, profit was 10 cents a share, compared with 6 cents expected by analysts on average, according to Thomson Reuters I/B/E/S.
US Airways had a first-quarter profit of $44 million, or 26 cents a share, compared with $48 million, or 28 cents a share, a year earlier. Excluding items, its profit was 31 cents a share, topping analysts’ average forecast of 28 cents.
Delta’s revenue rose 1 percent to $8.5 billion, while US Airway’s climbed 3.5 percent to $3.4 billion.