April 12, 2018 / 11:10 AM / 3 months ago

Delta Air first-quarter profit beats estimates; cost, tax cuts to lift second quarter

(Reuters) - Delta Air Lines Inc (DAL.N) reported on Thursday first-quarter profit that beat Wall Street estimates on higher average fares and passenger traffic and it expected cost curbs and tax cuts to help growth in its next three months.

Baggage tags are seen near a counter of Delta Air Lines in Mexico City, Mexico, August 8, 2016. REUTERS/Ginnette Riquelme

Delta’s shares were up 2.33 percent at $52.67, spurring a 1 to 2 percent gain in other U.S. airlines and lifting the Dow Jones Airlines Index .DJUSAR 2.10 percent.

The nation’s second-largest carrier by passenger traffic reported earnings per share of 77 cents, down from earnings of 82 cents per share in the year ago period due to winter storms and fuel prices, but topping analysts’ average estimate of 73 cents per share, according to Thompson Reuters I/B/E/S.

In the second quarter, Delta expects earnings per share of $1.80 to $2, with improving costs and lower U.S. corporate tax rate helping to mitigate higher fuel prices - a big worry for airlines as crude prices hover around three-year highs.

“We are seeing Delta’s best revenue momentum since 2014, with positive domestic unit revenues, improvements in all our international entities, strong demand for corporate travel and double-digit increases in our loyalty revenues,” Delta President Glen Hauenstein said.

“We expect to maintain this momentum and deliver total revenue growth of 4 to 6 percent for the full year.”

The carrier said total unit revenue - a key metric which compares sales with flight capacity - would increase 3 to 5 percent in the second quarter.

It also forecast an increase in quarterly unit costs, excluding fuel and profit sharing, of 1 percent to 3 percent compared with the preceding year.

“Delta is seeing a strong pricing environment. While fuel costs have risen, we see this being outstripped by benefits from higher revenues, well controlled non-fuel costs (including pension expense) and a lower tax rate,” CFRA analyst Jim Corridore wrote in a research note that maintained a “strong buy” opinion on Delta shares.

In the quarter through March, Delta said operating expenses had swelled by $817 million to $9.13 billion from $8.1 billion the previous quarter, driven by higher fuel and labor costs, and a higher depreciation expense.

Still, Delta said it was on track to reach its target goal of flat to 2 percent growth in full-year unit costs.

First-quarter revenue rose 9.5 percent in the first quarter, while net income fell to $547 million from $561 million a year earlier due to a spike in fuel prices and severe winter storms cost it $44 million.

Total operating revenue for the first quarter rose to $9.97 billion from $9.10 billion.

Reporting by Alana Wise in New York and Arunima Banerjee in Bengaluru; Editing by Chizu Nomiyama, Bernadette Baum and Susan Thomas

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