Delta posts profit, but airline shares fall

By Reuters
Posted July 19, 2010 at 10:18 a.m.

Delta Air Lines Inc, the world’s biggest air carrier, posted a better-than-expected second-quarter profit Monday, but revenue missed expectations and its shares fell more than 8 percent. The company’s third-quarter outlook raised concerns about the strength of the recovery for airlines, which are widely expected to post better results as travel demand improves from recession weakness. Other carriers’ shares were also off.

J.P. Morgan analyst Jamie Baker said in a note to clients that expected operating margin of 10 percent to 12 percent for the current quarter suggested a profit of 80 cents a share for the current quarter. Analysts on average expected a profit of 94 cents for the third quarter, according to Thomson Reuters I/B/E/S.

Delta said the overall revenue environment was good, but it cited room for improvement.

“The revenue environment is improving; I would characterize it as good, not yet great,” Delta Chief Executive Richard Anderson said during a conference call.

Net income at Delta was $467 million, or 55 cents a diluted share for the second quarter, compared with a net loss of $257 million, or 31 cents a share, a year earlier.

Excluding items such as $90 million in profit-sharing expenses and merger-related costs, profit was 76 cents a share, compared with 63 cents expected by analysts, according to Thomson Reuters I/B/E/S.

Passenger revenue per available seat mile, an important measure, rose 19 percent as Delta made more money per seat mile flown and operated fuller planes.

Delta, which has cited improving corporate and international traffic, said it expected double-digit gains in unit revenue for the current quarter.

“I would have liked to have seen more volume growth,” said Morningstar analyst Basili Alukos. He said traffic in terms of revenue passenger miles flown was up 1.7 percent in the quarter, suggesting there was still room for improvement in terms of traffic.

“It just shows you kind of a tepid recovery from the volume side,” Alukos said.

Still, rising fuel costs pose a threat. Expenses tied to aircraft fuel rose 8 percent in the quarter. Delta said operating expenses, which rose 5 percent, were partly offset by savings from its 2008 acquisition of Northwest Airlines. Shares of Delta, the biggest decliner on the New York Stock Exchange, fell 8.5 percent, or $1, to $10.72 as other major carriers also fell. UAL Corp shares were down 9 percent, while Continental Airlines Inc lost 8.5 percent. The Arca Airline index fell more than 4 percent.

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