Delta's Profit Rises on Strong Demand and Cheaper Fuel -- 2nd Update

By Alison Sider 

Delta Air Lines Inc. said lower fuel prices and buoyant demand from holiday travelers helped drive up quarterly earnings, lifting the carrier to its 10th consecutive year of profit.

The broader U.S. airline industry is also on track to hit a decade of profits, a record stretch of profitability that is a striking change from a period when boom times for carriers were often followed by punishing busts.

Still, Atlanta-based Delta and other airlines face challenges including new labor deals that could push up costs and a potential tempering in travel demand. The International Air Transport Association has said that global travel demand has continued to rise in recent months but that the rate of growth has slowed.

Delta's chief executive, Ed Bastian, said that trade tensions contributed to softer demand for corporate travel in Asia and that travel to and from the U.K. has been affected by uncertainty over the country's ties to the European Union.

Still, he said he expected demand for air travel to outpace economic growth domestically. Delta executives said that corporate-travel demand was up 6% in the fourth quarter from a year earlier and that demand for pricier premium seats climbed 9%, outpacing growth in coach.

"The U.S. consumer is quite healthy," Mr. Bastian said.

Delta shares rose 4.1% on Tuesday.

The airline said it expects its unit costs -- the cost to fly a seat a mile, excluding fuel -- could rise 2% to 3% in the first quarter of this year, outpacing unit revenue, which it expects to be flat to up 2%. The airline said unit revenue grew 2.4% in the fourth quarter of 2019 because of strong holiday travel. Analysts said the airline's guidance was better than expected.

Delta has also been buoyed by its competitors' diminished capacity in recent months. Delta is the only one of the four largest U.S. carriers that doesn't operate the Boeing Co. 737 MAX, which has been grounded world-wide since March following a pair of crashes that killed 346 people.

American Airlines Group Inc., United Airlines Holdings Inc. and Southwest Airlines Co. all have the MAX in their fleets. The grounding has cost Delta's biggest domestic rivals hundreds of millions of dollars in lost earnings and has created unprecedented logistical challenges for carriers grappling with months of uncertainty about when the plane will be allowed to return to service.

The timing of the MAX's return has become murkier in recent weeks. American said Tuesday that it would push the date it expects to fly the MAX again back by two months into June, reflecting the growing likelihood regulators will require pilots to take time-consuming simulator training before operating the plane again. Boeing came out in favor of such a requirement last week. United has made a similar move taking the MAX out of its schedules until early June, while Southwest is currently planning for the plane to return to service in April.

Delta expanded its domestic flying capacity by 6% in the fourth quarter. Mr. Bastian has said the situation has been a modest benefit to Delta but not an outsize source of profits. He said he doesn't expect the MAX's return to be a major competitive challenge whenever the plane is cleared to fly again.

"We're not overly concerned," he said.

Delta could soon face higher labor costs as a result of ongoing contract negotiations with its pilots. Delta has told the union it wants to seek federal mediation because it says the talks have stagnated after nine months, according to a letter the head of Delta's pilots union sent to members last week.

Mr. Bastian declined on Tuesday to comment on negotiations with pilots.

Delta reported net profit of $1.1 billion in the fourth quarter, up from about $1.02 billion a year earlier. Adjusted earnings per share rose to $1.70, which is 20 cents above the upper end of Delta's previous guidance and ahead of the $1.40 per share analysts had expected. Delta's total revenue climbed 6.5% to $11.4 billion in the fourth quarter.

The fourth-quarter profit included a 9 cent boost from unwinding Delta's investment in Gol Linhas Aereas Inteligentes SA, a Brazilian carrier, following Delta's agreement in September to take a stake in Chile-based Latam Airlines Group SA.

Write to Alison Sider at [e-mail]

(END) Dow Jones Newswires

January 14, 2020 12:29 ET (17:29 GMT)

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