Card Revenue Aids Delta -- WSJ

By Doug Cameron 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 13, 2018).

Delta Air Lines Inc. is banking on branded credit cards, repairing jets and plusher passenger amenities to drive growth.

The No. 2 U.S. carrier beat quarterly earnings forecasts on Thursday thanks to rising passenger and cargo traffic as well as non-ticket revenue that is growing at an even faster pace.

Airlines have become reliant for sales and profits on services and products such as co-branded credit cards from issuers including American Express Co. and JPMorgan Chase & Co.

Delta said American Express secured more than a million new accounts for their joint credit card last year, plus a record number in the first quarter that gave the airline a sales boost through payments the company receives for frequent flier miles. Delta generated $3 billion in revenue from the card last year.

"That'll continue to grow at a double-digit clip," Delta Chief Executive Ed Bastian told The Wall Street Journal on a post-earnings' call.

Mr. Bastian said revenue from carrying cargo and repairing other carriers' planes was also growing at a double-digit pace.

"I think there's a considerable potential, and I think those are a more durable base of revenue," he said.

Sales from businesses including the credit cards and repairs jumped 32% from a year earlier, surpassing $1 billion in the quarter through March 31. Revenue from ticket sales rose 7%, accounting for 77% of sales. Cargo revenue climbed 23%.

The search for alternative revenue streams comes as the growth begins to slow from ancillary sales in services ranging from baggage charges to fees for assigned seats. These fees still generated $57 billion for airlines world-wide last year, according to IdeaWorksCompany, a consultancy.

Delta is also making more by offering passengers more ways to upgrade their tickets, for example allowing business travelers barred from flying in the premium cabin to use their own frequent flier points to secure better seats.

Delta's valuation -- at just seven times forward earnings -- is well below that of other travel-related companies such as hotel operators. It has hardly improved even as the airline boosted earnings and reduced its debt after emerging from bankruptcy protection and agreeing to merge with Northwest Airlines 10 years ago this week.

"Over time, if we are unable to get our valuation to where we think it needs to be, we're open to options and ideas," he said. But I'd say it's premature to come to that."

Shares in Delta and its rivals have in recent months been hit by investor concerns that excess capacity could dampen fares and lower earnings.

Delta said its closely watched average revenue was expected to rise by 3% to 5% in the June quarter, in line with analysts' expectations, after climbing 5% in the first quarter.

The airline maintained its full-year earnings guidance even though jet fuel prices -- which have climbed by 25% over the past year -- are providing a headwind.

Delta reported profits of $547 million in the March quarter compared with $561 million a year earlier, lifted by buoyant international traffic. Per-share earnings rose a penny to 78 cents, with the adjusted total of 74 cents beating Wall Street estimates. Revenue rose 10% to $9.97 billion, a record for the quarter.

Corrections & Amplifications Delta Air Lines said American Express secured more than a million new accounts for their joint credit card last year. An earlier version of this article misstated the time frame as the first quarter. (April 12, 2018)

Write to Doug Cameron at [e-mail]

(END) Dow Jones Newswires

April 13, 2018 02:47 ET (06:47 GMT)

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