Delta Faces New International Challenge--Update

By Doug Cameron 

Delta Air Lines Inc. said international travel boosted profits in the latest quarter as the industry faces a potential shakeout of the Trans-Atlantic market following a rival's interest in buying a fast-growing low-cost carrier.

Buoyant demand from business travelers and a weaker U.S. dollar have boosted international sales for airlines including Delta, the largest U.S. operator on flights to and from Europe.

Delta has been exporting its own low-fare model from domestic flights onto international services, in part because of competition from Norwegian Air Shuttle A/S, a pioneer of cheap, longhaul flights.

International Consolidated Airlines Group SA, parent of British Airways and Iberia, said Thursday that it had built a minority stake in Norwegian Air Shuttle ASA , one of the largest customers of Boeing Co. 787 jets. IAG, as the company is known, counts American Airlines Group Inc. among its partners through a longstanding joint venture to share sales and profits.

Delta is partnered with Air France-KLM SA and Virgin Atlantic Airways Ltd. in Europe, anchored by minority stakes of its own. A takeover of Norwegian could threaten Delta's position in the Trans-Atlantic market, even as the airline reported forecast-beating quarterly earnings and record revenue.

Delta's Trans-Atlantic revenue rose 15% in the quarter to March 31 from a year earlier, outpacing growth in domestic and other overseas markets.

Shares in Delta, the No. 2 U.S. airline by traffic, and its rivals have in recent months been hit by investor concerns that excess capacity could hit earnings. The shares were up 1% in pre-open trade.

Delta said its closely watched average revenue was expected to rise by 3% to 5% in the June quarter after climbing 5% in the three months to March 31.

Investors monitor the rise in total revenue per available seat mile as a sign of how well the industry is absorbing extra flying capacity, which tends to put downward pressure on fares.

The industry is still reeling from the January announcement by United Continental Holdings Inc. that it plans to grow capacity by as much as 6% a year, a faster clip than Delta or larger rival American.

Delta and other carriers have said they won't boost their own flying plans to keep market share, but investors remain concerned that lower fares and higher labor costs will hit profits.

Atlanta-based Delta reported profits of $547 million in the March quarter compared with $561 million a year earlier. 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.

Write to Doug Cameron at [e-mail]

(END) Dow Jones Newswires

April 12, 2018 08:15 ET (12:15 GMT)

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