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Higher fares help Delta quell oil hit


By Arunima Banerjee

(Reuters) - Air Lines Inc topped estimates for quarterly profit and operating revenue on Thursday as a rise in average fares trumped an almost 40 percent surge in fuel costs, pushing its shares higher by as much as 3 percent.

The United States' second biggest said it flew 3.2 percent more paying customers in the second quarter and both average fares and adjusted total unit revenue - a closely-watched measure which compares sales with flight capacity - increased 4.6 percent.

Bigger rival Inc on Wednesday flagged lower-than-anticipated average fares in the United States, raising investor concerns.

posted 2.5 percent growth in U.S. average fares in the quarter and promised to cut less profitable flights in its fall schedule to further boost metrics.

"is delivering a product that is better than peers and because of that, they seem to be able to get a premium to the industry with respect to pricing," said.

"Delta is now in a position to raise numbers going forward rather than continuing to reduce numbers."

With the global economy expanding and developing middle classes in the world's big emerging economies including and flying more, global air passenger traffic has risen every month through May this year.

That has bolstered airlines across the board, but they also face the fallout of a more than doubling of since early 2016.

said Delta would have to cut flights more aggressively next year to keep shareholders' faith.

"We think stock could be weak absent a meaningful 2018 capacity cut. We continue to anticipate a capacity slowdown in 2019," he said.

The Atlanta-based said last month it expected its fuel bill for the year to rise by $2 billion and reported a 38.8 percent jump in fuel costs in the second quarter.

Those costs also drove a cut in its full-year earnings forecast to a range of $5.35 to $5.70 per share from $6.35 to $6.70 per share, months after American Airlines also cut its full-year outlook.

Delta expects unit revenue to grow 3.5-5.5 percent in the third quarter and the board approved a 15 percent hike in dividend to 35 cents.

On an adjusted basis, Delta earned $1.77 per share in the second quarter, beating the average estimate of $1.72, according to I/B/E/S.

Total operating revenue rose 9.6 percent to $11.78 billion, beating the average estimate of $11.72 billion.

"Delta's and FY guide truly represents a mixed bag," analysts said.

"Healthy (unit revenues), an autumnal capacity cut, and a consensus-embracing guide for On the other hand ... the diminished full-year guide is weaker than what we anticipated, fails to capture consensus, and investors are already expressing displeasure with the magnitude of the capacity cut."

(Reporting by in Bengaluru; Editing by and Patrick Graham)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, July 12 2018. 21:42 IST