Delta Revenue Jumps, Helping Offset Fuel Costs

WSJ
Delta, the first major U.S. airline to report earnings for the third quarter, underscored how the run-up in fuel prices remains a threat to the industry’s profitability despite soaring demand for air travel.
Delta, the first major U.S. airline to report earnings for the third quarter, underscored how the run-up in fuel prices remains a threat to the industry’s profitability despite soaring demand for air travel. Photo: Mary Altaffer/Associated Press

Delta Air Lines Inc. DAL 3.56% said a jump in revenue during the third quarter nearly offset a surge in jet-fuel prices that is battering U.S. carriers.

The No. 2 U.S. carrier by traffic said an 8% rise in revenue was driven by strong demand and surging premium ticket sales, helping overcome higher fuel costs and disruption from Hurricane Florence in September. Profit rose 13% to $1.3 billion.

Delta stock rose more than 3% to $51.49 on Thursday.

Delta, the first major U.S. airline to report earnings for the third quarter, underscored how the run-up in fuel prices remains a threat to the industry’s profitability despite soaring demand for air travel.

The Atlanta-based carrier’s fuel bill rose $655 million, but Delta said it was able to offset 85% of the increase. Other unit costs remained flat.

“The economy is healthy,” Chief Executive Ed Bastian said during a Thursday call with analysts and reporters. “To the extent oil prices were to continue to rise, we expect to be able to pass along the cost of that.”

He wouldn’t say how much Delta would continue raising fares to recover further cost increases.

Delta didn’t offer an outlook for 2019 or a revised forecast for all of 2018. A spokesman said Delta expected to earn between $5.35 and $5.70 a share for all of 2018 as previously forecast.

It wasn’t clear whether Delta expected to scale back capacity growth to bolster profit, as previously telegraphed. Delta said capacity growth in the fourth quarter would be around 4%. The carrier has said previously that it would expand capacity 3% across all of 2018.

With a $34 billion market value, Delta is the most valuable U.S. airline on Wall Street. Its stock is down 11% so far this year, faring better than rival American Airlines Group Inc., whose stock is down 39%. United Continental Holdings Inc. is up 17% this year.

Investors are keeping a close on eye on how U.S. carriers are scaling back plans to add flights this year as fuel costs rise faster than airlines can raise fares and fees for checking bags.

Overall for the quarter, Delta reported earnings per share of $1.91, up from $1.61 in the same quarter a year ago.

On an adjusted basis, the company reported earnings of $1.80. Analysts surveyed by FactSet predicted the carrier would report adjusted earnings of $1.74 a share.

Total revenue was a record $12 billion, up 8%. Delta’s closely watched unit revenue rose 4.3%.

Hurricane Florence dragged down Delta’s third-quarter results by $30 million.

As Hurricane Michael batters the Southeast, Delta said it had canceled fewer than 100 flights and expected no disruptions at its Atlanta hub.

Write to Andrew Tangel at Andrew.Tangel@wsj.com

https://www.wsj.com/articles/deltas-profit-rises-despite-increase-in-fuel-costs-1539259824?mod=pls_whats_news_us_business_f

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