Air­line’s 2Q profit misses fore­cast

Delta’s net off 21% from ’16, but fares are trend­ing higher

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM -

DAL­LAS — Shares of Delta Air Lines Inc. dipped Thurs­day after the com­pany re­ported sec­ond-quar­ter profit and rev­enue be­low Wall Street ex­pec­ta­tions.

The re­sults pointed to an in­crease in av­er­age fares, as a key rev­enue mea­sure rose for the first time since 2014. The air­line pre­dicted that the trend to­ward higher prices would con­tinue in the third quar­ter.

Delta had al­ready sig­naled the in­crease in so-called unit rev­enue, the amount that pas­sen­gers pay for ev­ery seat flown 1 mile. So in­vestors ap­peared to fo­cus Thurs­day on the be­low-ex­pec­ta­tions ad­justed profit and rev­enue.

At­lanta-based Delta re­ported net in­come of $1.22 bil­lion, down 21 per­cent from the same quar­ter last year.

The re­sults were hurt by a stormy April day in At­lanta that turned into a five-day in­ter­rup­tion in op­er­a­tions. The air­line strug­gled to get planes and crews back into po­si­tion and can­celed about 4,000 flights. Delta said the in­ci­dent cut profit by $125 mil­lion.

Chief Ex­ec­u­tive Of­fi­cer Ed Bas­tian said on a call with an­a­lysts that Delta sped up tech­nol­ogy in­vest­ments and made other changes so it can re­cover more quickly from in­ter­rup­tions this sum­mer.

Ex­clud­ing what it termed non­re­peat­ing costs, Delta said ad­justed earn­ings were $1.64 per share. Nine an­a­lysts sur­veyed by Zacks In­vest­ment Re­search had pre­dicted $1.66 per share on av­er­age.

Rev­enue rose 3 per­cent to $10.79 bil­lion, be­low the an­a­lysts’ fore­cast of $10.83 bil­lion.

Delta pre­dicted that unit rev­enue, the closely watched per-mile fig­ure, would rise be­tween 2.5 per­cent and 4.5 per­cent in the third quar­ter after the 2.5 per­cent gain in the sec­ond quar­ter. The per­mile fig­ure had de­clined through­out 2015 and 2016 as cheaper jet fuel led to a glut of flights, push­ing av­er­age fares lower.

In­vestors are look­ing for air­lines to limit their growth to push up fares. Delta said it would in­crease seats for sale by 1 per­cent in the third quar­ter com­pared with a

year ear­lier.

An­a­lysts gen­er­ally gave luke­warm re­sponses to Delta’s re­sults and third-quar­ter fore­cast.

J.P. Mor­gan an­a­lyst Jamie Mor­gan called the rev­enue pre­dic­tion “good not great, and hope­fully con­ser­va­tive.” Stifel an­a­lyst Joseph DeNardi said it was “good enough” as a sign that travel de­mand con­tin­ues to im­prove, but he ex­pressed con­cern that ris­ing costs will limit profit mar­gin in the rest of 2017.

Delta shares fell 98 cents, or 1.8 per­cent, to close Thurs­day at $54.50. They had climbed 13 per­cent this year be­fore Thurs­day, beat­ing the 9 per­cent gain in the Stan­dard & Poor’s 500 in­dex. The shares started the day up 38 per­cent in the last 12 months.

Also on Thurs­day, CEO

Bas­tian said he was “ap­palled” by in­sult­ing re­marks about U.S. flight at­ten­dants made by his coun­ter­part at Qatar Air­ways Ltd.

Qatar Air­ways CEO Ak­bar Al Baker at a Dublin event dis­par­aged U.S. flight at­ten­dants as “grand­moth­ers,” while boast­ing that his air­line’s cabin crews had an av­er­age age of 26. He apol­o­gized on Wed­nes­day after be­ing crit­i­cized by la­bor unions and Amer­i­can Air­lines Group Inc., in which Al Baker is in­ter­ested in buy­ing a ma­jor stake.

Delta, Amer­i­can and United Con­ti­nen­tal Hold­ings Inc. have pushed the U.S. for two years to open talks on whether Qatar Air­ways, Emi­rates and Eti­had Air­ways PJSC use gov­ern­ment sub­si­dies to com­pete un­fairly. The dis­pute has de­scended at times

into ver­bal dis­putes, with Al Baker be­ing dis­mis­sive of the per­for­mance of the U.S. com­pa­nies.

“I was ap­palled to hear Ak­bar’s com­ments about our peo­ple,” Bas­tian said on an earn­ings con­fer­ence call Thurs­day.

“I’m told he has apol­o­gized, but I think that’s woe­fully in­ad­e­quate. There’s a con­sis­tent theme there that he wants to skirt the rules and play by his own rules.”

Bas­tian said he was glad that Delta em­ploy­ees and those at other U.S. air­lines “spoke with one large voice to say that it’s un­ac­cept­able, in­ap­pro­pri­ate.”

In­for­ma­tion for this ar­ti­cle was con­trib­uted by David Koenig of The As­so­ci­ated Press and Mary Sch­langen­stein of Bloomberg News.

Bloomberg News/TI­MOTHY FADEK

A Delta Air Lines jet de­scends for a land­ing at LaGuardia Air­port in New York. The air­line’s quar­terly re­sults were hurt by a stormy day in April.

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