Delta Took $125 Million Profit Hit From Flight Cancellations, CEO Apologizes

Delta Air Lines

A water cannon salute marked the return of Delta Atlanta to Brussels service in late March. The airline, meanwhile, had to cancel some 4,000 flights in early April after thunderstorms hit the Atlanta area. Delta Air Lines

Skift Take: It’s been a busy week for airline CEO apologies, with Delta CEO Ed Bastian issuing a mea culpa for all of the flight cancellations last week. The airline, meanwhile, is trying to raise domestic fares in the second quarter although its unit revenue did not rise as much as expected.

— Dennis Schaal

Delta Air Lines Inc. said it’s set to regain some pricing power after two years of declines, and the shares rose in early trading.

Passenger revenue for each seat flown a mile is expected to climb 1 percent to 3 percent in the second quarter, the Atlanta-based carrier said in a statement Wednesday. The benchmark measure known as unit revenue, a gauge of an airline’s control over fares, fell short of a company forecast in the first three months of the year.

That sets up the current quarter as a test of Delta’s efforts to raise fares amid fierce competition on some domestic routes, which has hurt pricing across the industry in the last two years. A surge in seating capacity across the Pacific and Atlantic also has dragged down fares, with stepped-up competition on lucrative routes to Europe from discount airlines and some Middle Eastern carriers.

About 4,000 flight cancellations following storms in Atlanta last week will reduce second-quarter pretax profit by $125 million, the company said. Pretax profit is expected to be $1.76 billion in the current quarter, according to the average of analyst estimates compiled by Bloomberg.

“We hold ourselves to a high standard and we apologize to all of our customers who were impacted by last week’s events,” Chief Executive Officer Ed Bastian said in the statement.

The shares rose 2.4 percent to $46.36 before the start of regular trading in New York. Delta is the first major U.S. airline to reports first-quarter results.

Fuel Pressure

Delta’s unit revenue fell 0.5 percent in the first quarter, behind the airline’s initial forecast from January that the measure would climb as much as 2 percent. Delta had expected a quicker recovery in sales of pricey, last-minute tickets favored by business travelers. Investors have punished the shares, sending them down 7.9 percent this year through Tuesday compared with a 2.4 percent slide in Bloomberg index of U.S. airlines.

The first quarter will probably be the worst of the year in terms of pressure on profit margins from higher fuel prices, said Paul Jacobson, Delta’s chief financial officer.

“With an improving revenue profile and further improvement as our cost growth moderates in the second half, we are on track to expand margins for the balance of the year,” he said in the statement.

Helane Becker, an analyst at Cowen & Co., sees a 1 percent increase in Delta’s unit revenue in the current quarter, with the company’s profit margin taking off in the second half of the year. She reiterated her rating of “outperform” on the shares last week, but lowered her price target to $58 from $60.

Earnings excluding certain items were 77 cents a share in the first quarter, the carrier said Wednesday, exceeding the average estimate of 75 cents a share based on the average of estimates compiled by Bloomberg. Sales fell to $9.15 billion, compared with analysts’ prediction of $9.14 billion.

 

©2017 Bloomberg L.P.

This article was written by Michael Sasso from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Ryan Wolkov

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Author: Ryan Wolkov

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