Delta Posts Surprising Q1 Proft, Shares Jump More Than 10 Percent
In a rare first-quarter occurrence for any airline, Delta posted a $7 million profit exceeding analysts’—and its own—expectations this morning. The world’s second-largest airline reported adjusted diluted earnings of 10 cents per share based on revenue $85 billion. The earnings were up significantly compared to the same period in 2012 when the airline posted an EPS loss of 5 cents on revenues of just $8.51 billion. Earlier this month, Delta had warned its business could be hurt by the federal budget sequester that began March 1 and has significantly reduced defense employees’ travel, which accounts for about 3 percent of Delta’s overall ticket sales.
Still, according to Delta, lower fuel prices should help offset some of the decline. The airline boasts a unique fuel supply scheme, owning and operating its own refinery. But disruptions in the refinery’s operations caused by Hurricane Sandy and a short-term problem with its gas production unit led to $22 million in costs during the first quarter, a scenario that shouldn’t be repeated in future quarters.
We are taking actions to mitigate the decline in close-in demand we saw in the last part of March, and we expect the impact of the sequester, combined with a softening of leisure demand, to result in a 2- 3 percent decline in April’s unit revenues,” said Delta CEO Richard Anderson. “However, a key benefit from a consolidated industry is that we now see a much stronger correlation between revenue and fuel; so while we are seeing some revenue softness, we are also benefiting from lower fuel costs, allowing us to continue our path of margin expansion even in a sluggish economic environment.”
Although airlines often lose money during the first three months of the year, Delta experienced its best first quarter in more than a decade. To manage reduced ticket sales as consumers continue to limit their leisure travel, Delta cut its flying capacity by 3 percent. Unit revenue, which measures revenue for each seat flown a mile, rose 4.1 percent, but net income was just $7 million compared to $124 million one year ago. Delta plans to keep the capacity flat or up by 1 percent in the second quarter, although ticket sales may increase.
Shares rose more than 10 percent between Delta’s early-morning earnings announcement and the market’s closing bell—reaching $16.72—as investors were obviously pleasantly surprised to see such high first-quarter numbers from the airline. The gain was more than Delta stock had experienced in a single day since April 2011.
The fact that… Delta… recorded profits is positive news for the way they’re running their businesses,” travel analyst Henry Harteveldt told USA Today. “The various perks and extras being sold by the airlines, such as lie-flat seats in Delta’s premium cabins, likely helped boost the bottom lines, he said, as well as efforts by both carriers to not fly more seats than they could fill. They “scaled back the number of flights and seats… It showed they were successful in matching capacity to the demand that was out there.”
