Delta posts higher-than-expected profit, says outlook 'solid'


* Quarterly revenue up 6 percent helped by US, Europe

* Refinery posts $3 million profit

* Says bookings for holiday season are strong

* Shares up nearly 4 pct to new high

By Karen Jacobs

Oct 22 (Reuters) - Delta Air Lines Inc on Tuesdayreported a higher-than-expected quarterly profit as fareincreases and strong demand in the United States and Europeboosted revenue, sending its shares up nearly 4 percent to a newyear high.

The U.S. carrier said its revenue outlook looked "solid"through the end of the year and that bookings for the holidayseason were strong.

"Delta is leading the pack in unit revenue growth, inexecuting and in creative thinking," said Jim Corridore, anequity analyst with S&P Capital IQ. "Because of its strong cashgeneration, the fact that it is well ahead of the competition inits (merger) integration, it is able to do things thatcompetitors can't do."

Corridore said the performance in passenger revenue, whichrose nearly 11 percent domestically and 9 percent across Europe,suggested that Delta gained market share. Yield, a gauge of theaverage fare paid per mile flown, rose about 5 percent to 16.85cents.

Delta, the second-largest carrier behind United ContinentalHoldings, said the October government shutdown hurtrevenue by $20 million to $25 million. Still, it said marginswould expand in the current quarter.

The airline forecast an operating margin, a measure ofincome to costs, of 7 percent to 9 percent, for the fourthquarter. The upper end of that range is higher than someanalysts expected, such as Helane Becker of Cowen & Co, who hadforecast 7.1 percent.

Delta, which paid its first dividend since 2003 earlier thisyear and was chosen to re-join the S&P 500 last month, hasupgraded aircraft seats and expanded Wi-Fi and entertainmentoptions to increase revenue. It has also formed partnershipswith non-U.S. airlines such as Britain's Virgin Atlantic Airways to gain new passengers, and added flights in lucrativemarkets such as New York.

Those moves paid off in the third quarter. Delta saidcorporate revenue gains in banking, financial services andhealthcare helped drive the strength it had in the UnitedStates, while its joint venture with Air France-KLM bolstered results in Europe. The airline also cited a"double-digit increase" in sales of seat-related products andother services.

To pare costs, Delta has been retiring fuel-guzzling planes,and it bought a Pennsylvania oil refinery last year that helpedlower fuel expenses (Story on refinery profit, ).

"We expect to set an all-time profit record for Delta in2013 and in turn expect to improve on that performance in 2014,"Chief Executive Richard Anderson said during a conference call.

Last week, American Airlines parent AMR Corp posted a profit that topped estimates as revenue set a record. The third quarter is traditionally a strongperiod for U.S. airlines since it includes summer vacationtravel.

Net income at Delta came to $1.37 billion, or $1.59 a share,in the third period, compared with $1.05 billion, or $1.23 ashare, a year earlier.

Excluding a fuel-hedging gain and a charge from changes inDelta's fleet, profit was $1.41 a share, compared with theanalysts' average estimate of $1.36, according to ThomsonReuters I/B/E/S.

Revenue rose 6 percent to $10.5 billion, and passengerrevenue was up nearly 7 percent. Passenger revenue per availableseat mile, an important measure also called unit revenue,increased 4 percent.

Shares of Delta were up 3.7 percent to $25.60 in afternoontrading on Tuesday after reaching $26.24 earlier in the session.Other U.S. airline stocks also rose, with United Continentalgaining 2.3 percent to $31.26 and US Airways Group up 2percent at $21.64.

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