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Delta cuts profit outlook as fuel costs surge

Leslie Josephs
  • Delta second-quarter adjusted EPS $1.77 vs $1.72 expected.
  • All U.S. airlines are grappling with a surge in fuel prices that have hit profits.
  • Delta shares are down 11 percent so far this year.

Delta Air Lines DAL expects pricier fuel to eat into its bottom line this year.

Delta cut its 2018 profit outlook on Thursday as it grapples with what it expects to be a $2 billion increase in fuel costs this year.

Fuel costs are up about 60 percent from a year ago, crimping airline profits even as travel demand remain robust. Airfares in some markets are climbing but not enough to completely offset the sharp climb in what is generally airlines' second-biggest expense after labor.

"We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter," said Delta's CEO Ed Bastian.

The airline is now scrambling to cut some underperforming service in the second half of the year. A lower supply of seats in the market help airlines raise prices and it's a measure that analysts expect competitors to take as well, following the peak summer travel season.

Delta expects to earn between $5.35 and $5.70 a share in 2018, down from a forecast it made in January of $6.35 to $6.70 a share.

The airline's second-quarter net income fell 14 percent to $1.03 billion, or $1.47 a share, from $1.19 billion, or $1.62 a share, a year ago. The airline's fuel bill was up 40 percent in the second quarter from a year ago.

Delta's adjusted earnings per share of $1.77 topped Wall Street estimates of $1.72 a share, according to Thomson Reuters.

Revenue the three months ended in June, rose 10 percent from the year-ago period to $11.78 billion, compared with analyst expectations of $11.72 billion.

Delta shares were up more than 2 percent in premarket trade. The stock is down 11 percent in 2018 and other airlines have lagged the broader market's less than 4 percent gain this year.

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