A $318 million quarterly loss driven by a sharply higher fuel bill is spurring Delta Air Lines to raise fares, cut flying, and park airplanes.
Airlines have already raised fares this year, and Delta said higher fares covered 70 percent of the run-up in fuel costs. That's not enough.
"We must fully recapture our costs on every flight every day to maintain and improve our earnings performance," CEO Richard Anderson said.
Delta said it will cut flights that don't produce enough revenue. Some of those reductions are likely to be flights across the Atlantic, where Delta said the industry has added too many available seats.
It also said it will park 20 more planes this year than planned, including some of the largest planes used for international flights. All told, Delta now plans to sideline 140 planes over the next year and a half, from its smallest propeller-driven regional planes to big international jets.
Delta's fuel bill rose 29 percent, or $483 million, in the first quarter compared to a year earlier. Higher ticket prices boosted revenue 13 percent, to $7.75 billion.
Airlines have raised fares seven times this year as their fuel bills have increased. They walk a line between covering higher costs and scaring away price-sensitive customers.
To keep its planes full, Delta will cut flying 4 percent compared to a year earlier starting in September. The cut will be 8 percent to 10 percent on trans-Atlantic routes. If fuel keeps rising, "you should expect us to do more," said President Ed Bastian.
However, Delta increased flying capacity 5 percent during the first quarter, and capacity will rise as much as 4 percent during the second quarter, compared with the same periods last year. Airlines have to decide months in advance how much flying to add, and Delta as well as other airlines had to roll back 2011 growth plans in response to high fuel costs and a weaker-than-expected economic recovery.
The loss for the quarter that ended March 31 worked out to 38 cents per share. A year ago, Delta lost $256 million, or 31 cents per share. Analysts surveyed by FactSet expected a loss of 50 cents a share and revenue of $7.61 billion.
Delta expects to post a second-quarter profit, and analysts forecast a full-year profit as well.
Winter storms contributed to Delta's first-quarter loss, hurting revenue by $90 million. The March 11 earthquake and tsunami in Japan reduced revenue by $35 million. Delta had previously said the loss of Japan traffic would hurt full-year profits by $250 million to $400 million. On Tuesday it said the earnings loss would be toward the low end of that range.
For the second quarter, the drop-off in Japan travel will slice about $150 million from revenue and $75 million from profits, the airline said. Sales of tickets originating in Japan are still down about 20 percent, and demand for flights to Japan from the U.S. is down by half, Delta said.
Delta will continue to contend with rising fuel costs. Airlines can hedge against higher fuel costs by making financial bets that pay off when oil prices rise. That helps, but it's not a cure-all. Including hedges, Delta paid $2.89 per gallon in the first quarter. Even with 49 percent of its second-quarter fuel hedged, it still expects to pay $3.26 per gallon. It has hedged 40 percent of its fuel for the third-quarter and 20 percent for the fourth quarter.
Last week United Continental and American reported quarterly losses on fuel expenses as well. Southwest Airlines Co. reported a small profit. US Airways Group Inc. said on Tuesday that its first-quarter net loss more than doubled to $114 million.
Shares of Delta Air Lines Inc. jumped 80 cents, or 8.9 percent, to $9.80 in midday trading.