Delta soars on cheap fuel, but hints of a decline in fares

AP News
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Posted: Jul 15, 2015 10:47 AM
Delta soars on cheap fuel, but hints of a decline in fares

DALLAS (AP) — Delta Air Lines' second-quarter profit nearly doubled to $1.5 billion as huge savings on fuel offset weak growth in revenue.

The company predicted a record quarter when it next reports financial results, in October.

Profits are soaring as airlines keep planes full by not adding too many new flights. That has caught the attention of the U.S. Justice Department, which is investigating whether the airlines are illegally working together to prop up prices by limiting the number of flights — and signaling those moves to each other in advance.

CEO Richard Anderson said the investigation would not cause his airline to stop talking about capacity plans. "We are always going to be transparent with our investors," he said on a conference call.

Delta said that passengers spent 4 percent less per mile in the second quarter than they did in mid-2014, a sign that fares are slipping. That is a troubling trend for the airline business after years of rising "yield," as the figure is called. Delta said that it expects the downward trend to continue in the third quarter but end in the fourth quarter, when it will limit flying to late-2014 levels.

Airlines say their success helps passengers and employees. Anderson said that his airline has been able to afford higher wages and new airplanes.

Delta Air Lines Inc., based in Atlanta, is the nation's third-largest airline operator and the first to report results from the April-through-June quarter.

The company said second-quarter net income rose 85 percent from a year ago. Excluding non-recurring gains, Delta earned $1.27 per share, beating the $1.22 forecast from 10 analysts surveyed by Zacks Investment Research.

Revenue rose 1 percent to $10.71 billion, topping the Zacks forecast of $10.64 billion.

Spending on fuel plunged 40 percent — a savings of nearly $1.2 billion when Delta Connection flights are added. Labor costs rose 7 percent and passed fuel as Delta's biggest expense.

For the July-through-September quarter, Delta expects that cheaper jet fuel will allow it to boost earnings per share by 30 percent, compared with the same period last year, and hit an operating profit margin of around 20 percent.

The shares fell 70 cents, or 1.6 percent, to $42.96 in morning trading. Delta shares have dropped 11 percent this year, compared with a 2 percent gain in the Standard & Poor's 500 index.

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This story includes material generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on DAL at http://www.zacks.com/ap/DAL

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