Delta 2Q profit falls 58 pct; 2,000 take buyouts
Thursday, July 28, 2011
With high fuel prices slicing last year’s profit in half, Delta Air Lines said 2,000 workers are taking voluntary buyouts, it will cut its fall schedule more than expected and it won’t fly routes where it can’t make money.
Airlines have been raising fares to cover higher fuel bills. Delta’s fuel cost rose 36 percent to $2.66 billion in the latest quarter.
Delta Air Lines Inc. CEO Richard Anderson said higher fares covered 70 percent of the fuel cost. Delta is hoping that scaling back flying and cutting expenses — along with continuing attempts to raise fares — will cover the rest.
“We believe the high fuel environment is here to stay, and the permanency of that condition must be a reality for Delta,” Anderson said.
The high cost of jet fuel was the main reason Delta’s second-quarter net income fell 58 percent compared to a year ago. It earned $198 million, or 23 cents per share, compared with $467 million, or 55 cents a year ago.
Revenue rose 12 percent to $9.15 billion.
The airline would have earned 43 cents per share if not for one-time items including severance costs and reducing its facilities. On that basis, its profit was three cents less than expected by analysts surveyed by FactSet.
Investors sent Delta shares down 41 cents, or 5.1 percent, to close at $7.61.
Delta is already getting a boost from the partial shutdown of the Federal Aviation Administration. Airlines raised fares to make up for the ticket taxes they can’t collect until the FAA’s operating authority is renewed by Congress. For Delta, that’s $4 million to $5 million per day.
J.P. Morgan analyst Jamie Baker estimated that the industry is getting an extra $28.5 million a day, and that Delta’s profit alone will be boosted by 7 cents per share for every week of the tax holiday that began on Saturday.
“Each day the FAA remains out of commission, cash collection is reflecting this windfall,” he wrote.
In addition to raising fares, airlines have been planning to cut fall flying and focus on the routes passengers are willing to pay to fly. Delta said third-quarter capacity would be flat, and fourth-quarter capacity will fall 4 percent to 5 percent — one percentage point more than its previous plan.
The cuts will be “focused in markets where revenues do not cover higher fuel costs,” the airline said. Domestic capacity will fall 1 percent to 3 percent, and international capacity will fall 4 percent to 6 percent.
Earlier this month Delta said it planned to reduce or eliminate flights to 24 smaller cities, mainly in the Midwest.
Atlanta-based Delta is now coordinating fares and schedules for Europe flying with Air France-KLM and Alitalia. Their combined reduction in flying will be 7 percent to 9 percent for the quarter.
The 2,000 workers who took buyouts from Delta represent more than 2 percent of the airline’s workforce of roughly 80,000 people. CEO Anderson said the departures will begin in September and be done by the end of the year.
The airline said it expects to make a third-quarter profit. It is trying to reduce non-fuel costs to 2010 levels by the end of this year.
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