Delta Air Lines Inc on Thursday reported a 2.7 percent decline in fourth-quarter passenger unit revenue, a closely watched metric, on a 0.9 percent increase in capacity, as the carrier's net profits slipped 37 percent.
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Delta said profit fell in the quarter following a recent agreement with its 13,000 pilots that granted them a 30 percent raise by 2019. The four-year deal, ratified on Dec. 1, is retroactive to Jan. 1, 2016.
The No. 2 carrier by passenger traffic said net income fell to $622 million in the quarter ended Dec. 31 from $980 million a year earlier.
Excluding special items, earnings of 82 cents a share met analysts' average estimates, according to Thomson Reuters I/B/E/S.
"We will remain conservative and keep our capacity growth in check until we see a further firming of these revenue trends in the near-term and longer-term, a return to our 17-19 percent operating margin target," said Delta's Chief Executive Ed Bastian.
Share prices were down industry-wide in afternoon trading, suggesting traders had looked forward to a strong showing in the company's unit revenue outlook, said Imperial Capital LLC analyst Adam Hackel.
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"The market was expecting a strong unit revenue outlook, which puts the spotlight on the cost side," he said. "(Delta's) comments about higher costs and margin contraction certainly appear to be hitting the stocks today."
The Atlanta-based carrier's stock was down 0.9 percent.
For the first quarter of 2017, Delta predicted a flat to 2 percent increase in passenger unit revenue, which measures sales relative to flight capacity.
Fourth-quarter operating revenue fell to $9.46 billion from $9.50 billion, slightly above analysts' average estimate of $9.40 billion.
Delta's results and reports from other major U.S. airlines suggest an improving unit revenue environment, according to CFRA Research analyst Jim Corridore.
"Capacity discipline is helping, coupled with improving demand. We note domestic remains stronger than international, and see international capacity cuts likely," wrote Corridore in a research note. "We think valuations across the group are likely to expand in '17, on better unit revenue performance."
The other major U.S. carriers will report fourth-quarter and year-end results later this month.
(Reporting by Ankit Ajmera in Bengaluru and Alana Wise and Jeffrey Dastin in New York; Editing by Lisa Von Ahn and Bernadette Baum)