Delta Air Lines Inc on Wednesday reported that second-quarter profit jumped 85 percent, topping expectations, but forecast a third-quarter drop in unit revenue as the carrier continued to see weaker demand abroad due to the strong U.S. dollar.
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Shares fell 2.3 percent to $42.65 in premarket trade.
The Atlanta-based airline earned $1.49 billion in the last quarter versus $801 million a year ago. On an adjusted basis, profit was $1.03 billion, or $1.27 per diluted share, compared with the average analyst estimate of $1.21, according to Thomson Reuters I/B/E/S. Last year, Delta <DAL.N> posted adjusted profit of $889 million, or $1.04 per share.
Despite the earnings beat, Delta's third-quarter outlook reflected a challenging revenue environment as the U.S. dollar weighed on foreign travelers' spending power.
The carrier forecast that passenger revenue per available seat mile (PRASM), which measures sales relative to the capacity and distance of flights, will decline between 4.5 percent and 6.5 percent in the third quarter.
It estimated capacity would grow about 3 percent in the third quarter but stay flat in the fourth period after the peak summer travel season ends.
"We believe this plan will allow us to get our unit revenue back on the right trajectory by the end of the year," Chief Financial Officer Paul Jacobson said in a memo to employees, seen by Reuters.
Investors have called on U.S. airlines to restrain capacity growth to match lower demand. However, frequent talks with Wall Street about capacity, which has an impact on prices, have raised eyes at the U.S. Department of Justice and prompted an investigation into whether carriers have worked together illegally to keep air fares high.
Delta expects an operating margin of 19 percent to 21 percent in the third quarter, compared with 15.2 percent a year earlier.
Sterne Agee CRT analyst Adam Hackel called the report "very strong," noting that the airline expects to keep costs in check.
Delta forecast average fuel costs would be between $1.90 and $1.95 per gallon in the third quarter, versus $2.40 per gallon last quarter to account for hedging losses. It estimated unit costs, excluding fuel and other charges, will stay flat year over year.
The airline said its initiative to roll out fares that are priced differently to include certain amenities contributed $56 million to total revenue, which was $10.71 billion, topping estimates. PRASM fell 4.6 percent.
(Reporting by Jeffrey Dastin in New York; Editing by Jeffrey Benkoe)