Despite September Slowdown, Delta Bullish on 3Q Amid Fuel Hedges

Delta Air Lines (NYSE:DAL) reported on Tuesday a softer-than-expected 0.5% increase in September unit revenue from the same month in 2011 but boosted its third-quarter margin guidance, citing hedges against rising fuel costs.

The second-biggest U.S. carrier by traffic now anticipates posting operating margins of 10% to 11% in the three months ended Sept. 30, compared with its earlier view of 9% to 11%.

The Atlanta-based airline cut its outlook on jet fuel costs to $3.15 a gallon and said it expects to record a $450 million gain on fuel hedges. Adjusted fuel price per gallon was just $3.09 in September, partially a reflection of its new refinery.

The company became the first airline to buy its own jet fuel refinery earlier this year when it purchased the Pennsylvania Trainer facility from ConocoPhillips (NYSE:COP) in May for $150 million. The move has helped it trim fuel costs.

Shares of Delta climbed 2% to $9.66 Tuesday.

The upbeat view comes despite a slow September. Delta’s traffic last month was down 1.1% on a 0.6% decline in capacity, lowering load factor – a key metric for airlines that measures how full planes are – by 0.4 points.

Domestic revenue per available seat mile fell 4.2% last month, partially offset by a 3.3% increase in its international markets, while the total number of passengers boarded slipped by 1.9% to 13.12 million.