Delta Profit Jumps 51%, Misses Street on Fuel Costs

Delta Air Lines (NYSE:DAL) revealed on Tuesday a 51% improvement in third-quarter profit that fell just short of Wall Street expectations, as heavy fuel costs did not wholly offset climbing demand across all of its markets.

The Atlanta, Ga.-based carrier posted net income of $549 million, or 65 cents a share, compared with $363 million, or 43 cents a share, in the same quarter last year.

Excluding one-time items, the company said it earned 91 cents, just below average analyst estimates polled by Thomson Reuters of 93 cents.

Revenue for the three months ended Sept. 30 was $9.8 billion, up 10% from $8.95 billion a year ago and trumping the Street’s view of $9.73 billion. Passenger revenue was up across all of its regions, most notably in its domestic market which was up 10% to $3.54 billion.

Passenger revenue climbed 6% in its Atlantic region to $1.8 billion and 22% its Pacific market to $1.07 billion.

“We are successfully adapting Delta to the challenging economic environment by producing a solidly profitable quarter in the face of $1 billion of fuel price pressure," Delta CEO Richard Anderson said in a statement.

The aviation industry, including Delta’s biggest rivals UnitedContinental (NYSE:UAL) and  AMR’s (NYSE:AMR) American Airlines, have been faced with sharply rising prices for jet fuel that have forced many to cut capacity in an effort to manage expenses.

Despite $97 million in fuel hedging, Delta saw operating expenses climb $1 billion year-over-year as a result of those fuel costs. The carrier paid an average of $3.09 a gallon in the September quarter, up 35% from the year-earlier period.

The airline’s chief financial officer, Hank Halter, noted that the company has started to gain traction with its cost-reduction initiatives, slowing non-fuel cost growth to 3% on a slight decline in capacity.

"With the initiatives we have in place, we remain on track to bring our non-fuel unit costs modestly above 2010 levels in the fourth quarter despite a significant reduction in capacity," he said.

In the current quarter ending in December, the company expects to pay on average $2.98 a gallon in fuel, including hedges, with capital expenditures of $350 million. Delta said it expects costs excluding fuel to be flat to up 2% in the fourth quarter.

To reduce costs in the period, Delta plans to reduce capacity in both its domestic and international markets. U.S. air travel will be down 3% to 5% during the period, the carrier said, while international capacity will be reduced 4% to 6%.