Delta Air Lines
said higher fuel costs are cutting into profit even as demand for air travel grows.
Delta beat earnings forecasts on Thursday as record revenue helped offset a $578 million higher fuel bill than in the second quarter of last year. But the No. 2 U.S. carrier by traffic said those rising fuel costs will weigh on profit for the rest of this year. Delta said its fuel bill in 2018 would be $2 billion higher than last year.
“We have seen early success in addressing the fuel cost increase,” said Delta Chief Executive
“We have positioned Delta to return to margin expansion by year-end.”
Delta said it plans to trim underperforming routes after the peak summer travel season ends, reducing capacity growth this fall by 0.5 to 1 percentage point. The Atlanta-based carrier said its closely watched unit-revenue metric rose 4.6% in the second quarter compared with that period last year. The company expects it to increase by 3.5% to 5.5% in the third quarter.
Investors monitor the revenue that airlines generate for each seat flown a mile as a sign of how well the industry is managing capacity. Investors have said lately that a glut of available seats could hamper airlines’ pricing power.
Airline shares fell sharply on Wednesday after
warned that its revenue per available seat mile would fall short of its previous guidance. American’s shares fell 8% to their lowest level in nearly two years.
Delta shares rose 1.6% in premarket trading on Thursday.
“Accelerating the recapture of the recent fuel price increases is the number one focus for our commercial team,” Delta President
said. Delta said it offset two-thirds of its higher fuel costs during the second quarter.
Analysts said American hasn’t been as successful as Delta in raising prices to manage higher fuel costs, and suggested the Dallas-based carrier will also have to trim capacity in the coming months.
“In a rising jet fuel environment, airlines should be raising prices,” Helane Becker, an analyst at Cowen & Co. “American continues to see solid demand, but this strong demand appears to be coming as a result of lower fares.”
Delta posted a profit of $1.03 billion in the second quarter, or $1.47 a share, down from $1.19 billion, or $1.62 a share, a year earlier. On an adjusted basis, earnings rose to $1.77 per share from $1.59 in the prior year, topping the $1.72 analysts expected.
Revenue rose 9.6% to a record $11.8 billion. Delta also increased its quarterly dividend by 15% to 35 cents a share.
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