Delta Air Lines Inc. DAL +1.63% said it
will boost fares and add fewer flights than planned as carriers contend with
in fuel prices amid a record stretch of profits.
Delta beat earnings forecasts on Thursday as record revenue
helped offset a $578 million higher fuel bill than in the second quarter of
But the No. 2 U.S. carrier by traffic said those rising
fuel costs will weigh on profit for the rest of this year, leading it to lower
its profit outlook. Delta said its fuel bill in 2018 would be $2 billion higher
than last year.
“With higher fuel prices you’re going to expect to see
ticket prices go up as well,” said Chief Executive Ed Bastian.
Analysts expect other U.S. carriers to outline plans to cut
capacity growth as they report earnings over the next few weeks. Airline shares
fell sharply on Wednesday after American
Airlines Group Inc.warned that its revenue per available seat mile
would fall short of its previous guidance. That day, American’s shares fell 8%
to their lowest level in nearly two years.
Delta said it has raised fares 4% from last year,
offsetting two-thirds of the higher fuel costs in the second quarter. “The
domestic is where we really need to get those fares moving. They have moved
internationally,” Delta President Glen Hauenstein said Thursday.
Delta 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 airline said it will cut back in markets where it can’t
pass along higher fuel costs, without naming specific routes or destinations.
Executives said they don’t expect higher fares to curb
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
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’
Delta shares rose 1% on Thursday.
Delta and other airlines have retreated from using
derivatives to hedge against future fuel-price swings. The company said in June
that it didn’t plan to start hedging again. Delta owns a jet fuel refinery that
it says helps insulate its operations from rising prices.
“Fuel prices where they are today at roughly $75 Brent does
not scare us,” Mr. Bastian said on Thursday.
Delta’s planned capacity cut is “a really important data
point for the whole industry,” said Joseph DeNardi, an airline analyst at
“Airlines have struggled to offset the effects of higher
fuel costs with higher fares,” he said.
Some analysts said Delta’s capacity cuts don’t go far
enough. Analysts have urged other carriers including American Airlines Group
Inc. to trim capacity as well.
“American continues to see solid demand, but this strong
demand appears to be coming as a result of lower fares,” said Helane Becker, an
analyst at Cowen & Co.
Delta posted a profit of $1.03 billion in the second
quarter, or $1.47 a share, compared with $1.19 billion, or $1.62 a share, a
year earlier. On an adjusted basis, earnings rose to $1.77 a 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.
here for the original article from The Wall Street Journal.