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Business Delta soars on cheap fuel, but hints of a decline in fares

Delta soars on cheap fuel, but hints of a decline in fares

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DALLAS (AP) — Delta Air Lines’ second-quarter profit nearly doubled, to $1.5 billion, as huge savings on fuel offset weak growth in revenue.

The company predicted a record quarter when it next reports financial results, in October.

Profits are soaring as airlines keep planes full by not adding too many new flights. That has caught the attention of the U.S. Justice Department, which is investigating whether the airlines are illegally working together to prop up prices by limiting the number of flights.

But Delta said Wednesday that passengers spent 4 percent less per mile in the second quarter than they did in mid-2014, a sign that fares are slipping. That is a troubling trend for the airline business after years of rising “yield,” as the figure is called. Delta said that it expects the downward trend to continue in the third quarter but end in the fourth quarter, when it will limit flying to late-2014 levels.

Airlines say their success helps passengers and employees. Delta CEO Richard Anderson said Wednesday that his airline has been able to afford higher wages and new airplanes.

Delta Air Lines Inc., based in Atlanta, is the nation’s third-largest airline operator and the first to report results from the April-through-June quarter.

The company said second-quarter net income rose 85 percent from a year ago. Excluding non-recurring gains, Delta earned $1.27 per share, beating the $1.22 forecast from 10 analysts surveyed by Zacks Investment Research.

Revenue rose 1 percent to $10.71 billion, topping the Zacks forecast of $10.64 billion.

Spending on fuel plunged 40 percent — a savings of nearly $1.2 billion when Delta Connection flights are added. Delta’s price at the fuel pump declined by a smaller amount, but the airline got a benefit of $454 million from the rising value of its fuel-hedging contracts. Labor costs rose 7 percent and passed fuel as Delta’s biggest expense.

For the July-through-September quarter, Delta expects that cheaper jet fuel will allow it to boost earnings per share by 30 percent, compared with the same period last year, and hit an operating profit margin of around 20 percent.

The shares fell 86 cents, or 2 percent, to $42.80 in early trading before the opening bell. Delta shares have dropped 11 percent this year, compared with a 2 percent gain in the Standard & Poor’s 500 index.

This story includes material generated by Automated Insights using data from Zacks Investment Research. 

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