Delta posts $318 million loss citing ‘significant’ transatlantic overcapacity and fuel costs

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Published: April 27, 2011

Delta Air Lines 757. Courtesy photo.

Delta Air Lines reported a hefty first-quarter loss of $ 318 million, significantly widened from a deficit of $ 256 million in the year-ago period, as a 29% rise in fuel costs added $ 483 million to the operating expense ledger in the current period.

“We faced significant pressures on our business from rising fuel prices, the impact of events in Japan and significant industry overcapacity in the transatlantic marketplace,” CEO Richard Anderson said in a conference call with analysts and journalists. He said that $ 150 million of the $ 200 million “erosion in year-on-year pre-tax earnings was attributable to transatlantic performance.” In response, “in conjunction with Air France, KLM and Alitalia,” DL will cut its post-Labor Day transatlantic capacity 8%-10%, versus the prior year.

DL also intends to ground a further 20 aircraft, including some widebody jets, in addition to the 120 it previously said would leave the fleet over the next 18 months. As a result, capacity (ASMs) for the second half will be down four percentage points compared to previous plans, with post-Labor Day system capacity down 4% year-on-year. It will maintain capex spending at $ 1.2 billion over the next five years.

Current period results were net of a special gain of $ 2 million, including $ 29 million in mark-to-market hedging gains, mostly offset by $ 27 million in charges related to fleet retirements and debt extinguishment. Year-ago results included $ 64 million in special charges.

Total first-quarter operating revenue rose 13% to $ 7.75 billion; DL estimated that severe winter weather and events in Japan shaved $ 90 million and $ 35 million, respectively, off of passenger revenues for the period. Operating expenses climbed 16% to $ 7.84 billion and DL had an operating loss of $ 92 million compared to income of $ 68 million a year ago.

Anderson said that, “Domestic price increases and international fuel surcharges offset about 70% of the rise in fuel prices”; however, “in the Atlantic we had little success, as the industry capacity increase of 11% put significant pressure on yields.” DL grew transatlantic capacity 16% in the first quarter.

On a unit basis, consolidated yield, including regional flying, rose 12% to 15.32 cents on a 1% increase in traffic to 42.9 billion RPMs. Capacity rose 5% to 56.2 billion ASMs, pushing load factor down 3.1 points year-over-year to 76.4% and holding the rise in passenger RASM to 7% to 11.69 cents. Cost per ASM climbed 10% to 13.94 cents. CASM ex-fuel and special items climbed 3% to 8.96 cents.

Anderson said the carrier expects to be profitable in the June quarter; according to an 8-K filing it anticipates a 7%-9% operating margin. Consolidated and mainline system capacity will be up 2%-4% year-to-year with domestic capacity flat to down 2% and international ASMs up 7%-9%. The carrier estimates the full-year net impact of the Japan earthquake and tsunami will be around $ 250 million, at the low end of earlier estimates, including $ 75 million in the second quarter.

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  1. [...] A reporter asked if they would be widebodies, and Richard said the mix had not been decided. Delta posts $318 million loss citing ‘significant’ transatlantic overcapacity and fuel c… DL also intends to ground a further 20 aircraft, including some widebody jets, in addition to the [...]