Delta Expects Profitable 2009
Jan 27, 2009
Andrew Compart andrew_compart@aviationweek.com
Delta reported a $1.4 billion loss for the fourth quarter, but that included $900 million in merger-related equity awards to its employees, and CEO Richard Anderson predicted an annual profit for the airline in 2009.
In the short term, Delta expects to report another loss for the first quarter, and the airline's executives acknowledged recession-driven weakness in February and March bookings. The airline said it is seeing the most weakness at its Cincinnati and Detroit hubs, owing to automaker problems and other industrial job losses, and on its Washington-New York-Boston Shuttle.
Business travelers are flying in coach more often, and booking further in advance to get better deals. And Delta executives said it is very difficult to forecast future demand in the current economic environment.
But Anderson and other Delta executives based their optimism for the full year on a fuel price decline the airline estimates will save it $5 billion in 2009, along with an expected $1 billion in savings from capacity reductions and $500 million in synergy benefits from its Northwest merger.
The airline said it expects its fuel cost savings to exceed revenue losses by a 2-to-1 ratio. Anderson said the airline, as previously stated, still asserts its 2009 revenue would have to decline 20% to offset those estimated savings and benefits. And he said enough of Delta's aircraft are fully paid for or have leases expiring this year to let it reap the full financial benefits of cutting capacity beyond the 6% to 8% decline it already plans for 2009, if the level of demand warrants additional cuts.
"We expect to be profitable in 2009 and build our cash position," Anderson said. The carrier is forecasting an operating margin of 6% to 8% for the year.
Even excluding special items, including fuel hedging-related losses, Delta lost $340 million in the fourth quarter. Revenue was flat year-over-year, when Northwest results are included for the full quarter in both 2007 and 2008.
Anderson, however, urged stock analysts to consider the airline's "fundamentals" by looking at how it would have done if special items such as those equity awards were excluded, and if it had been able to purchase all of its fuel at market prices (it paid more than market for some fuel under its hedges). By that measure, the airline would have reported a $167 million profit, he said.
Similarly, Delta reported an $8.9 billion loss for the year, but that included $7.3 billion in non-cash goodwill and other asset impairment charges reported earlier in 2008. Absent special items and a $91 million loss on out-of-period fuel hedges, Delta said its net loss for the year was $503 million.
The airline ended 2008 with $4.5 billion in cash, cash equivalents and short-term investments--thanks in part to a $1 billion payment from American Express to pre-purchase SkyMiles under a multi-year extension of their agreement on a co-branded credit card.
Photo of 777-200LR: Delta Air Lines
