Delta Posts USD$794 Mln Loss After Merger
Delta Air Lines said it still expected a profit for the year despite reporting a first-quarter net loss of USD$794 million, helping to push up its shares by 12.5 percent in early trading on Tuesday.
Delta, reporting its first quarterly results since merging with Northwest Airlines in October, said the loss was the result of a drop in travel demand and adverse fuel hedges. Including special items, however, it broke even.
Delta, which said it was on track to fully integrate its business, reported a 15 percent drop in combined operating revenue compared with a year earlier, while capacity on a combined basis fell 6 percent.
On a combined basis, operating expenses declined by USD$1.1 billion, due mainly to lower fuel costs.
Matthew Jacob, analyst at Majestic Research, said investors expected weaker industry trends as the quarter wore on.
"Management (at Delta) could be too optimistic and some investors that are looking for a quicker turnaround could be too optimistic -- we're not seeing any signs that things have turned around," Jacob said.
Delta and Northwest lost a combined USD$10 billion in the year-earlier period, which included massive one-time write downs as fuel prices soared to record highs.
Minus the charges, the two posted a combined quarterly loss of USD$473 million in the first quarter of 2008.
TURBULENCE AHEAD
Delta President Ed Bastian said he expected revenues to "be under significant pressure for the remainder of the year".
But he said he believed that merger cost savings, lower fuel prices and steps to boost cash would help the carrier weather industry turbulence.
"The fundamentals of our business remain strong and once the economic outlook improves, Delta will be best positioned to take advantage of the global recovery," Bastian said in a statement.
Delta said more than 2,500 employees -- more than initially expected -- had accepted early-out and early retirement packages offered in January.
In another measure to cut costs, Delta said it would ground its fleet of fourteen 747-200 cargo aircraft at the end of 2009 due to the aircraft's age and inefficiency.
It will also start charging international passengers USD$50 to check a second bag beginning July 1 to raise USD$100 million.
Weakness in global markets led Delta to announce in March that it would cut international seat capacity by an additional 10 percent starting in September.
Delta reported USD$6.7 billion in revenue, which was in line with analyst expectations, and ended the quarter with USD$5 billion in unrestricted liquidity.
The Atlanta-based carrier said falling oil prices diluted the value of its fuel hedges in the quarter, resulting in an accounting loss of USD$684 million.
Hedge losses are expected to decline throughout the year.
