Delta Shows Big Loss, Sees Full-Year Profit
Andrew Compart andrew_compart@aviationweek.com 
Delta reported a $794 million loss for the first quarter, but called its fundamentals "solid," said it has seen early signs of "stabilization" in demand and revenue, and is projecting a full-year profit.
The airline is turning to a new checked bag fee and the grounding of aging and inefficient freighter aircraft to help make that profit projection a reality, as well as an acceleration of its merger synergies with Northwest. The airline did not qualify its full-year profit prediction to exclude special items.
Delta said it expects to boost revenue by more than $100 million a year by charging most customers a $50 fee to check a second bag for international flights, for travel as of July 1. The second bag fees for Delta and most U.S. carriers had been confined to domestic flights.
Delta said its new bag fees on the first and second checked bags for domestic flights were the driving force behind an 18% or $137 million increase in its "other" revenue in the first quarter, to $898 million. Its total revenue fell 15% to $6.7 billion.
The new fee won't apply to customers flying on first or business class or full coach fares, frequent flyer program elite-level members, or active-duty military on travel orders. A Delta spokesman also said it will apply only to Delta bookings, which means, for example, that it won't apply to a booking on a Delta flight with an Air France code but will apply to a booking on an Air France flight with a Delta code.
Delta also said it will make its cargo operation more profitable by grounding its entire fleet of 14 aging and "inefficient" Boeing 747-200 freighter aircraft by the end of this year. Delta said it lost about $150 million on freighter flying last year. Its cargo revenue fell 44% year-over-year in the first quarter.
Delta said it already began phasing out the 747 freighters and presently is operating only seven of them.
Delta is counting those 14 freight aircraft as part of 40 to 50 aircraft it plans to remove from its mainline fleet this year, part of a mix that also will include some MD-88s and Boeing 757s. Delta said it also plans to cut about 30 regional jets.
In making the case for why a $794 million first quarter loss is not so bad, Delta CEO Richard Anderson and other airline executives emphasized that Delta "essentially broke even" when special items and $684 million in fuel hedge-related losses were excluded. It also pointed to $600 million in operating cash flow and quarter-ending unrestricted liquidity of $5 billion.
Delta hedged 77% of its fuel consumption for the first quarter, based on protective actions it took last year when oil was approaching $150 a gallon. But Delta President Ed Bastian said the airline "will be effectively out of our legacy hedge positions by June."
Delta's full-year optimism did not appear to be tempered by a bigger decline in its first quarter passenger unit revenue than it had projected: down 12.1% compared to its earlier guidance of a 10% decline. Delta executives said the reason for the difference was lower-than-expected close-in bookings.
Nonetheless, Bastian said the airline is expecting close-in bookings to bring up load factors that currently are running about two to four points below last year for May and June.
"Things aren't good, but they're also not getting worse," Bastian said.
Photo credit: Delta
