Delta Reports Profit Despite Fuel Costs


(c) 2011 Deta Air Lines

Delta Air Lines reported a quarterly profit despite a more than $1 billion higher fuel expense. Delta's net income for the June 2011 quarter was $366 million (excluding special items) or net income of $198 million. Strong top line revenue growth of 12 percent year over year helped offset the higher fuel expense.

Delta also said it generated a revenue premium, with unit revenues up 10 percent for the quarter. Delta generated $1 billion of operating cash flow and $700 million in free cash flow in the quarter.  The company ended the June 2011 quarter with $5.6 billion in unrestricted liquidity.

"High fuel prices are putting significant pressure on the industry, but the benefits of Delta’s strategic actions and the dedication of Delta employees are evident in the solid profit we produced despite more than $1 billion in higher fuel expense," said Richard Anderson, Delta's chief executive officer.  "Our revenue momentum, coupled with the capacity reductions we are making in September and actions to get our non-fuel costs to 2010 levels, will generate the margins we need to hit our return targets." 

Delta said it is recalibrating its business to succeed in a permanent, high fuel price environment.  The company's actions include:

    •    Using fare increases, fuel surcharges and revenue initiatives to recover fuel cost increases through ticket prices
    •    Reducing its December quarter capacity by four to five percent year over year, an incremental one point reduction from previous guidance, focused in markets where revenues do not cover higher fuel costs.  Domestic capacity will be down one to three percent and international capacity will be down four to six percent..  In the transatlantic, Delta and its partners, Air France – KLM and Alitalia, established capacity levels as a single entity, leading to a combined reduction in transatlantic capacity of seven to nine percent for the December quarter
    •    Retiring 140 of Delta's least efficient aircraft by the end of 2012, including the entire DC9 and Saab turbo-prop fleets, and 60 50-seat regional jets.  Half of these aircraft will exit the fleet in 2011, which will contribute to the expected $250 million in maintenance savings for the second half of 2011 compared to the first half of the year
    •    Implementing initiatives to reduce the company's non-fuel unit costs to 2010 levels by the end of 2011, including voluntary exit programs accepted by more than 2,000 employees; consolidating more than 1.2 million square feet of facilities in Atlanta and Minneapolis; and lowering selling and distribution costs by shifting to more efficient distribution channels.

Delta's traffic rose one percent on a 2.5 percent increase in capacity.  Passenger revenue increased 13 percent, or $882 million, compared to the prior year period.  Passenger unit revenue (PRASM) increased 10 percent, driven by a 12 percent improvement in yield partially offset by a 1.3 point decline in load factor.  Passenger revenues were negatively impacted by $125 million as a result of the March events in Japan.

As part of its plan to generate $1 billion in incremental revenue by 2013, Delta launched its new international premium economy product, Economy Comfort, on June 1.  Revenue from Economy Comfort and other new seat-related products and merchandising initiatives are expected to generate $150 – 200 million in revenue in 2011.



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