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Delta Sees 3Q Profit Slip, Hints At Higher Average Prices

Delta Air Lines third-quarter profit fell more than 6 percent to $1.18 billion,
Delta Air Lines third-quarter profit fell more than 6 percent to $1.18 billion,
Credit David Goldman / Associated Press
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The price of air travel is poised to rise again, with airlines seeing beyond recent fare wars that have cut into their profits.

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Delta Air Lines third-quarter profit fell more than 6 percent to $1.18 billion, partly because Hurricane Irma robbed the company of $140 million in revenue from canceled flights.

The hurricane’s impact was already known, however, so investors are more likely to seize on Delta’s prediction Wednesday that revenue for each seat flown one mile — a closely watched measure of pricing power in the airline business — will rise by up to 4 percent over last year during the fourth quarter.

That forecast comes a day after American Airlines and United Airlines reported that the same key revenue figure would be better than expected in the third quarter, which ended Sept. 30.

U.S. airline stocks tumbled during July and August over concern that overly rapid expansion and fare wars — primarily between United and budget carrier Spirit Airlines at several big airports — were hurting profits.

Those fears now appear to be overblown.

Delta’s shares inched higher in afternoon trading Wednesday, just one day after a broad rally in airline stocks. The leading airline stocks have regained most of their summer losses.

What is clear from all the airline reports is that demand for travel is still strong.

Strong demand “is overcoming some of those pricing skirmishes that you read about in our industry,” Delta CEO Ed Bastian told CNBC.

Delta enjoyed its busiest summer ever, as traffic rose 3.4 percent over last year. Fares were relatively flat, but extra fees for things like checked bags helped Delta rake in 1.9 percent more money for each seat flown one mile.

Importantly, Delta said that same figure would rise by between 2 percent and 4 percent in the October-through-December period that includes holiday travel.

Stifel analyst Joseph DeNardi said Delta was helped by having a higher percentage of monopoly routes in its Delta Connection network than rivals have in their regional affiliates.

Atlanta-based Delta said that excluding one-time items it earned $1.57 cents per share in the third quarter, 4 cents better than the forecast of analysts surveyed by FactSet.

Despite Hurricane Irma, revenue rose 5.5 percent to $11.06 billion, also slightly better than analysts anticipated.

Profit fell, however, because costs rose 8 percent, even faster than revenue. Labor expenses jumped 10 percent on higher wages, and fuel spending climbed 8 percent including Delta and Delta Connection planes.

Fuel is a hard-to-predict cost that hangs over the industry. Airlines benefited from falling fuel prices in 2015 and 2016, but Delta paid $1.61 a gallon in the third quarter, up 11 cents from the summer before.