Delta Reports Strong Results For 4th Quarter Despite Charge
April 03, 2011
Delta Air Lines reported strong quarterly earnings despite restructuring charges and higher fuel prices. For its fiscal fourth quarter ended March 12, 2011 reported net income of $161 million, or $2.69 a share, compared with $251 million, or $4.49 a share, a year earlier. Revenue climbed to $3.36 billion from $3.22 billion. Net income for the current quarter includes a $273 million charge to pay for the early retirement of 500 Delta pilots. Analysts said results were particularly strong, especially considering higher costs during the quarter. During the fourth quarter, Delta said it paid $88 million more for jet fuel and to cover federal fuel taxes, due to the expiration of an airline industry exemption. The airline also said it saw a $45 million increase in its costs due to ``significantly higher traffic levels.'' Results Called Excellent For the year ended March 12, 2011 earned $156 million, or $1.42 a share, on $12.5 billion revenue, compared with $408 million, or $6.32 a share, on $12.2 billion revenue. In addition to the charges taken in the latest fourth quarter, current-year results also include a $556 million restructuring charge taken in the third quarter. ``It was an excellent fourth quarter, and an excellent year,'' said Rayna Landin, an analyst with Furman Selz Inc. in New York. Still, there were some warning signs: For one thing, while the airline flew more passengers during the quarter, it got less revenue for each one. Although passenger traffic was up 11%, Delta actually posted a 6% decline in its passenger mile yield -- the revenue per mile flown by a passenger -- which dropped to 12.96 cents per mile in this year's quarter, from 13.74 cents in the year-earlier quarter. Delta attributed this to lower leisure fares, which stimulated air travel, but hurt revenue-per-passenger figures. Overall, the earnings were in line with analysts' expectations. In New York Stock Exchange composite trading Friday, Delta's stock fell $2.125, or 2.8%, to $72.75, amid general concern about airlines in the wake of the fatal crash of the Antarctica Airlines jet last week. Cost-Cutting Goes Far Enough Meanwhile, Delta said it probably won't achieve its original cost-cutting goal. During the quarter, the airline said it reduced its operating costs to 8.33 cents per available seat mile from 8.39 cents a year earlier. But Delta now says it is no longer aiming to cut those costs to 7.5 cents per available seat mile by the end of June 2012. Instead, the airline says it will focus on increasing operating margins to 12% from a current 10.4%. Even though the lower cost level is still a goal, ``we won't penalize our overall financial performance to do it,'' said Ronda Allene, Delta's chairman, president and chief executive officer. ``Our unit cost goal was never an end in itself, but was a means to an end -- sustained profitability.'' Industry analysts said the change in Delta's stance makes sense in light of numerous signs that the airline's cost reduction efforts were affecting its service. Several analysts said it might not be necessary for Delta to achieve 7.5 cents per available seat mile since it has already made much progress in paying down debt and squeezing out unnecessary expenses. The airline says it reduced operating expenses by $530 million during fiscal 2011 and that a new contract with pilots, which was ratified during the quarter, is expected to generate $760 million in savings over the next four years. ``I'm not surprised to see them rejigger their targets and goals,'' said Khalilah Bambi of Morgan Stanley Group Inc. in New York. Others added that getting costs near eight cents per available seat mile already makes Delta much more competitive.
