14 Jan 2020

Delta beats profit forecast on strong demand as rivals battle 737 MAX crisis

CHICAGO (Reuters) – Delta Air Lines Inc on Tuesday reported a fourth-quarter profit that beat estimates, boosted in part by customers it gained from rival airlines’ 737 MAX cancellations and growing air travel demand.

FILE PHOTO: A Delta Air Lines flight is pushed put of its gate at the airport in Salt Lake City, Utah, U.S., January 12, 2018. REUTERS/Mike Blake/File Photo

Delta shares were up more than 3% in premarket trading.

Airlines that own Boeing Co’s 737 MAX are cancelling more than 10,000 monthly flights in total as the aircraft remains grounded following two deadly crashes.

Delta does not operate the MAX, enabling it to expand its flight capacity and capture new customers, even as peers like Southwest Airlines Co have had to scale back.

Atlanta-based Delta’s net income rose 8% to $1.1 billion in the quarter to Dec. 31 from a year earlier. Adjusted earnings per share hit $1.70, beating analysts’ expectations for $1.40 per share, according to IBES data from Refinitiv.

Total operating revenue rose 7% to $11.4 billion.

“There’s no question that we’re picking up new customers, but that’s not the main driver of our performance,” Bastian told Reuters, citing strong customer loyalty at a time when air travel demand continues to rise.

“The underlying environment remains favorable for Delta as they continue to benefit from slower-than-normal industry capacity growth in the domestic market due to the grounding of the 737 MAX,” said Cowen analyst Helane Becker.

Lower fuel costs and a 9-cent-per-share gain from the sale of its stake in Brazil’s Gol also propped up profit.

In the first quarter, Delta expects revenue growth of 5% to 7% year-on-year as U.S. demand rises in spite of heightened geopolitical tensions. Revenues per available seat mile are seen flat to 2% higher and non-fuel unit costs up 2% to 3%.

Delta, the first of its peers to report quarterly results, generated $4.2 million of free cash flow for the year, a number it expects to repeat this year, enabling new investments in technology to improve passenger experience.

One issue for 2020 will be ongoing contract negotiations with pilots.

As for new aircraft, Delta is still interested in Boeing’s proposed new midsized airplane, known as the NMA, despite the planemaker’s delayed decision on whether to launch the new aircraft as it continues to deal with the 737 MAX fallout.

Delta wants to remain a customer of both Boeing and Airbus SE but the longer Boeing takes to decide on the NMA’s launch, the fewer options the carrier has, Bastian said, noting Airbus’ A321XLR and A330 could be alternatives.

The airline is also still interested in investing around 100 million euro ($111.34 million) in the rescue of Italian flagship carrier Alitalia, Bastian said, and is working on anti-trust immunity in South America after closing this month the acquisition of a 20% stake in LATAM Airlines Group.

($1 = 0.8981 euros)

Reporting by Tracy Rucinski; Editing by Muralikumar Anantharaman and Bernadette Baum

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