Delta expects a profitable 4th quarter

By Ted Reed, TheStreet

Delta (DAL) beat earnings estimates and said continued strong demand will lead to a profitable fourth quarter.

The first major carrier to report third-quarter results said it earned $929 million, or $1.10 a share, excluding special items. Analysts had estimated 94 cents. Revenue rose 18% to $9 billion. Analysts had estimated $8.8 billion.

Including special items, Delta earned $323 million, or 43 cents a share. Special items were a $360 million noncash loss on extinguishment of debt, $153 million related to Comair's fleet reduction and $53 million in merger-related expenses. In the same quarter a year earlier, including special items, Delta lost $161 million, equivalent to a loss of 19 cents a share.

"We are making progress toward our goal of consistent profitability with 10%-12% annual operating margins, and we expect to be profitable for the December quarter," CEO Richard Anderson said.

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During the quarter, consolidated passenger revenue per available seat mile rose 16%, driven by a 16% yield improvement. Pacific PRASM rose 45%, Atlantic PRASM rose 25%, and domestic PRASM rose 9%.                                                                                                                                

"Delta's revenue performance exceeded our expectations for the quarter, with especially strong performance from our international markets," president Ed Bastian said. "We see demand strength through the holiday period and expect solid year-over-year unit revenue growth for the December quarter."

On the cost side, consolidated unit revenue, excluding fuel and other items, was flat for the quarter as capacity rose by 2%. Costs increased by $577 million, primarily because of higher fuel prices, profit-sharing expenses and maintenance expense, partially offset by incremental merger cost synergies.

The carrier forecast an operating margin of 6% to 8% in the fourth quarter, with system capacity up 5% to 7%. Domestic capacity would rise by 3% to 5%, while international capacity boosts would total 10% to 12%.

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