Delta’s Q1 profit falls, but airline forecasts rising prices

Rising labor and fuel costs cut into Delta’s first-quarter profit, but the airline expects help this spring from higher average prices.

Delta said Wednesday that it expects a key revenue measure to rise by between 1 and 3 percent in the second quarter compared with a year earlier. That is a sign that after falling for two years, average fares are heading back up.

Shares of Atlanta-based Delta Air Lines Inc. rose 68 cents, or 1.5 percent, to $45.97 in afternoon trading

The airline’s executives offered their most detailed comments yet about last week’s breakdown that led to 4,000 canceled flights and inconvenienced hundreds of thousands of travelers. Executives said the episode will cost Delta $125 million.

Delta leaders like to boast about the number of days they go without canceling a flight – 64 during January, February and March, they said. More than pride is at stake. Delta claims that its reputation for reliability allows it to charge a premium – prices that are 9 percent higher on average than competitors.

When thunderstorms rolled through Atlanta last Wednesday, Delta shut down operations at Hartsfield-Jackson Atlanta International Airport for most of the day.

“The storm hit our largest hub during spring break, one of the busiest weeks of the season, and it took us several days to fully recover the operation,” CEO Ed Bastian said on a conference call with analysts and reporters.

The effects of the storm lingered through Sunday as planes and crews were trapped out of position – often unable to get to their next flight. Because flights were sold out or close to it, there were few empty seats to accommodate customers from canceled flights.

Bastian said the airline is back to normal and had no canceled flights on Tuesday. Delta is not understaffed, but it will make “significant improvements” to its system for scheduling and tracking aircraft crews, he said.

Chief Operating Officer Gil West is conducting a full review, the airline said.

The cancellations will cut into second-quarter profit. Delta on Wednesday reported a first-quarter profit of $603 million, down 36 percent from a year earlier. Labor costs rose 7 percent, and fuel spending rose 6 percent.

Earnings adjusted to exclude what the airline considered one-time items were 77 cents per share, beating the Wall Street forecast of 73 cents per share, according to Zacks Investment Research.

Revenue dipped 1 percent to $9.15 billion. A key measure – revenue for every seat flown one mile – dipped slightly – a disappointment for the airline and investors, who are looking for a turnaround after two years of declining average airfares.

Delta said, however, that so-called unit revenue will rise in the second quarter.

That figure dropped in 2015 and 2016 as airlines used cheaper fuel to add flights faster than the growth in travel demand. As a result, average fares fell.

If Delta is right, that windfall for consumers will soon be over.

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