Delta Profit Surges on Fuel Contract Gains

By Bill Dries

Delta Air Lines announced Wednesday, Oct. 24, a third-quarter profit that nearly doubled for the three months that included the start of the second round of Delta air service cuts at Memphis International Airport in a year.

Executives of the Atlanta-based air carrier said that Delta’s third-quarter profit nearly doubled mostly due to the increasing value of its fuel contracts.

The world’s second-largest airline earned $1.05 billion, or $1.23 per share, compared with $549 million, or 65 cents, a year earlier. Excluding one-time items, it earned $768 million or 90 cents, which was just shy of Wall Street expectations of 91 cents.

Revenue rose 1 percent to $9.92 billion, also just under analysts’ estimate of $9.93 billion, according to FactSet. Delta says revenue was driven by its effort to trim seats according to demand. As it scaled back capacity, flights were slightly fuller.

“We expect our revenue performance to benefit from our continued capacity discipline and further corporate travel gains,” said Delta President Ed Bastian. “And we are forecasting our October unit revenues to increase 4-5 percent year over year.”

“Capacity discipline” is a phrase that has meant two rounds of air service cuts by Delta at Memphis International Airport in a year’s time. The second round began in August.

September numbers for Memphis International Airport show 29 scheduled Delta daily flights, not counting regional service under the Delta brand, carrying 171,225 passengers.

The same figures for August 2011 show 39 Delta flights at Memphis International carrying 262,430 passengers.

Delta made 3 percent more per passenger in the third quarter, which includes a bulk of the peak summer season but also incorporates one of the weakest months – September. Traffic at all the big airlines fell last month.

But Delta is eyeing a per-passenger revenue improvement of 4 percent to 5 percent in October, well above the 0.5 increase in September.

Fuel costs dropped 23 percent in the third quarter.

The average fuel price for Delta’s fleet was $3.14 per gallon during the quarter. The price included three cents a gallon in losses Delta had from its fuel hedging program. Delta took a big one-time hit of $168 million on the fuel hedge strategy in the second quarter as gas prices went lower. For that quarter, the impact of the settled losses on fuel hedging made up 16 cents of the price Delta paid for a gallon of jet fuel.

The quarter saw Delta begin jet fuel production at the Trainer Refinery it bought in May near Philadelphia in a $150 million deal. The wholly-owned refinery should become fully operational in the fourth quarter, company executives said. And Delta expects the refinery to at least break even in the fourth quarter or make up to $25 million.

Overall, Delta’s operating expenses fell 4 percent. Other expenses related to items like debt and interest fell 18 percent.

– The Associated Press contributed to this report.