Delta 2Q earnings up 4% on lower fuel costs

Delta Air Lines reported Thursday a 4.1% increase in net earnings for the second quarter, when low fuel prices continued to offset a decline in overall revenue.

Net income for April, May and June of $1.5 billion, or $2.03 per share, met estimates by S&P Global Market Intelligence. The $1.47 in adjusted earnings per diluted share modestly topped a consensus estimate of $1.42, said Jamie Baker, a J.P. Morgan analyst.

Jim Corridore, an analyst with S&P Global Market Intelligence, kept a "strong buy" recommendation for Delta despite the weaker revenue outlook and political uncertainty in Europe. Delta's stock price was up 3.8% to $41.07 in late afternoon trading.

Delta's results came on a 2.4% decline in revenue, to $10.4 billion. The $260 million decline included $65 million from foreign currency.

But total fuel cost fell $408 million, or 16.5%, compared to the same period a year earlier. Ed Bastian, Delta's CEO, warned that the period of year-over-year savings in fuel costs for the industry are probably over, so the airline must find ways to improve revenues.

“As we look to the remainder of the year, the large year-on-year savings driven by lower fuel  are largely behind us and it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory,” Bastian said.

The yield for each mile a passenger flew dropped 4.7% to 15.90 cents, even as the airline was flying more people more miles.

Delta plans to cut growth in its fourth-quarter capacity in half to 1% rather than 2%. The airline will reduce its winter capacity to fly to the United Kingdom by 2% to 4% because the steep drop in the British pound could discourage travel after the vote to leave the European Union, called Brexit.

Delta President Glen Hauenstein said the airline gets about $350 million in United Kingdom revenue in pounds, so the 12% reduction in that currency after Brexit cost the airline $40 million. The winter capacity reductions will focus on British flights heading to leisure markets such as Florida, Las Vegas and New York, he said.

“The trans-Atlantic is still on track to produce one of the most profitable summers in history," Hauenstein said. “We are now facing additional pressures from Brexit."

Within the U.S., Hauenstein said ancillary revenues expanded for seats such as Comfort Plus that was introduced in mid-May, with projections for $300 million in additional revenue during the second half of the year.

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