Delta predicts 4% drop in key measure of revenue
By Justin Baer in New York
Delta Air Lines yesterday delivered a revenue forecast that appeared to confirm fears that carriers will confront a slump in air-travel demand this year.
In its first reporting quarter since merging with Northwest Airlines to create the world's biggest carrier by traffic, the company said that passenger unit revenue - an industry measurement that factors how well an airline fills aeroplane seats and how much it charges for tickets - would fall 4 per cent this year.
"The recession is clearly causing leisure customers to rethink or postpone some of their discretionary travel decisions," Ed Bastian, Delta's president, said. "On the corporate side, companies continue to trim travel budgets and as a result business travellers are purchasing their tickets in advance to take advantage of lower fares."
However, Delta executives argued that demand would improve as the year progressed, noting the first quarter is normally the industry's weakest.
"Despite the difficult economic environment, we expect to be solidly profit-able in 2009 driven by lower fuel costs, capacity discipline, and merger synergies," said Richard Anderson, chief executive. "Delta people have a great track record for achieving their goals, and I am confident that 2009 will be another successful year."
Delta said it had made a fourth-quarter net loss, which includes two months of Northwest results, of $1.4bn, or $2.11 a share, due to costs from employee stock awards and jet-fuel hedges.
The airline paid more than $900m in stock to employees following the merger, and recorded a $91m loss to mark down the value of fuel-hedging contracts. Excluding those items as well as one-time costs from the Northwest deal, the loss still missed many analysts' estimates.
Delta lost $70m, or 18 cents per share, as a standalone company in the fourth quarter of 2007. Including Northwest in both periods, revenue changed little from a year earlier, slipping to $7.77bn from $7.79bn. Passenger revenue - the amount Delta collects from ticket sales - fell 1 per cent.
Delta plans to shed as much as 8 per cent of its capacity this year as it removes 40-50 aircraft from its fleet. The company also initiated a second voluntary workforce reduction plan this month.
The October deal with Northwest created the world's largest carrier, promising $2bn in annual synergies and a widening advantage over its peers on both costs and revenue.
Executives reiterated those goals yesterday, even as merger expenses and accounting charges overwhelmed any evidence of early progress in the fourth quarter.
Mr Anderson's optimism was not shared by investors. By midday in New York, Delta's shares had plunged 17 per cent.
source : FT.com
