Delta, US Air profits top Wall Street estimates
Delta Air Lines and US Airways Group, aided by revenue gains, posted higher-than-expected first-quarter earnings on Tuesday, and their shares rose despite cautions by both carriers about near-term weakness.
Delta forecast a positive operating margin for the current quarter but added that U.S. government spending cuts and lighter demand from leisure travelers were expected to hurt a key revenue measure in April.
US Airways, which plans to merge with AMR Corp's American Airlines this year and form the world's biggest carrier, said its bookings were higher year-over-year for May and the summer, but added that business demand has been pressured since spending cuts known as "sequestration" began.
Investors shrugged off the revenue concerns. Delta shares were 9.9 percent higher and those of US Airways were up 4.8 percent, both in late afternoon trading.
"We're seeing the impacts of consolidation, overall capacity discipline and better operational management showing up in the form of improved results," said Fred Lowrance, an airline analyst with Avondale Partners.
U.S. airlines have merged, curbed unprofitable routes and raised ticket prices to recover in recent years. Carriers are also cutting back flying to match demand and have gained new revenue streams from baggage and food fees, moves that have helped keep profits coming.
REVENUE OUTLOOK
But an uncertain macroeconomic backdrop could pose challenges for travel over the next few months.
This week, staff furloughs at U.S. air traffic control towers took effect, causing delays at some airports but so far not the widespread chaos some transport regulators had warned about. Airlines have forecast hundreds of millions of dollars in lost revenue from the furloughs, imposed by the Federal Aviation Administration.
"It's hard to quantify what exactly (sequestration effects) would be," said Matthew Jacob, an airline analyst with ITG Investment Research.
"Investors are more interested in the profitability continuing and the strong earnings despite what appears to be slowing (revenue) trends," Jacob added.
Delta mentioned weaker ticket sales in its defense business tied to the sequester. It also said the weaker yen had hurt results, and added it was considering possible flight reductions in the Pacific region as a result.
US Airways said its government revenue fell more than 30 percent in March, a result of the budget cuts as well as the Easter holiday shift into March from April last year.
"Leisure demand is still good," US Airways President Scott Kirby said during a conference call. "Business demand remains volatile, however, and as long as the sequester stays in place I expect the government-related demand will continue to be depressed."
Delta added it expected declining oil prices to help offset its near-term revenue weakness.
"We anticipate the lower fuel costs, combined with prudent capacity management, will more than offset any revenue softness," Chief Executive Richard Anderson said during a conference call.
Delta's posted a net income of $7 million, or 1 cent a share, for the first quarter, compared with $124 million, or 15 cents a share, a year earlier. Excluding items, profit was 10 cents a share, compared with 6 cents expected by analysts on average, according to Thomson Reuters I/B/E/S.
US Airways reported a first-quarter profit of $44 million, or 26 cents a share, compared with $48 million, or 28 cents a share, a year earlier. Excluding items, its profit was 31 cents a share, topping analysts' average estimate of 28 cents.
Delta's revenue rose 1 percent to $8.5 billion, while US Airways Group's climbed 3.5 percent to $3.4 billion.