Delta Air predicts rise in key revenue measure

Thu Jan 12, 2017 5:51pm EST
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By Alana Wise

(Reuters) - Delta Air Lines Inc (DAL.N: Quote) expects a closely watched revenue measure to rise for the first time in two years, although higher labor costs will weigh on its profits in 2017, the company said on Thursday.

Delta, in a news release, predicted a flat to 2 percent increase in the first quarter of 2017 in its passenger unit revenue, which measures sales relative to flight capacity, which would break a streak that has affected most of the U.S. industry.

While improved unit revenue is a positive sign for investors, the news was tempered by the airline's forecast of a decline in its operating margin to 11 percent to 13 percent in the first quarter of 2017, compared with 18.5 percent in the same period of 2016.

"Delta provided a Q1 guide predicated on positive (unit revenue), a feat that would have been viewed as remarkable by last July’s standards, but current buy-side expectations were expecting as much," JPMorgan analyst Jamie Baker said in a note.

Shares were down sector-wide in afternoon trading. Cheaper fares and increased competition have battered the U.S. industry for months.

Shares of Delta, the No. 2 carrier by passenger traffic, closed down 1 percent at $50.89.

The Atlanta-based company reported a 37 percent slip in fourth-quarter net income to $622 million and a 2.7 percent decline in fourth-quarter passenger unit revenue as the carrier added more seats available for purchase on its routes.

Contributing to that was a 30 percent pay raise for pilots by 2019 that Delta agreed to last year, the airline said.   Continued...

Passengers check in at a counter of Delta Air Lines in Mexico City, Mexico, August 8, 2016. REUTERS/Ginnette Riquelme/File Photo