October 16, 2014 / 12:09 PM / 3 years ago

Delta says travelers unfazed by Ebola, sees strong quarter

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The Delta Airlines Charter carrying the University of Notre Dame Fighting Irish NCAA college football team arrives at the Ft. Lauderdale-Hollywood International Airport for the 2013 Discover BCS National Championship game in Ft. Lauderdale, Florida January 2, 2013.Jeff Haynes

(Reuters) - Delta Air Lines (DAL.N) said Ebola fears have not hurt the carrier's bookings, forecasting strong current-quarter margins as it ramps up capacity in the Americas and trims growth on transatlantic and Pacific routes.

The Atlanta-based carrier estimated on Thursday an operating margin of 10 percent to 12 percent, up from 8.5 percent in the year-ago quarter. It also forecast a rise of as much as 2 percent in passenger revenue per seat mile.

Many of the capacity changes will begin this winter, after Delta has already reduced seats serving Moscow, Tel Aviv and Ebola-ravaged West Africa by 20 percent. These areas make up about 1 percent of the airline's overall capacity.

"We monitor (the effects of Ebola) on a daily basis, and we have not seen any changes in the booking trends," Executive Vice President Glen Hauenstein said on a conference call after Delta reported its third-quarter earnings.

U.S. airline stocks have plunged in part on fears that Ebola will reduce air travel. Delta's shares remained down more than 15 percent from a month ago, even after rebounding 2.9 percent on Thursday after Delta's earnings turned out to be better than expected.

Delta earned $1.20 per share in the third quarter, excluding special items, beating analysts' average estimate of about $1.18 according to Thomson Reuters data.

Delta will halve capacity growth across the Atlantic this winter to a range of 1 to 3 percent, after analysts pointed out that its joint venture with Virgin Atlantic gave Delta too many flights in an already saturated market. The venture will expand its capacity to London by 2.6 percent.

"As long as European markets continue to slow ... there is going to be concern about transatlantic demand," said S&P Capital IQ analyst Jim Corridore. "I don't think that what they're adding is too much at this time."

By contrast, the carrier plans to ramp up its capacity to Latin America by 15 percent in December, excluding Venezuela.

It also plans big changes to its routes in Asia, as it swaps Boeing Co (BA.N) 747s there for smaller-gauge planes redeployed from the Atlantic and slashes its capacity on low-yielding routes between Asian countries by 25 to 30 percent.

Delta said it expects the 747 retirements to boost its profit in the Pacific by $100 million next year, although it took a charge of $397 million this quarter primarily from these retirements.

Delta's outlook "suggests a relatively strong domestic revenue environment is more than offsetting weakening trends in (international) markets," Deutsche Bank analyst Michael Linenberg wrote in a research note Thursday.

The airline posted $1.6 billion in pretax income, excluding special items, up $431 million from a year earlier.

One-time items lowered pretax income to $579 million, or $357 million net of taxes, on a GAAP basis.

Delta's shares gained about 2.9 percent to close at $33.32.

Additional reporting by Sagarika Jaisinghani in Bangalore; editing by Alwyn Scott, Joyjeet Das, Feroze Jamal, Lisa Von Ahn and Richard Chang

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