NEW YORK (Reuters) - Delta Air Lines Inc (DAL.N) on Wednesday said it will put the brakes on its expansion of flight capacity in 2016, in a move to fill up more planes and sell more seats at higher fares.
Delta, the third-largest U.S. airline, said its capacity — or total mileage flown by its planes’ seats — would grow zero to 2 percent next year, compared with a nearly 3 percent rise this year.
Wall Street analysts, noting stagnant foreign demand for U.S. carriers, have pushed them to shrink international service so fewer discount fares are necessary to sell out flights. A strong dollar has hurt foreigners’ spending power in the United States for months and lowered the value of foreign sales in dollar terms.
“We see this as a major positive, not just for (Delta), but also for the industry,” Sterne Agee CRT analyst Adam Hackel said of Delta’s capacity plan.
In morning trade, shares of the Atlanta-based airline rose 2.4 percent after Delta also posted higher-than-expected adjusted profits of $1.38 billion, up 36 percent from a year earlier.
U.S. airline earnings have surged in the past year as fuel costs have plummeted and companies have taken care not to add flights in excess of demand. Fees for extra services have helped, too.
Delta said its initiative to roll out fares that are priced based on the different amenities they include, such as priority boarding, contributed $75 million to its revenue of $11.11 billion in the third quarter. Revenue fell 0.6 percent from a year earlier, however.
For the fourth quarter, the airline said it would keep capacity flat compared with a year earlier to slow the decline in passenger revenue per available seat mile to between 2.5 percent and 4.5 percent. That gauge fell 4.9 percent in the third quarter.
“We have consistently achieved our long-term goals and will continue to do so regardless of the direction of fuel prices,” Chief Executive Richard Anderson told investors on a call Wednesday.
Delta earned $1.74 per diluted share in the third quarter, beating the average analyst estimate of $1.71, both on an adjusted basis, according to Thomson Reuters I/B/E/S.
Net income was $1.32 billion with an operating profit margin of 21 percent. For the fourth quarter, Delta forecast its operating margin will be between 16 percent and 18 percent.
(Fixes spelling of “priority” in paragraph 7; adds dropped word “seat” in paragraph 8)
Reporting By Jeffrey Dastin in New York Editing by W Simon