Delta, United profit beats encourage sector, but shutdown impact looms

CHICAGO (Reuters) - Delta Air Lines Inc DAL.N and United Airlines UAL.O kicked off fourth-quarter earnings reporting for the sector on Tuesday with profits that beat Wall Street expectations, but the rippling effects of a government shutdown could take a toll on the current quarter and beyond.

FILE PHOTO: A Delta airlines flight arrives in Salt Lake City, Utah, U.S., Jan. 12, 2018. REUTERS/Mike Blake/File Photo

The profit beats boosted airline shares in after-hours trading, with United Continental Holdings up nearly 6 percent, while Delta rose 1 percent. Shares of American Airlines Group AAL.O and Southwest Airlines Co LUV.N also rose, up 2.4 percent and 1.4 percent, respectively.

However, No. 2 U.S. carrier Delta warned of a fall in revenue growth in the current quarter due to lost government business and of difficulties in introducing new aircraft because of the U.S. government shutdown that has dragged into a fourth week.

United said it had placed orders for four Boeing 777-300ER aircraft and 24 737 MAX planes, though the commercial use of new planes could be delayed as non-essential work at the Federal Aviation Administration, which is responsible for certifying new aircraft, remained on hold due to the shutdown.

The FAA said on Tuesday it is calling back 1,700 aviation safety inspectors, but does not have immediate plans to recall employees who handle certifications of new aircraft.

“There continues to be growing concerns around the macro environment with the government shutdown and slowing economies in Europe and Asia,” Cowen and Company analyst Helane Becker said.

Delta Chief Executive Ed Bastian said the shutdown will cost about $25 million per month due to reduced government travel and related effects. He said the company has not seen any impact on corporate travel or bookings, which overall look healthy through the U.S. spring break period.

Delta operates about 86 daily flights out of Washington area airports.

United, with a hub at Washington Dulles, could be more exposed to a prolonged shutdown, operating about 264 Washington area flights per day in January.

Chicago-based United also warned that revenue per mile flown could fall in the first quarter. Its management will discuss earnings and forecasts on a conference call on Wednesday.

In the fourth quarter, United’s adjusted earnings per share rose to $2.41 from $1.99 a year earlier, topping analysts’ average forecast by 37 cents, according to IBES data from Refinitiv.

United attributed fourth-quarter growth to a strategy launched last January to expand its domestic network by adding flights and more options for connections through its seven main hubs, with a particular focus on Chicago, Denver and Houston.

Delta reported adjusted profit of $1.30 per share for the fourth quarter, beating analysts’ estimates by 3 cents.

Delta also forecast first-quarter earnings between 70 cents and 90 cents per share, while United said it expects full-year adjusted earnings of $10.00 to $12.00 per share.

Reporting by Ankit Ajmera in Bengaluru and Tracy Rucinski in Chicago; Editing by Bill Berkrot