(Recasts on revenue outlook, adds analyst comment, updates
By Alana Wise
Jan 12 Delta Air Lines Inc 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.
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
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.
Excluding special items, fourth-quarter earnings of 82 cents
a share met analysts' average estimates, according to Thomson
Reuters I/B/E/S. They were down from $1.18 a share in the
"We will remain conservative and keep our capacity growth in
check until we see a further firming of these revenue trends in
the near-term and longer-term, a return to our 17-19 percent
operating margin target," Delta Chief Executive Ed Bastian said
in the statement.
Fourth-quarter operating revenue fell to $9.46 billion from
$9.50 billion, slightly above analysts' average estimate of
Delta's results and reports from other major U.S. airlines
suggest an improving unit revenue environment, according to CFRA
Research analyst Jim Corridore.
"Capacity discipline is helping, coupled with improving
demand. We note domestic remains stronger than international,
and see international capacity cuts likely," Corridore wrote in
a research note. "We think valuations across the group are
likely to expand in '17, on better unit revenue performance."
(Reporting by Alana Wise in New York; Additional reporting by
Ankit Ajmera in Bengaluru and Jeffrey Dastin in New York;
Editing by Bernadette Baum and Peter Cooney)