Delta Cuts Capacity on Brexit Concerns; Earnings Beat Views – Wall Street Journal


Delta Air travelers prepared to use self check-in kiosk at Los Angeles International Airport last August.
ENLARGE

Delta Air travelers prepared to use self check-in kiosk at Los Angeles International Airport last August.


Photo:

Bloomberg News

Delta Air Lines Inc.
DAL


3.59
%




on Thursday said it has decided to reduce its U.S.-U.K. capacity on its winter schedule because of additional foreign currency headwinds from the steep drop in the British pound and the economic uncertainty from Brexit.

The No. 2 air carrier by traffic announced the reduction with its results for the June quarter. In the quarter, earnings rose a better-than-expected 4.1%, but revenue fell more than analysts anticipated.

Delta’s plan to reduce its U.S.-U.K. capacity by 6 percentage points will, among other things, reduce total system capacity by about one point in the December quarter, and the company now expects system capacity to grow by just 1% year-over-year during the period.

The company said that while the revenue environment “remains challenging, with persistent headwinds from close-in domestic yields and geopolitical uncertainty,” it remains focused on achieving its goal of positive unit revenue by year end. Passenger unit revenue measures how much money airlines take in for each passenger flown a mile.

Delta expects passenger unit revenue to fall in the current quarter after the key industry benchmark fell more than anticipated in the most recent quarter. In the recently completed second quarter, passenger unit revenue dropped 4.9%; the airline had anticipated a 2.5% to 4.5% decline.

For the third quarter, the company expects passenger unit revenue to fall 4% to 6%.

Over all for the second quarter, Delta reported a profit of $1.55 billion, or $2.03 a share, up from $1.49 billion, or $1.83, a year earlier. Excluding certain items, earnings rose to $1.47 a share from $1.27 in the year-earlier quarter and above analyst estimates for $1.45.

Revenue slipped 2.4% to $10.45 billion, below analysts estimates for $10.49 billion. The top line was dented $65 million by foreign-currency headwinds.

Shares in the company, which have fallen 22% this year, slid 0.2% to $39.48.

Delta’s adjusted average fuel price for the quarter ended in June was $1.97 a gallon, down 18% from $2.40 a gallon a year earlier.

Earlier this month, the company estimated fuel costs averaged $1.95 to $2 a gallon in the quarter–much higher than its April estimate of $1.48 to $1.53. Delta said fuel costs were hurt by factors such as taxes, hedging and its refinery operations.

In all, fuel expense declined 17% to $1.45 billion during the period. The airline industry has broadly benefited from lower jet-fuel prices as the price of oil continues to sink.

For the current quarter, the airline estimates fuel costs between $1.52 and $1.57 and system capacity will rise 1% to 2%. Second-quarter capacity increased 3.2%, above a predicted 2% to 3% rise.

“As we look to the remainder of the year, the large year-on-year savings driven by lower fuel are largely behind us, and it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory,” Chief Executive Ed Bastian said.

Delta nosed ahead of United Continental Holdings Inc.
UAL


4.34
%




in 2015 to become the nation’s No. 2 airline behind American Airlines Group Inc.
AAL


4.15
%




Write to Anne Steele at Anne.Steele@wsj.com


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