Delta Air Lines misses profit target as winter storm raises costs

CHICAGO, April 13 (Reuters) – Delta Air Lines ( DAL.N ) posted weaker-than-expected first-quarter earnings on Thursday, hit by a severe winter storm that increased operating costs for the airline.

Shares in the company fell 1[ads1].24%, even as Delta forecast a strong earnings outlook for the current quarter, boosted by an increase in transatlantic travel.

Chief Executive Ed Bastian said in an interview with Reuters that bad weather and volatility in fuel prices affected the company’s results in the quarter ended in March. In February, Delta canceled 246 flights due to the storm.

Operating expenses excluding fuel in the first quarter exceeded the company’s estimates, while fuel bills also remained inflated, about 30% higher than in 2019.

CEO Bastian said on a post-earnings call that Delta expects to reduce non-fuel costs in the second half. Costs in the current quarter are estimated to increase between 1% and 3% from the previous year.

Rivals American Airlines ( AAL.O ) and United Airlines ( UAL.O ), which have yet to report quarterly results, have also signaled a hit from higher costs.

However, the “biggest concern” for Delta was the cost pressure from Air Traffic Control (ATC) understaffing, Seaport Research analyst Daniel McKenzie said.

Delta said it is working with the Federal Aviation Administration (FAA) to ensure adequate staffing and remains confident of summer demand, with 75% of its international flights already booked for summer travel.

The airline is doubling down on more profitable premium journeys, after premium cabin revenues grew faster than the main cabin in the first quarter.

“Consumers are anxious about travel,” Bastian said, adding that travelers were booking trips well in advance.

US travel demand is currently strong, but rising interest rates, persistently high inflation, increasing job losses and turmoil in the banking industry have cast a shadow over consumer spending.

Bastian played down these concerns. He said Delta recorded the 10 highest sales days in its history last month and was able to protect its pricing power despite increased capacity.

For the June quarter, Delta expects turnover to increase by 15% to 17% from a year earlier with capacity growth of 17%.

“We’re increasing supply at that level and seeing no deterioration in overall revenue,” Bastian said. “That’s unusual in our industry.”

Delta expects adjusted earnings of $2.00 to $2.25 per share in the second quarter, with an operating margin of 14% to 16%. By comparison, analysts estimated a profit of 1.66 dollars per share.

Reporting by Rajesh Kumar Singh; Editing by Jamie Freed and Shinjini Ganguli

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