Monday, April 25, 2011

Delta Air Lines (NYSE: DAL): Q1 Earnings Preview 2011

Delta Air Lines Inc. (NYSE: DAL), the world’s second-biggest carrier, is scheduled to release first-quarter earnings before the opening bell on Tuesday, April 26, 2011. Analysts, on average, expect the company to report a loss of 50 cents per share on revenue of $7.61 billion. In the year-ago period, the company posted a loss of 23 cents per share on revenue of $6.85 billion.

Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo in the United States and internationally. The Company’s route network is centered on the hub system it operate at airports in Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-JFK, Salt Lake City, Paris-Charles de Gaulle, Amsterdam and Tokyo-Narita.

In the preceding fourth-quarter, the Atlanta, Georgia-based company's net income was $19 million or $0.02 per share, compared with a loss of $25 million or $0.03 per share last year. On an adjusted basis, the company earned 19 cents a share in the fourth quarter. Total operating revenue grew 14% to $7.79 billion from $6.81 billion in the prior-year quarter. Analysts, on average, expected the company to report earnings of 26 cents per share on revenue of $7.74 billion. 

At its last earnings call in January, the company said that it expects that first-quarter operating margin will be between 1% and 3%. The company also sees capital expenditures of $375 million for the quarter.

Last year, carriers of all stripes reported improved traffic as demand for air travel bounced back from the recession. However, rising fuel prices since last December have surfaced as a major headwind to the industry. Crude oil prices are currently trading around $110 per barrel, representing the steepest rise in more than 2 years. Oil prices have already risen more than 21% this year due to the ongoing political unrest in the Middle East. U.S. carriers are struggling hard to deal with increasing costs either by flying less or charging more.

Delta has been hurt by a reduction in traffic to Japan since the earthquake, which occurred just as the airline was expanding service to Asia. Delta is the largest U.S.-based airline in Japan with more than 40 peak-day departures from four airports - Tokyo-Narita, Tokyo-Haneda, Nagoya and Osaka. Delta generates almost $2 billion in revenue every year from planes flying the Tokyo hub.  Last month, the company said that it will pull down its Japan capacity through May 2011, citing the devastating tsunami that hit Japan earlier this month as well as soaring fuel costs. The Atlanta, Georgia-based airline said it will reduce Japan capacity by 15-20 percent through May to reflect the likely decrease in short-term demand. It would also suspend its services to Tokyo's Haneda airport and pull back on capacity between Narita Airport and the beach destinations. The company said that it will selectively upgauge Asia over-flights and increase charter operations.

The company added that its solid financial foundation and low cost structure, coupled with improved risk profile, positions it to effectively address impact of high fuel prices and events in Japan. At current fuel prices of between $3.05 - $3.10 per gallon, Delta's fuel expense will be driven up by $3 billion or 35 percent over 2010. Delta's preliminary estimates reveal a net negative impact of between $250 million and $400 million on its business in Japan for the full-year 2011. The effects of the events in Japan have already reduced Delta's revenue by about $50 million in the first quarter, the company noted.

In terms of stock performance, DAL shares have lost nearly 30 percent over the past year. 

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