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UPDATE 2-Delta posts higher-than-expected profit, says outlook 'solid'

Tuesday, 22 Oct 2013 | 10:03 AM ET

* Quarterly revenue up 6 percent; costs up 4 percent

* Refinery posts $3 million profit

* Says bookings for holiday season are strong

* Shares up 5 percent

Oct 22 (Reuters) - Delta Air Lines Inc on Tuesday reported a higher-than-expected quarterly profit as fare increases and strength in the United States and Europe boosted revenue.

The U.S. carrier, whose shares rose 5 percent, said its revenue outlook looked "solid" through the end of the year and that bookings for the holiday season were strong.

Delta, the second-largest carrier behind United Continental Holdings, has upgraded aircraft seats and expanded food and entertainment options to increase revenue. It has also formed partnerships with non-U.S. airlines such as Britain's Virgin Atlantic Airways to gain new passengers, and has expanded flights in lucrative markets such as New York.

To pare costs, Delta has been retiring fuel-guzzling planes, and it bought a Pennsylvania oil refinery last year.

For the current quarter, Delta forecast an operating margin, a measure of income to costs, of 7 percent to 9 percent. The upper end of that range is higher than some analysts expected, such as Helane Becker of Cowen & Co, who forecast 7.1 percent.

The third quarter is traditionally a strong period for U.S. airlines since it includes summer vacation travel. Last week, American Airlines parent AMR Corp posted a profit that topped estimates as revenue set a record.

Delta, which earlier this year paid its first dividend since 2003 and also announced a share buyback, said third-quarter results benefited from strength in the Atlanta, New York and London markets.

Net income came to $1.37 billion, or $1.59 a share, in the quarter, compared with $1.05 billion, or $1.23 a share, a year earlier.

Excluding a fuel-hedging gain and a charge from changes in Delta's fleet, profit was $1.41 a share, compared with the analysts' average estimate of $1.36, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $10.5 billion, and passenger revenue was up nearly 7 percent as gains in the United States, Latin America and transatlantic markets offset weakness in Asia. Passenger revenue per available seat mile, an important measure also called unit revenue, increased 4 percent. Yield, a gauge of the average fare paid per mile flown, rose about 5 percent to 16.85 cents.

Total costs rose 4 percent. Delta said its Trainer refinery had a $3 million profit in the quarter.

Shares of Delta rose 5 percent to $25.92 in morning trading. Other U.S. airline stocks were also higher, with United Continental gaining 2.7 percent to $31.40 and US Airways Group up 2.3 percent at $21.70.

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