Falling Oil, Beaten Forecasts Ignite Airline Stocks
Delta Air Lines and American Airlines parent AMR reported big losses Wednesday, but the results certainly didn't hurt their stocks.
Delta Air Lines said Wednesday it swung to a hefty loss in the second quarter despite a strong increase in sales, pushing its red ink to more than $7 billion since the start of the year.
But the carrier's shares soared as the results, hit by unprecedented fuel costs and a decline in the company's market value, still beat Wall Street estimates when one-time items are excluded.
Delta rocketed more than 20 percent higher Wednesday. AMR shot up almost 30 percent. Other airline stocks got big boosts as well.
AMR also reported second-quarter results Wednesday, swinging to a big loss in the second quarter as high fuel prices swamped an increase in revenue and led the nation's largest carrier to write down the value of its jets. Like Delta, the results were not as bad as Wall Street had feared.
Atlanta-based Delta said it expects $2 billion in cost savings by 2012 from its acquisition of Northwest Airlines. That is double what it estimated when it announced the deal on April 14.
It also said it expects to spend only $600 million in cash to integrate the two companies, compared to an earlier projection of $1 billion.
"Liquidity preservation is right at the top of our priorities," Ed Bastian, Delta's president and chief financial officer, told analysts in a conference call.
He said the company is looking at unspecified cash-raising opportunities.
He suggested in a later call with reporters that a sale of Delta's regional carrier, Comair, is not in the company's near-term future. Bastian said "it's going to be very hard to get the right amount of cash or liquidity in this fuel environment" for just about any airline.
He told reporters Delta is studying a fee imposed by several carriers on the first piece of checked baggage. But, he said, "We have no plans to implement it at this point."
For the three months ending June 30, Delta said it lost $1.04 billion, or $2.64 a share, compared to a profit of $1.59 billion a year ago when Delta emerged from bankruptcy protection.
It did not provide a per-share figure for the year-ago period.
A year ago, it reported a different figure for its net income—$1.77 billion—which a spokeswoman said Wednesday was due to fresh-start accounting.
Excluding one-time items, Delta earned a profit of $137 million, or 35 cents a share, in the second quarter.
Analysts polled by Thomson Financial, on average, forecast profit of 10 cents a share. Their estimates usually do not include one-time items.
Revenue rose 10 percent to $5.5 billion, compared to $5 billion recorded a year earlier. Analysts estimated revenue at $5.4 billion.
Delta recorded special charges totaling $1.2 billion in the second quarter, including a $1.1 billion non-cash charge, net of a $119 million tax benefit, related to the decline in Delta's market value due to sustained record fuel prices.
Additional special charges included a $96 million severance charge for previously announced voluntary work force reduction programs and a $6 million charge related to facilities restructuring.
For the first six months of the year, Delta said it lost $7.43 billion, or $18.79 a share, compared to a profit of $1.46 billion for the same period a year earlier.
Six-month revenue increased to $10.27 billion, compared to $9.24 billion a year earlier.
As of June 30, 2008, Delta had $4.3 billion in unrestricted liquidity, including $1 billion available under a revolving credit line.
Several major airlines have announced they are cutting domestic capacity, deferring plane orders or shedding jobs because of soaring fuel prices.
Delta spent $1.68 billion on aircraft fuel and related taxes in the second quarter, compared to $1.11 billion a year ago.
Delta intends to cut domestic capacity by 13 percent during the second half of the year. International capacity will increase 14 percent.
The company is now targeting to remove the equivalent of 100 regional aircraft from its system by the end of the year. Bastian said more aircraft could be pulled out if demand is weak.
Delta is seeking shareholder and regulatory approval for its plan to acquire Eagan, Minn.-based Northwest in a stock-swap deal that would create the world's largest carrier by traffic.
On Tuesday, Delta announced plans for the composition of its senior leadership team after it acquires Northwest. The carrier expects the transition of Northwest's operations into Delta to last 12 to 24 months.
Delta shares rose 73 cents, or 15.6 percent, to $5.39 in midday trading. The stock has traded in a 52-week range of $4 to $21.80.
Shares of AMR jumped $1, or 22.7 percent, to $5.41 in midday trading just a day after hitting a 52-week low of $4.
AMR said that for the three months ending June 30, it lost $1.45 billion, or $5.77 per share, compared to a profit of $317 million, or $1.08 per share, a year ago.
Excluding special charges to write down the value of its fleet, AMR said it would have lost $284 million, or $1.13 per share.
Analysts, who typically exclude charges from their forecasts, expected AMR to lose $1.40 per share, according to a survey by Thomson Financial.
Revenue rose 5.1 percent, to $6.18 billion. Analysts expected $6.14 billion.