Delta sees profit surge; passengers take flight during freezing winter

Delta planes at the Salt Lake City international Airport
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Delta Air Lines on Wednesday reported a higher-than-expected first quarter profit and gave a strong outlook for the current period, sending its shares sharply higher.

Delta forecast that operating margin, a measure of income to costs, and unit revenue, an important airline measure known as passenger revenue per available seat mile, would both expand in the current period.

Delta "has been outperforming on the revenue front and costs are being kept in line," said Kevin Crissey, an airline analyst with Skyline Research.

Delta, the third-largest U.S. airline by revenue behind American Airlines and United Continental said gains in corporate market share and fees for items such as seat upgrades and baggage would bolster the second quarter.

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In the first quarter, passenger revenue rose in the United States and Latin America and fell in the Atlantic and Pacific regions, and the company benefited from lower fuel and plane maintenance costs. Delta canceled more than 17,000 flights in the quarter because of winter weather, costing it $90 million in revenue.

Net income was $213 million, or 25 cents a share, up from $7 million, or one cent a share, for the year-earlier first period.

Excluding items such as fuel-hedge contract adjustments and charges for fleet changes, profit was 33 cents a share, compared with 29 cents expected by analysts on average, according to Reuters.

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Quarterly revenue rose 5 percent to $8.92 billion. Yield, a measure of the average airfare paid per mile flown, rose 1 percent to 17.21 cents. Passenger revenue per available seat mile, or unit revenue, rose 3 percent to 14.24 cents.

Total operating expenses were roughly flat in the quarter. Costs for fuel and related taxes fell 3 percent and expenses tied to maintenance of aircraft dropped 9 percent.

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Atlanta-based Delta bolstered revenue by charging more for seats with greater leg room, replacing 50-seat jets with larger, more efficient planes while buying a refinery to help reduce fuel costs.

Delta said it expected an operating margin of 14 percent to 16 percent for the second quarter, better than the year-earlier period's 11 percent. That compared with Crissey's expectation of 12 percent to 14 percent.

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The carrier forecast that unit revenue would rise in the mid-single-digit percentage range in the second period.

Shares of Delta were up 5.3 percent to $36.80 on Wednesday as other airlines gained. Delta's stock has risen about 34 percent this year, compared with a 23 percent rise for United and a 47 percent rise for American.

Correction: An earlier version of this story incorrectly stated Delta's quarterly earnings per share.

By Reuters