Delta plans to limit capacity growth to push fares higher

ALLAS — Delta Air Lines Inc.’s second-quarter profit beat expectations despite lower revenue, and the company plans to limit its growth in a bid to push fares higher.

Lower fuel prices have helped airlines earn big profits. That continued at Delta, which said Thursday that net income for the April-to-June quarter was $1.55 billion, up 4 per cent from a year ago.

But airline stocks have fallen this year — Delta’s shares began Thursday down 22 per cent in 2016 — because investors are skittish about a long slump in revenue per mile.

So-called unit revenue has been sliding for more than a year because cheaper fuel encouraged airlines to add flights and seats faster than demand could absorb, leading to lower average ticket prices. Delta’s unit revenue tumbled nearly 5 per cent in the second quarter.

Meanwhile, oil prices have increased since hitting a decade-long low in February. While jet fuel is still much cheaper than it was two years ago, Delta CEO Ed Bastian said the year-to-year savings from falling fuel prices are mostly in the past.

Because of that, Bastian said in a statement issued with the earnings report, “it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory.”

One step in that direction: Delta will grow its passenger-carrying capacity just 1 per cent in the fourth quarter, half the increase it had been planning.

Delta will cut planned flying between the U.S. and the U.K. by a surprisingly large 6 per cent. That is an important business-travel route, and Delta said it was scaling back in reaction to soft fares, the drop in the British pound, and uncertainty about the economic fallout from the U.K.’s decision to leave the European Union.

The economic fate of Britain is doubly important to Delta because it owns 49 per cent of British carrier Virgin Atlantic.

For the second quarter, Delta said that excluding one-time items, its adjusted profit was $1.47 per share. Thirteen analysts surveyed by FactSet predicted $1.42. Revenue fell 2 per cent to $10.45 billion, below the analysts’ forecast of $10.48 billion.

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