Wednesday, Delta Air Lines Inc. (DAL) reported a net loss for the second quarter on charges related to goodwill and other intangibles and amid soaring fuel costs. However, the company reported a profit for the quarter excluding charges. Revenue for the quarter increased 10% from the year-ago period. The company's stock is currently up more than 25% in the regular trading session.
In June, the company had said it expects to post a profit in the second quarter, excluding one-time items. Airline companies in the U.S. have been hurt by rising fuel costs, a slowing economy and receding travel demand. Delta and other airline operators hope to limit the damage to profitability by reducing capacity, cutting jobs, boosting domestic fares and maximizing gains through efficiency. The company emerged from bankruptcy in April 2007.
Second Quarter Results
For the second quarter, the Atlanta, Georgia-based company's net loss was $1.04 billion, or $2.64 per share compared to net income of $1.59 billion in the prior-year quarter.
Delta said it incurred a more than $1 billion year-over-year increase in fuel input costs related to higher oil prices. Special charges for the quarter were $1.2 billion, net of tax, primarily related to impairment of goodwill and other intangibles.
In the year-ago quarter, the company recorded income of $1.3 billion from reorganization and related items, primarily due to the discharge of claims and liabilities in connection with its bankruptcy proceedings and the adoption of fresh start reopening.
Excluding special and reorganization items, the company reported a net income of $137 million, or $0.35 per share, compared to net income of $274 million in the year-ago period. On average, ten analysts polled by First Call/Thomson Financial expected earnings of $0.10 per share for the quarter.
The decline in adjusted net income compared to the prior-year quarter was due to unprecedented fuel prices, partially offset by higher operating revenue from the company's international expansion.
Total operating revenue for the quarter climbed 10% to $5.50 billion from $5.00 billion in the same quarter last year. Analysts had a consensus revenue estimate of $5.39 billion for the quarter.
The company's passenger revenue per available seat mile, or PRASM, increased 4.5% to 12.31 cents in the quarter.
Peer Performance
Among Delta's peers, AMR Corp. (AMR) reported a net loss for the second quarter of $1.4 billion, or $5.77 per share, compared to net income of $317 million, or $1.08 per share in the year-ago period. Net loss for the quarter includes $1.2 billion in non-cash impairment charges to write-down the value of its aging aircraft fleet and severance-related charges. Excluding the charges, AMR reported a second quarter net loss of $284 million, or $1.13 per share, compared to profit of $317 million or $1.08 per share in the same period previous year. Total operating revenues for the quarter amounted to $6.2 billion, an increase of 5.1% from $5.87 billion in the year ago period.
UAL Corp., (UAUA), the parent of United Airlines, is slated to release its financial results for the second quarter on July 22. Analysts expect the company to report a loss of $1.97 per share on revenues of $5.39 billion for the quarter. UAL said last week that it expects to record several non-cash accounting charges totaling $2.6 billion-$2.7 billion in the second quarter as a result of record high fuel prices and the company's reduced market capitalization. The company also said it expects to record non-cash impairment charges of $246 million related to the impairment of certain aircraft that are being retired from its operating fleet and severance charges of $82 million related to expected job cuts.
Other Metrics
Delta's operating expenses for the second quarter surged 46% from a year ago to $6.59 billion, reflecting special charges of $1.3 billion and a more than $1 billion increase in costs due to higher fuel prices. These were partially offset by fuel hedging gains.
During the quarter, Delta hedged 49% of its fuel consumption resulting in an average fuel price of $3.13 per gallon. The company realized $313 million in gains on fuel hedge contracts settled during the quarter.
Delta's traffic grew 2.2% to 32.27 billion revenue passenger miles in the quarter, while capacity increased 1.6% to 38.74 billion available seat miles and passenger load factor advanced 0.5 points to 83.3%.
Commenting on the results, Richard Anderson, Delta's chief executive officer said, "When faced with the challenge of unprecedented fuel prices, Delta distinguished itself by reacting quickly and decisively with strong topline growth, domestic capacity rationalization, cost initiatives, fuel hedging, and a focus on preserving liquidity - while continuing to run a great airline and deliver exceptional customer service."
At the end of the second quarter, the company had $3.3 billion in unrestricted cash, cash equivalents and short-term investments, including $671 million of cash collateral deposits received from counterparties to fuel hedging contracts. Delta has an additional $1 billion available under its revolving credit facility, resulting in a total unrestricted liquidity of $4.3 billion.
Year-To-Date Results
For the six months, the company's net loss was $7.43 billion, or $18.79 per share, compared to net income of $1.46 billion in the year-ago period.
Total operating revenue for the period increased to $10.27 billion from $9.24 billion in the same period last year.
Outlook
For the third quarter, Delta forecasts operating margin, excluding special items, in a range of 1%-3%. System capacity is expected to be flat to down 2%, with domestic capacity down 11%-13% and international capacity up 16%-18%. The company also forecast fuel price, including taxes and hedges, of $3.52 for the quarter.
For fiscal year 2008, Delta forecasts operating margin, excluding special items, to be flat to down 2%. System capacity is expected to be flat compared to a year ago. The company expects domestic capacity to be down 8%-10% and international capacity to increase 14%-16% as compared to last year. Fuel price, including taxes and hedges, is forecast to be $3.32 for the year.
Delta said that it has targeted to close its merger with Northwest Airlines Corp. (NWA) during the fourth quarter of 2008. The company expects about $500 million in annual merger-related synergies in 2009, increasing up to the full run-rate of about $2 billion in annual synergies by 2012. Cash integration costs are expected to be about $600 million over three years.
On April 14, Delta and Minnesota-based Northwest agreed to merge in an all-stock transaction that would create the world's largest air carrier with substantial cost and revenue synergies.
Delta said that during the second quarter, it re-evaluated its flight schedule, targeting additional reductions in capacity. Delta now targets to remove the equivalent of 100 regional aircraft from the system by the end of the year. The company expects system capacity for the second half of 2008 to be down 4% compared to 2007, with domestic capacity down 13% and international capacity up 14%.
In addition, the company expects to cover about $3 billion of the estimated $4 billion raw impact of higher fuel input costs in 2008 through revenue and cost initiatives, including expansion of its international network and utilization of its fuel strategy.
Delta said it expects to end the year with a liquidity position of $3.2 billion, including $1 billion available under its revolving credit facility.
Stock Quotes
In Wednesday's regular trading session, DAL is trading at $5.88, up $1.21 or 25.91% on a volume of 9.41 million shares. The stock has been trading in a range of $4.00-$21.80 in the past 52 weeks.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.