The Wall Street Journal-20080124-Earnings Digest- Delta Reports Loss- Southwest Posts a Profit
Return to: The_Wall_Street_Journal-20080124
Earnings Digest: Delta Reports Loss; Southwest Posts a Profit
Delta Air Lines reported a fourth-quarter loss of $70 million as the run-up in fuel prices stunted its recent recovery, but Southwest Airlines turned a profit thanks to gains from fuel hedges.
U.S. carriers face skyrocketing fuel costs and a possible further slowdown in economic growth that could crimp passenger demand. While Southwest and other airlines say demand for air travel remains solid, they have a cautious outlook.
Southwest is bracing for rising costs and continues to seek ways to boost revenue. Though Delta has begun cutting capacity to try to keep planes full -- it will trim up to 5% of its domestic network throughout 2008 -- more reductions could follow if crude-oil prices pass $100 a barrel.
"We can further reduce if need be," said Ed Bastian, Delta's president and chief financial officer, in an interview. With fuel prices expected to add about $1.3 billion in costs during 2008, Delta said it would focus on boosting revenue through expanding overseas routes. Delta expects earnings this year to be flat with 2007, while once fast-growing Southwest remains on track to continue a long string of annual profits, executives said.
Most U.S. airlines are reporting fourth-quarter losses, though the industry is expected to be profitable in 2007 for its second consecutive year. Many investors are bullish on airline stocks due to expectations for sector consolidation, with Delta at the center of that discussion.
Delta Chief Executive Richard Anderson, speaking to analysts in conference call yesterday, declined to comment on the company's potential role in consolidation. The carrier has been pursuing merger talks with Northwest Airlines and UAL Corp.'s United Airlines, industry sources say.
Revenue at Delta, the third-largest U.S. airline by passenger traffic, rose 10% to $4.7 billion. The Atlanta-based airline said improvements in revenue and nonfuel costs helped offset the rise in fourth-quarter fuel prices.
Southwest, which leads all airlines in domestic passenger traffic, said fuel hedges saved it $300 million in the fourth quarter, pushing the airline into profitability. Southwest also began to see benefits of new higher fares. The increase in fares contributed $7 million in revenue during the quarter.
In 4 p.m. New York Stock Exchange composite trading, Delta was up $1.13, or 7.6%, to $15.98; Southwest gained 78 cents, or 6.5%, to $12.76.
---
Paulo Prada contributed to this article.
