Delta Air Lines Inc.’s shares went up by 3.5 per cent in premarket trading after the company announced that it would score even better performance in the present quarter driven by strong demand for seats compared to the better-than-expected profit for the fourth quarter which was announced on Thursday. The present quarter rise in performance was driven by rising demand in the holiday season and higher business fares.
The first quarter for the airline – which is the number 2 airline in the U.S., was positive and like most other airlines, it also managed to increase fares to counter the increase in the costs of operations. Delta is also the first major airline to report earnings.
Higher unit revenue has been forecast by United Airlines and American Airlines earlier this week. JetBlue Airways Corp announced its forecast on Thursday. There has been increase in shares of all of the carriers following the forecasts.
Atlanta-based Delta expects a rise of between 2.5 percent to 4.5 percent in the total unit revenue for the first quarter of 2018. Unit revenue is a performance measure that is intently eyed by investors.
“We enter 2018 with significant momentum and every entity delivering positive passenger unit revenue for the first time in five years, driven by a robust demand environment and improving business fares,” said Delta’s President Glen Hauenstein.
$6.35 and $6.70 per share was the forecast of the carrier for its full-year profit outlook on the basis of the total unit revenues. This forecast was much more than had been predicted by Wall Street for the same period.
The forth quarter of last year saw a drop in net income of Delta to touch $572 million, or 80 cents per share, compared to $622 million, or 84 cents per share in the quarter ended December 31 a year ago.
This reduction in profits was primarily due to a one-time expense of $150 million arising because of changes in the U.S. tax code which was enacted in December of 2017. In 2018, the tax rate of Delta would be between 22 percent and 24 percent because of the new tax law, the company said.
According to Thomson Reuters I/B/E/S, the Wall Street analysts had estimated earning of 88 cents per share where as the company clocked 96 cents per share in earnings after excluding the tax hit and other one-time items.
While analysts had expected a total operating revenue to be $10.13 billion, Delta reported a rise of 8.3 percent in the figure to reach $10.25 billion from $9.46 billion.
“Stronger than expected revenues, good unit revenue momentum and raised 2018 guidance aided by benefits of tax reform would be the major takeaways,” said CFRA Research analyst Jim Corridore on the increase in Delta shares.
The power outage at Atlanta’s Hartsfield-Jackson Airport and Winter Storm Benji cost the company a onetime hit of $60 million in December.
The effect of accelerated depreciation from aircraft retirements and higher labor costs was that there was an increase of 5.6 per cent year-on-year in the costs of Delta after letting out fuel and special items costs.
(Adapted from Reuters.com)