Delta dips, Coke climbs in 3rd quarter

After a period of robust international growth, Atlanta-based Delta Air Lines is slowing its international expansion plans as economic uncertainty spreads around the world.

Delta is trimming its international capacity growth by about 2 percentage points for the fourth quarter and may slow international growth for next year, Delta President and Chief Financial Officer Ed Bastian said Wednesday. Delta had previously planned to increase international capacity by 15 percent in the fourth quarter. It is already cutting domestic capacity by about 13 percent.

Bastian added that Delta does not plan to significantly grow its Atlanta operations in its schedule for early next year.

He made the comments as the company reported a third-quarter loss of $50 million, or 13 cents per share, attributing the results to high fuel costs. A year ago, Delta reported a profit of $220 million, or 56 cents per share. It had a roughly $800 million year-over-year increase in fuel costs in the third quarter, which ended in September.

“It’s probably an understatement to say it’s been a challenging year with record fuel prices, and now we face economic uncertainty in the global markets,” said Delta Chief Executive Richard Anderson during an investor conference call. “We’ll continue to watch all of our markets closely and be prepared to pull back not just in domestic markets but also internationally.”

In the third quarter, Delta recorded a $14 million charge for early termination fees for contract Delta Connection carriers, $7 million in expenses related to its planned merger with Northwest Airlines and a $3 million net charge primarily related to severance and its exit from a concourse in Cincinnati. Excluding those charges, Delta would have lost $26 million, or 7 cents per share, in the third quarter.

Delta’s operating revenues were $5.7 billion in the quarter, up from $5.2 billion a year earlier. Operating expenses amounted to $5.6 billion, up from $4.8 billion a year earlier. The company ended the quarter with $3.1 billion in cash and cash equivalents.

A J.P. Morgan note to investors stated that in the third quarter, fuel costs were much higher, the industry had not yet put in place its steepest capacity cuts and demand was not yet affected by the economic malaise.

For the fourth quarter, Delta said it expects unit revenues from passengers to be up 8 percent to 10 percent, compared with a year ago.

Bastian said the airline brings in about $1 billion in revenue from fees, such as extra charges for second checked bags.

The industry “is moving toward more of an a la carte pricing strategy,” Bastian said. “I think that strategy is here to stay.” In a memo to employees, Bastian wrote that “we are operating in uncharted territory marked by extremely rapid economic changes. We cannot afford to take our eye off the ball for even a moment.”

“The fuel environment continues to be a challenge for us in spite of the recent steep drop in the price of crude,” he wrote in the memo. “The fact is oil is still high by any historical measure.”

Bastian said the company expects to report a “modest loss” in the fourth quarter, similar to the third quarter.

DELTA SUMMARY

> Net loss of $50 million, compared with a $220 million profit a year earlier.

> Excluding special items, net loss would be $26 million.

> Operating revenues rose 9 percent to $5.7 billion, while operating expenses rose 17 percent to $5.6 billion.

> Fuel costs increased by about $800 million year-over-year