Delta Air Lines reported a nearly $4.4 billion profit for 2016, down slightly from the $4.5 billion in net income it had in 2015 as the carrier faces pressures from higher fuel costs and pay increases to pilots and other employees.
While the airline’s costs have been rising, particularly with a new pilot labor contract with immediate 18 percent pay raises signed late last year, Delta’s unit revenue from air fares has been weak amid stiff competition from other airlines.
Atlanta-based Delta’s December quarter profit was down 37 percent, primarily due to the costly new pilot labor contract. It had $622 million in net income in the fourth quarter, down from $980 million a year earlier.
Its December quarter operating revenue was down $44 million, totaling nearly $9.5 billion. Passenger unit revenues in the fourth quarter declined 2.7 percent.
Quarterly operating expense was up 8 percent at $8.4 billion, compared with $7.8 billion in 2015. That includes $475 million of expense from the new pilot contract ratified on Dec. 1, which included pay raises retroactive to Jan. 1, 2016.
Delta’s operating revenue of $39.6 billion for the year declined 3 percent. Meanwhile, its operating expense of $32.7 billion in 2016 was down 1 percent.
After two years of declines in unit revenues, Delta said it expects the key measure to turn positive this year. That should help it to grow profit margins in the second half of the year.
The airline saw improved business travel demand after the November election, for example.
But for now, the company plans to “remain conservative” and limit its growth until it sees results, according to Delta president Glen Hauenstein. The airline plans for an up to 1 percent reduction in flying in the first quarter of this year, compared with a year ago.
“We’ll keep capacity in check,” Delta CEO Ed Bastian said during a conference call with investors Thursday.
Delta had projected the $4.4 billion profit for 2016 during its investor day in December, when Bastian said that because of the challenges it has had, “2017 will be a transition year.”
He said then that with rising costs, including an expected increase in fuel prices, will “test the business model” for the airline.
Looking forward, Delta said this quarter it expects “pressures on margins as the pace of change in unit revenue will not match the cost impact of higher prices and employee wage increases.”
Still, the company’s multi-billion dollar profit for the year will result in more than $1 billion in profit sharing for employees, according to Delta CEO Ed Bastian. The company will pay out profit sharing to employees on February 14, Valentine’s Day.
Bastian also said he’s excited about the potential for increased investment in airport infrastructure under the incoming administration of President-elect Donald Trump.
Bastian said Delta has “provided some input to the transition team.” He said he’s “excited about the opportunity” to present Delta’s case on competition with Middle East carriers and on enforcing trade deals, and discussing tax benefits and regulatory changes, calling it “a pretty good list of opportunities.”
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