Delta Air Lines Says Net Loss Narrows to $130 Million

Delta Air Lines Inc. said its first-quarter loss shrank by 93 percent as an increase in international flights helped the third-largest U.S. carrier prepare to exit bankruptcy this month.

The $130 million loss compared with a $2 billion deficit a year earlier, Delta said in a statement that didn't give per- share results. Excluding claims from Delta's regional partners and other reorganization costs, the loss was $6 million.

Delta is betting that adding higher-profit overseas flying will ensure a successful future after leaving court supervision. The Atlanta-based carrier is moving wide-body jets to trans- Atlantic and Latin American routes from Florida and other U.S. vacation markets.

``International vs. domestic is a bit like city miles vs. highway miles when you drive your car,'' said Bryson Monteleone at aviation consulting firm Morten Beyer Agnew Inc. in Arlington, Virginia. ``There are better economics when you are running for long distances.''

Sales rose 11 percent to $4.1 billion, and operating profit was $155 million, Delta said.

Delta offered 22 percent more seats on its trans-Atlantic flights and 32 percent more on flights to Latin America compared with a year earlier, while paring U.S. capacity by 5.4 percent. Delta expects overseas flights to make up 40 percent of its capacity within a few years, up from 31 percent now and double the level when it filed for bankruptcy in September 2005.

More Revenue, Lower Costs

Delta said it earned 10.6 cents in passenger revenue for each seat flown a mile, a gain of 7.1 percent. The airline's operating cost per mile declined 6.9 percent, with labor costs declining by more than a fifth.

Today's earnings announcement likely will be the last in bankruptcy for Delta, which has a hearing in two days to confirm its reorganization plan and expects to leave court protection April 30. The airline has shed $3 billion in annual costs during 19 months in Chapter 11.

The carrier was the first in the U.S. to report a loss for the quarter, after AMR Corp.'s American Airlines, Southwest Airlines Co. and Continental Airlines Inc. each posted profits last week.

Analysts expect four of the eight biggest carriers to report first-quarter losses, excluding special gains and costs, and push the industry to a collective first-quarter loss after winter storms forced cancellation of thousands of flights.

JetBlue Airways Corp. and United Airlines parent UAL Corp. may say they had losses when they announce results tomorrow and on April 25, respectively, according to analyst estimates compiled by Bloomberg. Northwest Airlines Corp., which expects to exit bankruptcy in June, also may post a loss, analyst Ray Neidl of Calyon Securities USA Inc. estimated.

Domestic Demand

Domestic demand isn't slowing, Delta said, drawing a contrast with the results reported last week by AMR and Continental.

Passenger revenue for each seat flown a mile on domestic flights increased 6.3 percent, Delta said, compared with a 0.7 percent decline at Continental and a 1 percent gain at AMR's American.

Delta is benefiting from a shrinking U.S. network and economic growth around its Atlanta and Salt Lake City hubs, Chief Operating Officer James Whitehurst told reporters on a conference call.

Full-Year Forecast

On March 27, Delta forecast net income of $456 million this year, following $10 billion of losses over the past two years. Pretax income will increase to $1.5 billion in 2008 and to almost $2 billion by 2010, according to the airline's plan of reorganization.

The carrier forecast an operating margin of 11 percent to 13 percent in the second quarter, which would be the highest among U.S. carriers with broad networks, Whitehurst said in an interview last week.

Delta expects to be the industry's most profitable carrier because its costs are the lowest of the large U.S. airlines, it is making more efficient use of its 440 jets, and it is offering more overseas flights, Whitehurst said.

Heathrow Service

Whitehurst told investors and analysts on a conference call today that Delta is optimistic about reaching an agreement to start service in March between the U.S. and London's Heathrow Airport, which accounts for 40 percent of trans-Atlantic business travel.

Delta is negotiating with its European partner airlines Air France and KLM Royal Dutch Airlines NV and other carriers for Heathrow access after the European Union last month approved an ``open skies'' agreement to boost trans-Atlantic competition.

``I don't want to say it is a formality, but we feel very confident we will get the slots we need,'' Whitehurst said. Delta would like to have three to six Heathrow slots, he said.

Monteleone, the aviation consultant, said Delta's projections don't forecast any potential upheaval in global air travel, which is historically sensitive to terrorism and health concerns.

``International traffic tends to be vulnerable because who knows what locust are coming down the path,'' he said.

Whitehurst said Delta's lower costs would shield the carrier if economic growth cools, damping air travel.

Most of Delta's $124 million in reorganization charges last quarter came from bankruptcy claims granted to its commuter affiliates Mesa Air Group Inc. and Republic Airways Holdings Inc., Delta said.

The $155 million operating profit compares with an operating loss of $485 million a year earlier. Fuel costs, the biggest expense, declined 1 percent.

Delta shares declined 2.5 cents to 18 cents at 4 p.m. New York time in over-the-counter trading. The company plans to cancel the stock when it leaves bankruptcy.

The airline's 8.3 percent note due in 2029 fell 1.7 cents to 60.1 cents on the dollar, according to Trace, the NASD's bond-pricing service.