Delta Earnings up 51 Percent on Higher Fares, Unbundled Offerings, but Misses Estimates on Fuel Costs

Delta Air Lines Inc's quarterly profit fell short of Wall Street expectations because of higher fuel costs, and its shares sank more than 6 percent in morning trading.

Delta said corporate travel was holding up but added it was intent on reducing non-fuel expenses as a skittish global economy still threatens overall demand for air travel.

We anticipate that the current environment of high fuel prices and an uncertain economy will continue into 2012, Chief Financial Officer Hank Halter said in a staff memo.

U.S. carriers as a whole are cutting back service, retiring fuel-inefficient planes and raising fares to help cover rising fuel costs.

U.S. crude rose for a third straight day on Tuesday to a three-month high. Airline shares sank, with the Arca Airline index down 3.5 percent.

Oil prices and jet fuel are a big challenge for the airlines and there's really not a lot the airlines can do to offset that, said Matthew Jacob, an airline analyst with ITG Investment Research. They are trying to trim other expenses but those are growing slightly as well.

Delta's results follow quarterly losses reported last week by Southwest Airlines , which was hurt by non-cash markdowns related to fuel hedges, and American Air parent AMR Corp, which cited fuel costs and a strong U.S. dollar that eroded overseas sales.

Higher fares and unbundled offerings such as upgraded seats helped Delta post higher earnings despite fuel costs. Third-quarter net income came to $549 million, or 65 cents per share, up 51 percent from $363 million, or 43 cents per share, a year earlier, Delta reported on Tuesday.

Excluding one-time items, profit was 91 cents a share, short of the 93 cents expected by analysts on average, according to Thomson Reuters I/B/E/S.

Revenue rose 10 percent to $9.8 billion. Passenger revenue per available seat mile, an important measure, climbed 11 percent.

Operating expenses increased 13 percent, with aircraft fuel and related costs up 42 percent.

The carrier's average fuel price was $3.29 per gallon in the quarter, including non-cash market adjustments. Delta forecast a fourth-quarter fuel price of $2.98 per gallon, including taxes and settled hedges.

Atlanta-based Delta, the second-largest airline behind United Continental Holdings , has offered voluntary buyouts to employees and consolidated facilities to cut fixed costs. It has also invested in new airplane seats and better food and wine offerings to boost revenue.

Shares of Delta were down 6.4 percent to $8.33 in morning trading. United Continental, Southwest and US Airways Group fell more than 4 percent and AMR was off 3.3 percent.