Delta sees better 2010 after $1.1 billion loss in 2009
Delta Air Lines Inc
There is a fairly significant fuel hedge loss embedded in those numbers, Delta President Ed Bastian told attendees at its annual investor day on Tuesday. He added that the losses were incurred earlier this year.
Delta's shares fell nearly 4 percent in morning trading but regained most of that by midday -- trading off less than 1 percent on the New York Stock Exchange at $10.99.
Recession has sapped corporate and consumer demand for air travel this year, leading to a drop in revenue for the global airline industry. Delta, like other airlines, has responded by cutting capacity.
But executives at the world's largest airline said fourth-quarter trends were showing a marked improvement from earlier in the year. For example, the volume of tickets sold to corporate clients rose almost 15 percent over the last couple weeks, Bastian said.
The company now expects an operating margin of 1 percent to 2 percent for the fourth quarter. Earlier, it was expecting a break-even quarter. It also expects unchanged capacity in 2010.
In a U.S. Securities and Exchange Commission filing released ahead of its investor day presentation, Delta also indicated that unit revenue would be down 1 percent in December, a smaller rate of decline compared with previous months.
The airline expects unit revenue to turn positive in the first quarter, on a year-over-year basis. Unrestricted liquidity would be $5.3 billion by year's end, Delta said. Executives said they want to maintain minimum liquidity at the $5 billion range in 2010.
This trend is another data point offering real tangible evidence that a recovery is under way, Bastian said.
If current trends persist, the airline projects it could see about a 7 percent increase in baseline revenue from passenger traffic in 2010.
Delta expects operating cash flow of $2.3 billion in 2010 and will use a significant portion of that to pay down debt. The company estimates $700 million in pension funding for the coming year.
CONSOLIDATION NEEDED
The global airline industry is expected to lose $5.6 billion next year, due to rising fuel costs, according to new data from industry group International Air Transport Association.
North American carriers are likely to lose $2 billion in 2010, besting their European counterparts, which are expected to shed $2.5 billion.
In his opening remarks, Chief Executive Richard Anderson said consolidation would help the industry reach sustained returns.
Over time, more consolidation will help this business model evolve to a return on capital, Anderson said.
Delta acquired Northwest Airlines last year, and that merger was a very significant step, a step that ought to be taken in more than just the case of Delta/Northwest, Anderson said.
(Reporting by Karen Jacobs and Deepa Seetharaman; Editing by Lisa Von Ahn, Maureen Bavdek and Steve Orlofsky)
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