Delta Air Lines on Monday
kicked off second-quarter airline earnings season by reporting a $467 million net
profit, its largest quarterly profit in a decade, setting the tone for what
analysts expect to be an exceptionally profitable quarter for U.S. airlines.
"We believe second-quarter
2010 earnings will be strong, with collectively robust cash flow," said
Stifel Nicolaus Capital Markets airline analyst Hunter Keay in a research note last
week.
In another earnings preview,
industry consultant and AirlineFinancials.com founder Robert Herbst said he
expects the nine largest U.S. airlines to "report an accumulated $1.77 billion
in net profits" for the second quarter, a period in which he anticipates every
major domestic carrier will report "significant profits," except
American Airlines, which "is estimated to be at or near break-even."
Herbst said the revenue
environment looked strong, and he expects airlines to post "near record-high
revenues" for the quarter, expecting a net $31.5 billion in revenues for
the nine largest airlines.
Delta CEO Richard Anderson,
however, during the carrier's Monday morning earnings call, said, "The
revenue environment is improving. I would characterize it as good, but not yet
great." Delta pointed to particular strength in business travel.
The carrier's operating
revenue increased 17 percent from the same quarter last year, with passenger
revenue growing by 19 percent on nearly 1 percent less capacity. The carrier
also reported a 3 percent increase in ancillary revenue, "primarily due to
increased baggage fees." Excluding special items, the carrier's income for
the quarter was $748 million more than its loss for the same period in 2009.
"Delta's profit this
quarter is our best result in a decade and proof that our plan has positioned
us well as the economy begins its recovery," Anderson said in a statement,
adding during the carrier's earnings call that "we expect to be solidly
profitable for the full year."
AirlineFinancials.com
expects the nine largest U.S. carriers to "have strong revenue performance
for the remainder of 2010," but once again excluded American from the
fortunes of its peers when it comes to profits. "Assuming fuel prices
remain in the $75 to $85 per barrel price range, the airline industry should
see significant profits for the current third quarter," Herbst said.
Despite the profitable
quarter, Delta's share price fell after reporting earnings. J.P. Morgan airline
analyst Jamie Baker said Delta's third-quarter guidance "appears to fall
short of our expectations, as well as consensus." Delta's guidance
suggests a profit margin between 10 percent and 12 percent for the third
quarter. While Baker said such a performance would be "robust in the
absolute," he added that it may not satisfy what he called Wall Street's
"insistence for ever-rising estimates."
The remaining major U.S.
carriers will release second-quarter earnings this week and next.