Delta Earnings Soar to New Record, Thanks to Cheap Fuel

Airline company’s quarterly profits fattened by low fuel prices

Delta Air Lines made $1.4 billion in the third quarter of 2015, marking its best third-quarter results to date, the company announced last week.

Delta, the fourth-largest airline in the world, made $1.74 per diluted share last quarter — a 45-percent increase from the same period in 2014. The company edged past the estimates of industry analysts, who had been expecting to see earnings of $1.71 per share, according to a poll conducted by Thomson Reuters.

Much of Delta’s strong earnings results were attributable to cheaper fuel — not increased booking by passengers. Aviation fuel prices have slumped more than 39 percent since October 2014, according to the International Air Transport Association, making it less expensive for airlines worldwide to operate flights. While Delta’s revenues from passenger bookings declined by 4.9 percent in the third quarter, lower fuel prices allowed the company to save $1 billion, and eke out a profit.

(Photo credit: Altair78, Wikimedia Commons)

“As demand is good, we essentially held revenues flat against a steep decline in fuel, which allowed Delta to bring about two-thirds of our fuel savings to the bottom line for our owners,” said Richard Anderson, Delta CEO, on a earnings conference call on October 14.

Anderson added that, in the last quarter, Delta managed to cut its debt by $1 billion from a year prior.

With fuel continuing to trade at relatively low prices, Delta is likely to save an additional $750 million on powering its flights throughout the rest of the year, Anderson said.

The temporary windfall may not be enough for Delta to shore up another record-setting quarter through December. Delta predicts revenue from passenger bookings will decline again next quarter, falling by anywhere from 2.5 to 4.5 percent from a year prior, while fuel prices are projected to rise slightly from the third quarter.

Another challenge the airline company faces: exchange rates. With foreigners’ buying power diluted by the stronger dollar, demand from foreigners for U.S. airlines’ services has been stagnant, Reuters’ Jeffrey Dastin reported last week.

In response, Wall Street analysts have pressured airlines, including Delta, to roll back their international flights and focus on filling seats on domestic flights, Dastin reported.

Even so, Delta executives remained upbeat on the earnings call. The company will buck any inevitable reversal in fuel trends with sustained growth, they said.

“With volatile fuel prices and revenues under pressure, we are using the current environment to evaluate and prune costs across all parts of the business,” Paul Jacobson, CFO of Delta, said on the earnings call.

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