Delta trims capacity amid fuel pain

Delta Air Lines has scrapped all planned flight growth for the June quarter as a surge in jet-fuel prices threatens to add more than $2 billion to costs. (ir.delta.com) The airline said April 8 that June-quarter capacity will now be flat from a year earlier after a roughly 3.5 percentage-point cut from its original plan. Delta kept its June guidance for low-teens revenue growth, a 6% to 8% operating margin, and earnings of $1.00 to $1.50 a share. (ir.delta.com; usnews.com) Chief executive Ed Bastian said Delta has a “downward bias” on capacity until the fuel environment improves, while the company moves “quickly to recapture higher fuel costs.” Delta also said its June-quarter outlook assumes fuel prices based on the forward curve as of April 2 and includes about a $300 million refinery benefit. (ir.delta.com; cnbc.com) Fuel is one of the biggest costs for any airline, and Delta said the latest spike has been unusually fast. Reuters, citing Airlines for America, reported jet fuel at $4.81 a gallon on April 7, up from about $2.50 before the late-February strikes tied to the Iran conflict. (usnews.com; ajc.com) Delta is the first major United States airline to report quarterly results since the fuel shock intensified, so its schedule pullback is an early signal for the rest of the industry. Reuters reported that other carriers’ shares rose after a ceasefire announcement on April 7, but executives still said they expected oil prices to stay “higher for longer.” (usnews.com) The company’s first-quarter numbers show why Delta is trying to protect margins before summer flying peaks. Delta reported $15.9 billion in operating revenue, a pre-tax loss of $214 million on a generally accepted accounting principles basis, and adjusted earnings per share of 64 cents. (ir.delta.com; cnbc.com) Delta says it has one cushion that most rivals do not: a refinery near Philadelphia that turns crude oil into jet fuel and other products. The airline expects that asset to contribute about $300 million in the June quarter if fuel stays elevated. (cnbc.com; ir.delta.com) For travelers, a flatter schedule can mean fewer seats even as demand remains strong, especially going into summer. Delta said demand is still broad-based, and Bastian said the airline expects to produce about $1 billion in pre-tax profit in the June quarter despite the fuel hit. (ir.delta.com; cnbc.com)