Delta's Loss Worse Than Expected

Updated from 9:37 a.m. EDT

CHARLOTTE, N.C. -- Delta Air Lines (DAL Quote) reported a worse-than-expected adjusted $274 million first-quarter loss driven by high fuel costs, but was optimistic it would return to profitability in the current quarter.

The carrier reported a loss of 69 cents a share, before charges, whereas analysts surveyed by Thomson Financial had estimated a loss of 49 cents. Revenue, however, rose 12% to $4.77 billion and surpassed the forecast of $4.6 billion.

Fuel costs rose by $585 million over the same period a year earlier, when Delta reported a net loss of $6 million, excluding special items.

After factoring in special items, Delta lost nearly $6.4 billion, which included a $6.1 billion noncash goodwill impairment charge related to a decline in the carrier's valuation.

Demand remains strong, however, and the carrier expects "to turn a slight profit for the quarter," said President Ed Bastian, on an earnings conference call. Analysts estimate a second quarter profit of 26 cents. Delta has refrained from selling some low-cost tickets, holding out for higher yields, Bastian said.

"Delta can't do it alone," Executive Vice President Glen Hauenstein said. "We have to do it in conjunction with other carriers. If the industry could retain a 10% cut in year-over-year capacity by the fall, we'd be in pretty good shape."

Hauenstein said Delta sees strength on routes to Africa, the Middle East, India and Asia. "We have an incredible amount of new capacity in Asia, which is being absorbed quite nicely," he said.

Delta became the third legacy carrier in two days to miss expectations, joining UAL(UAL Quote), the parent of United Airlines, and Northwest(NWA Quote). Delta said this month it will merge with Northwest.

Passenger revenue per available seat mile in the quarter rose 7.4% to 11.36 cents. That enabled Delta to pass a milestone, as its passenger RASM was 101% of the industry average, exceeding the average for the first time in eight years. Passenger RASM was 86% of the industry average in 2005.

Traffic rose by 4% as capacity increased 2%. Delta said international capacity, now at 33%, will climb to 40% this summer. Mainline cost per available seat mile, excluding fuel, rose 4% to 7.31 cents.

Capacity is slated to drop 2% in the second half of 2008, with domestic capacity down 9% to 11%, as Delta removes 15 to 20 mainline jets and 60 to 70 regional jets from its fleet by the end of the year.

Among legacy carriers, American owner AMR(AMR Quote) and Continental(CAL Quote), which reported earnings last week, have also announced capacity cuts, as has United. Additionally, low-fare carriers JetBlue(JBLU Quote) and AirTran(AAI Quote) are planning to pare capacity.

US Airways(LCC Quote) will report earnings Thursday.