Delta

(DAL) - Get Report

expects to be profitable this year, but the world's largest carrier said Tuesday it also expects declining unit revenue, higher costs and a "sizable" first-quarter loss after it missed fourth quarter estimates.

Additionally, like other carriers, Delta said it sees booking trends that are both weak and unpredictable, along with unanticipated weakness in some international markets.

Investors sold off the shares, with Delta falling $1.83 or 19% to $8.10 in early afternoon trading. While many analysts predict profits throughout the airline industry this year, expectations for Delta are particularly high, given the anticipated benefit from the merger with Northwest that closed Oct. 29, perhaps helping to explain the sharp drop.

"We're facing a very different world this year," said CEO Richard Anderson, on a fourth-quarter earnings conference call. "There is uncertainty about the duration and severity of the downturn."

Delta said two key industry metrics show deteriorating trends. Passenger revenue per available seat mile will decline by 4% this year, after years of steady gains. And cost per available seat mile will increase, up 7% to 9% in the first quarter due to pension costs and up 5% to 7% for the full year because of the lapse between reducing capacity and reducing costs, said CFO Hank Halter. He said Delta will report "a sizable loss for the March quarter."

Meanwhile, first-quarter domestic bookings are down two to four points in February and March, and advance yields are down five to seven points. International bookings are down seven to nine points, primarily in the transatlantic, particularly between New York and London, although travel to Israel and India is also down. Like nearly every other airline, Delta said travelers are booking closer in to their travel dates, clouding the outlook.

"People are hesitant to make investments in the future whether they're looking at stock portfolios, washer and dryers or airline tickets," said Executive Vice President Glen Hauenstein. One result, he said, is that leisure travelers are paying more for their tickets.

Despite the negative trends, Delta reiterated that it expects the year to be profitable, given $1 billion in synergies from the Northwest merger, $5 billion in fuel cost savings if oil prices remain around $50 a barrel and new revenue from fees. In the fourth quarter, baggage fees added nearly $121 million in new revenue.

For the quarter, Delta said its loss, excluding certain items, was $340 million, or 50 cents a share. That figure does include a noncash loss of $80 million, or 12 cents a share, related to the acquisition of Northwest, without which the loss would have been 38 cents.

Analysts surveyed by Thomson Reuters had estimated a loss of 34 cents. Without fuel hedging losses, Delta said, it would have shown a $167 million profit, excluding certain items.

Including a charge of more than $900 million for employee equity awards and a $91 million loss for unrealized fuel hedges, Delta's loss was $1.4 billion, or $2.11 a share. The results include Northwest's operations between Oct. 30 and Dec. 31.

Combining the two carriers' operations for the quarter, revenue was $6.7 billion, little changed from a year earlier, on a 4% capacity decline. PRASM grew by 3%.

The airline said it will reduce capacity by 6% to 8% in 2009, removing 40 to 50 aircraft from its mainline fleet, following an 11% cut in domestic capacity during the last six months of 2008.

Analysts had mixed reactions to Delta's results. In a pre-opening report, JPMorgan Chase analyst Jamie Baker said the carrier's guidance towards a 4% RASM decline was unsurprising. Nevertheless, he said, "We expect considerable potential investor disappointment in such an outcome (and extrapolation to other names), given that only Delta has thus far offered any sort of 2009 demand commentary." JPMorgan has a financial relationship with Delta that includes providing investment banking and other services.

Meanwhile, Standard & Poor's analyst Jim Corridore reiterated his strong buy on Delta, his top airline stock pick. He wrote that while "demand is extremely weak for Q1, and fuel hedging losses are likely to continue for a couple more quarters, Delta expects to be solidly profitable for full '09, aided by sharply lower fuel costs."