Delta Posts Wider Loss

However, the airline would have had a profit excluding certain items.
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Updated from Aug. 9

Delta Air Lines

(DALRQ)

said Wednesday that unit revenue increased by 17% in the quarter ended June 30, while net income before reorganization costs was $175 million.

Including reorganization costs and other special items, the third-largest airline reported a loss of $2.2 billion, compared with a loss of $382 million in the second quarter of 2005.

"Despite the more than $300 million impact of higher fuel prices, Delta produced its first quarterly net profit, excluding reorganization or special items, since December 2000," said Edward Bastian, the carrier's chief financial officer, in a prepared statement.

The company said it is benefiting from the restructuring of its route network, as well as from high demand and a reduced supply of seats. Delta was the last of the 10 largest airlines to report second-quarter earnings. Every one of them, with the exception of

JetBlue

(JBLU) - Get Report

, reported a sharp improvement over the same quarter a year earlier.

Calyon Securities analyst Ray Neidl, in a report issued Wednesday, said he expects the strong results to continue into the third quarter and for the year.

"If

present trends continue, even with fuel prices holding at over $70 a barrel, we believe the industry will produce almost $4 billion in profits in 2007," Neidl wrote. "We believe cost and capacity cuts are finally bringing results to the loss-plagued legacy carriers."

Neidl nevertheless downgraded shares of several carriers due to seasonal trends, rising fuel costs and Middle East uncertainties. Neidl moved

AMR

(AMR)

and

Continental Airlines

(CAL) - Get Report

to add from buy. He also downgraded

Southwest Airlines

(LUV) - Get Report

to neutral from add.

In its monthly operating report for June filed with the bankruptcy court, Delta reported a net loss of $2.2 billion for the month. Excluding reorganization items, June's net income was $145 million.

Second-quarter operating revenue increased by $406 million or 9.6% from the second quarter of 2005, despite a 6.8% decline in capacity. Passenger load factor for the quarter was 79.7%, a 1.4 point increase. On June 30, Delta filled 94.4% of its seats, its highest daily load factor on record.

On the cost side, excluding fuel and special items, mainline unit costs fell 3.3%. Operating expenses including fuel decreased 2.1%, despite the fuel-expense increase. As of June 30, Delta had $4 billion in cash, cash equivalents and short-term investments, of which $2.9 billion was unrestricted.

Last week,

Northwest Airlines

(NWACQ)

, the other legacy carrier operating under bankruptcy court protection, said its unit revenue increased by 13.9%.

Excluding bankruptcy costs and other one-time items, Northwest earned $179 million in the second quarter, compared with a loss of $288 million a year earlier. After paying dividends on preferred stock, Northwest lost $285 million, vs. a loss of $234 million in the same quarter a year ago.