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Delta plans slower growth next year

Trying to reverse supply glut that has weakened fare prices

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Bloomberg

Delta Air Lines will keep a lid on growth next year as it seeks to shore up persistently weak fares.

The Atlanta-based carrier plans to expand seats and flights 1 percent in 2017, less than half this year’s pace through September. Signs of improvement should appear by the end of this year, with revenue for each seat flown a mile expected to post a smaller decline than the 6.8 percent drop in the third quarter, the airline said in a statement Thursday.

Delta, which serves The Eastern Iowa Airport, is trying to reverse a supply glut that has weakened airlines’ pricing power and put their stocks on track for the biggest annual decline in five years. Delta’s forecast for an operating-profit margin of 14 percent to 16 percent in the fourth quarter trailed the 16.6 percent estimate by Raymond James Financial analyst Savanthi Syth.

Delta reported adjusted earnings of $1.70 a share for the third quarter, surpassing the $1.65 average of 15 estimates compiled by Bloomberg. Sales fell to less than $10.5 billion, slightly less than analysts’ estimates.

A computer disruption that grounded thousands of flights in early August cut pretax income by an estimated $150 million, Delta said. In the current quarter, passenger revenue for each seat flown a mile will fall by 3 percent to 5 percent, the airline said.

Delta is the first major airline to report third-quarter earnings. U.S. carriers are expected to report pretax profit of $6.5 billion for the period, which would be the first year-over-year decline for a quarter since the end of 2012, Deutsche Bank analyst Michael Linenberg said in a recent note.

Weak fares and higher employee wages have dragged down earnings, Linenberg said. Several airlines have raised pay for pilots and other employees recently, as workers demand a greater share of industry profits.

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