Delta Reports $1.4 Billion Loss

ATLANTA — Demand for air travel continues to weaken as deep fare sales in recent weeks have not spurred customers to open up their wallets in droves, Delta Air Lines Inc. executives said Tuesday after the world's biggest carrier posted a $1.4 billion loss for the final three months of 2008 and signaled the revenue environment for 2009 will be challenging.

Delta shares plunged 18 percent in active trading Tuesday afternoon.

The Atlanta-based carrier said advance bookings for February and March so far are not promising, especially for international flights.

Delta said it is prepared to cut capacity further than its current plans if needed. Fees for amenities that were once free will continue to be an important part of its revenue stream, though Chief Executive Richard Anderson said Delta is not considering adding a fee for carryon bags.

Anderson said the global financial crisis has hit consumers hard and significantly cut into their discretionary spending.

"We're facing a very different world this year," Anderson said.

Executives said the airline expects to post a sizable loss for the first quarter, which began Jan. 1, but is forecasting a profit for the full year. With the economy uncertain at best, a spike in fuel prices or a significant further drop in demand could change those projections.

Fare sales of late don't seem to be reeling in big numbers of customers, said Glen Hauenstein, Delta's executive vice president of network planning and revenue management. Demand has dropped in many regions, but especially in the Detroit and Cincinnati areas on the domestic side, which have been affected by cuts in the automotive and industrial sectors, and on trans-Atlantic routes on the international side, executives said. Delta's Atlanta, Minneapolis and Salt Lake City hubs also have been hit, but not as hard as other areas, executives said.

It's not just leisure travelers who are not spending as much, it is business travelers as well.

"They're flying in the front cabin less often," Delta President Ed Bastian said of travelers.

The airline operator also projected that 2009 consolidated passenger unit revenue would be down 4 percent. It reiterated its previously announced plans to cut systemwide capacity 6 percent to 8 percent this year.

Delta's net loss in the fourth quarter was equivalent to $2.11 a share for the October-December period, compared to a loss of $70 million, or 18 cents a share, for the same period a year earlier. The loss in the latest quarter included a $904 million charge related to employee equity awards.

Delta had said that when it completed its acquisition of Northwest Airlines, it would issue a nearly 13.4 percent equity stake in the combined airline to employees.

Excluding special items, Delta said it lost $340 million, or 50 cents a share. Analysts surveyed by Thomson Reuters, who generally exclude one-time items from their estimates, expected a loss of 34 cents a share. Delta said the analyst estimates did not factor in a 12 cents per share loss related to the non-cash impact of purchase accounting.

UBS analyst Kevin Crissey said he was focusing on Delta's expected present and future performance rather than its performance in the fourth quarter of last year.

"We were much more concerned with guidance given the noise from the merger in the fourth quarter," Crissey wrote in a research note.

He said Delta's 2009 consolidated passenger unit revenue projection is worse than what his firm had been expecting.

Revenue rose 43 percent to $6.7 billion in the fourth quarter, compared to $4.7 billion a year earlier, as Delta completed its acquisition of Northwest on Oct. 29.

Delta said it had a total net loss of $607 million in the fourth quarter related to fuel hedges. After locking in prices that looked reasonable earlier in 2008, some airlines finished the year paying substantially more than market price for a portion of their fuel. Anderson said Delta paid on average about $100 a barrel for oil in 2008. He said it is budgeting for an average price of half that in 2009.

For all of 2008, Delta said it lost $8.9 billion, or $19.08 a share, compared to a profit of $1.6 billion in 2007. The company did not provide a per-share figure for the 2007 profit because it was in bankruptcy during the first four months of that year. Twelve-month revenue rose to $22.7 billion, compared to $19.2 billion for the prior year.

Delta ended the fourth quarter with $6.1 billion in total liquidity and cash collateral posted with hedge counterparties. Pension, debt and lease obligations will weigh on the airline this year, but executives said Delta expects to end 2009 with roughly $7 billion in liquidity.

Delta Air Lines Inc. operates Delta, Northwest, Comair, Mesaba Airlines and Compass Airlines.

Delta shares fell $1.79, or 18 percent, to $8.14 in afternoon trading Tuesday.

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On the Net:

Delta Air Lines Inc.: http://www.delta.com

Comments

[drymartini1]

01:53 PM on 01/27/2009

there are opportunities to make money every step of the way in america. you just have to keep your eyes open.

we all bash teh airlines and say how bad they are. but if we had put money where our mouth is, and shorted this stock, just in 1 day today we would have gotten 20% return. Delta stock tanking and we could be printing cash.

but sadly, i am along with you. i only invest long as shorting stocks requires better due diligence and i am not there yet.

[drymartini1]

11:19 AM on 01/27/2009

Request to Obama: Do NOT bail out the airlines if they ask for bailout. Bush made that mistake way back right after Sep 11 attacks.

We have too many airlines and there is too much competition and capacity in this sector. we need fewer airlines so the surviving ones can make a profit without suffering from overcompetition.

[blood1]

10:40 AM on 01/27/2009

We have to be really careful here...as all the accountants of all businesses are looking for ways to make their bottom lines look bad....so they can get a bailout. In the case of Delta - it seems that they are attempting to break up the employee union...and to tell us that they could not benefit from the lower fuel cost is foolhardy...as they buy on day 1 for fuel on days forward. Which means, that as the fuel costs continued to drop, they should have bought then as well...so if the fuel cost is their complaint, then they should be more profitable this year...if the economy recovers and people take vacations that include flying.

Just another example of how Big Business is gaming the system!

[retiree]

12:23 PM on 01/27/2009

Gaming the system? Airlines originated the system

From Wikipedia:

"The first known use of the term "golden parachute" dates back to when creditors sought to oust Howard Hughes from control of TWA airlines. The creditors provided Charles C. Tillinghast Jr. an employment contract—dubbed a golden parachute in likely reference to the protection a parachute offered—with protection against the almost definite job loss Tillinghast would have faced if famed aviator Howard Hughes had successfully maintained control of TWA.[citation needed]"

He was a vice president at Bendix in 1961 when he was hired as president and CEO of TWA in a deal sponsored by creditors seeking to oust Howard Hughes from control of the airline. Because control of the airline was in litigation, Tillinghast received an employment contract, dubbed a “golden parachute”, the first known use of that term.

[ramal]

10:40 AM on 01/27/2009

Good! It couldn't happen to a worse company. Thirty years ago, Delta was a class act and a joy to fly, today it's a third world bus with wings, run into the ground by greedy, inept management. Doubtless they will be before Congress soon begging for a bailout.