DALLAS -- Delta Air Lines Inc.'s second-quarter profit beat expectations despite lower revenue, and the company plans to limit its growth in a bid to push fares higher.
Notably, Delta will reduce flights this winter between the U.S. and United Kingdom partly because of uncertainty over the economic fallout from the U.K.'s decision to leave the European Union.
Lower fuel prices have helped airlines earn big profits. That continued at Delta, which said Thursday that net income for the April-to-June quarter was $1.55 billion, up 4 percent from a year ago.
But airline stocks have fallen this year -- Delta's shares began Thursday down 22 percent in 2016 -- because investors are skittish about a long slump in revenue per mile.
So-called unit revenue has been sliding for more than a year because cheaper fuel encouraged airlines to add flights and seats faster than demand could absorb, leading to lower average ticket prices. Delta's unit revenue tumbled nearly 5 percent in the second quarter.
Atlanta-based Delta predicted that revenue per mile will fall again in the third quarter -- by between 4 percent and 6 percent.
That's a steeper drop than analysts' projections, according to Stephens Inc. analyst Jack Atkins. Delta said it would increase the number of seats available next quarter by 1 percent from a year earlier -- half what it planned -- in an attempt to reverse the decline in revenue yields by the end of the year.
"It's an awfully steep hill to climb," Atkins said. "They're still clinging to that, but I don't think anyone believes it."
The airline is sticking with its prediction of achieving break-even revenue per mile by year-end, which analysts consider unlikely.
Much of the weaker pricing is coming in last-minute, so-called walk-up fares that usually carry higher prices. Those tickets are frequently bought by corporate travelers.
Delta President Glen Hauenstein said the number of business travelers remained "solid" but didn't grow fast enough to keep up with the increase in seats, leading to "stubbornly low business fares." He said that revenue per mile from leisure travelers rose.
Airlines are feeling pressure to increase fares and revenue because their long dividend from cheaper fuel is fading. Oil prices have increased since hitting a decade-long low in February. While jet fuel is still much cheaper than it was two years ago, Delta Chief Executive Officer Ed Bastian said the year-to-year savings are now mostly over, making revenue growth more important.
That's the reason Delta aims to grow its passenger-carrying capacity just 1 percent in the fourth quarter.
Delta will cut planned flying between the U.S. and the U.K. by a surprisingly large 6 percent. That is an important business-travel route, and Delta said it was scaling back in reaction to soft fares, the drop in the British pound, and uncertainty about the U.K. leaving the European Union.
The economic fate of Britain is doubly important to Delta because it owns 49 percent of British carrier Virgin Atlantic.
On a call with analysts and reporters, Delta executives said they might reduce U.S.-U.K. flights on nonpeak days and use smaller planes. Manchester, England, favored more by British tourists leaving the country than Americans going in, could see fewer flights, they said. U.S. destinations popular with British travelers, they added, include New York, Florida and Las Vegas.
For the second quarter, Delta said that excluding one-time items, its adjusted profit was $1.47 per share. Thirteen analysts surveyed by FactSet predicted $1.42.
Revenue fell 2 percent to $10.45 billion, below the analysts' forecast of $10.48 billion.
Delta shares rose $1.42, or 3.6 percent, to close Thursday at $40.98. The shares of American Airlines Group Inc. and United Continental Holdings Inc. also rose -- American and United both fly to the U.K. and could benefit if the moves Delta announced lead to higher fares across the Atlantic.
Information for this article was contributed by Michael Sasso of Bloomberg News.
Business on 07/15/2016