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Apr 12, 2017

Delta beats profit expectations, reports improving demand and average fares

Delta ticketing counter at Ronald Reagan Washington National Airport

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Delta Air Lines Inc (DAL.N) on Wednesday reported a better-than-expected quarterly profit and forecast second-quarter passenger unit revenue, a closely watched revenue measure, to increase 1-3 per cent, citing improving demand and average fares.

Shares of the No. 2 U.S. airline by passenger traffic rose as much as 4.2 per cent to US$47.17 in early trading.

Delta said March marked the first month of positive passenger unit revenue since November 2015, and it expects the measure to remain positive throughout the rest of the year.

Unit revenues - which compare sales with flight capacity - were hurt last year across the industry in the United States due to higher capacity and lower average fares."We will keep our full-year capacity growth capped at one per cent to support this unit revenue momentum and the company's return to margin expansion," Delta President Glen Hauenstein said in a statement.

Delta said it cancelled about 4,000 flights earlier this month due to severe weather in Atlanta, and it would reduce its second-quarter pre-tax income by US$125 million.

However, the company forecast second-quarter operating margin in a range of 17-19 per cent, which was higher than the expectations of some analysts.

"Investors may view the company's (second-quarter passenger unit revenue) guidance as 'aggressive' given recent guidance missteps, but the guidance was still much better than expectations especially when considered the storm impact," Cowen & Co analyst Helane Becker said.

Becker was expecting Delta's operating margins in a range of 15.5-17.5 per cent.

Earlier this month, Delta had cut its passenger unit revenue forecast for the first quarter for the second time, citing slower-than-expected improvement in average fare prices for flights booked at the last minute.

In March, Delta had cut its operating margin forecast for the quarter, citing higher fuel and labor costs.

The company said its passenger unit revenue dropped 0.5 per cent in the first quarter ended March 31.

Delta's net income fell 36.3 per cent to US$603 million, or 82 cents per share, in the quarter, from a year earlier.

On an adjusted basis, the company earned 77 cents per share, beating he average analyst estimate of 75 cents, according to Thomson Reuters I/B/E/S.

Total operating revenue fell 1.1 per cent to US$9.15 billion, missing analysts' estimate of US$9.18 billion.