04/23/2013 08:22 EDT | Updated 06/23/2013 05:12 EDT

Delta Air Lines says gov't spending cuts hurting April revenue; posts small 1Q profit

MINNEAPOLIS - Delta Air Lines got a little carried away with fare increases and had to adjust its pricing during the first quarter. It worked, allowing the airline to eke out a narrow profit.

Delta has been aggressive about boosting ticket prices. Sometimes it rolls out broad-based fare increases. Other times, it simply offers fewer cheap seats on a given flight.

Travel demand was strong heading into 2013, so tickets were priced accordingly, said CEO Richard Anderson. But automatic government spending cuts, higher Social Security taxes, and other factors kept some people from flying, so Delta filled seats with sales and promotions.

That move helped Delta record an operating profit in the first quarter, a slow travel period that's usually a money-loser for the airlines. Excluding special items, Delta earned $85 million, compared with a year-earlier loss of $39 million.

Delta begins planning how many seats to sell at what fare as much as eight months in advance. The pricing disclosures on Tuesday were a glimpse into adjustments that airlines often make as they try to balance their desire to charge as much as they can for each seat versus the need to fill as many seats as possible.

The world's second-biggest airline said a slowdown seen in March is continuing. Government agencies have cut back on travel to comply with mandatory budget cuts and demand from vacationers has weakened. As a result, per-seat revenue is down 2 per cent to 3 per cent this month.

Defence companies account for about 3 per cent of Delta's revenue from big companies, and flights by those companies have declined as much as 20 per cent over the past month, Delta President Ed Bastian said.

Lower fuel prices should help to offset the decline, the airline said. Delta has also been keeping a lid on flying, aiming to charge more for the seats that it does offer to passengers. During the first quarter, it cut flying capacity by 3 per cent. It said capacity will be flat to up 1 per cent in the second quarter, which includes the start of summer travel season.

Yield, which is one way to measure fares, rose 2.1 per cent — after jumping 9 per cent a year earlier.

Delta earned $7 million, or a penny per share, for the quarter that ended March 31. Not counting special items, it earned 10 cents per share — better than analysts had been expecting. The company reported net income of $124 million in the year-ago quarter, but lost money when one-time gains are factored out.

Revenue rose 1 per cent to $8.5 billion, matching analyst expectations.

Delta has been consistently profitable and paying down debt. Investors have been eager to see what it will do next with its cash. Options include paying a dividend for the first time since 2003, and buying back shares, which increases the value of the shares that remain outstanding.

Anderson said Delta will make an announcement in the first half of May about "how we will return cash to shareholders."

Shareholders love that sort of thing. Shares of Delta Air Lines Inc. jumped $1.59, or 10.5 per cent, to close at $16.73.

Delta's oil refinery near Philadelphia lost $22 million because of ongoing supply disruptions from Superstorm Sandy and an outage in its gasoline production unit. Executives said they're hoping the refinery posts a modest second-quarter profit.

Like most East Coast refineries, Delta's Trainer refinery has gotten most of its oil by ship from overseas. But abundant North Dakota crude has become a cheaper source, even if it has to be shipped by rail. Delta said it has lined up agreements to supply 10 per cent of the refinery's needs with that North Dakota oil.