Facing pressure from the strengthening dollar as well as lower travel bookings from oil dependent countries, Delta Air Lines, Inc. (NYSE:DAL) is planning to slash its overseas capacity. This Wednesday, the leading airline announced a 3% reduction in its overseas capacity for the coming winter. Significantly this is a 6% reduction from the earlier plans.
Airline optimizing operations
The bulk of the reduction will apply on routes to Africa, Brazil, India, Japan and the Middle East. This is in addition to the seasonal abeyance of service to Russia. According to the company, these decisions will translate into overall flat capacity in the last quarter. Also, it would aid restoration of unit performance to growth after many quarters of contractions.
Impressive first quarter results
Disgruntled investors of the past who had grievances over Delta’s declining revenue responded favorably. They bid up the stock to an impressive $44.18 on Wednesday. Along with the cuts, the airline unveiled its first quarter results. The latter saw a threefold rise in profits to $746 million which was well beyond market expectations. Revenue was $9.4 billion which was a rise of 5%.
Delta President, Ed Bastian, predicted that the revenue in the second quarter would jump by 2%. He backed up his statement by assuming a strong revenue performance, low fuel price, and effective cost controls. Delta Air Lines, Inc. (NYSE:DAL) is close to an investment grade credit rating. A good performance this year will significantly boost its rating.
The strong dollar dented sales by more than $100 million in the 1st quarter. Sales were also hit by winter storms. Its chief executive stated that the carrier was faring pretty well in the domestic sector, which experienced robust demand.
Incidentally, the firm saw fuel hedge losses to the tune of $1.1 billion. However, the company believes that the worst will be over by July 1 coupled with the advent of cheap fuel prices. The lowering of the fuel costs alone may save the airline over $2 billion in 2015.
