Delta Air Lines, Inc. (NYSE:DAL) has been facing tremendous pressure due to lower travel demand and strong dollar. The lower travel demand is arising from oil dependent economies. Analyzing the current scenario, the company announced that it would reduce its overseas capacity by as much as 3$ this winter, indicating a 6% cut from previous reported plans.
The capacity cut details
Delta Air Lines informed that the biggest YOY cuts will be done on routes to the Middle East, India, Africa, Brazil and Japan. The airlines company will also opt for seasonal service suspension to Moscow. The latest move will result in flat capacity in 4Q and will help achieve its “unit-revenue” performance to growth. The unit revenue is a key metric that can be defined as the amount of revenue charged for each seat flown a mile.
The performance
Delta Air Lines made the capacity reduction announcement along with its 1Q results. The profit of the company tripled to 90 cents per share compared to 25 cents per share in the same period, a year ago. The revenue surged 5% to $9.4 billion. The profits came better than analysts’ forecast by a penny a share.
The hedge loss
Despite posting strong performance in terms of profit and revenue, the company reported $1.1 billion as fuel hedge losses, covering $300 million in advance payments on contracts supposed to be settled in 2015. The special items reduced the adjusted profit to $372 million in 1Q, up from $281 million from the comparable period, a year ago.
The expectations
Delta Air Lines, Inc. (NYSE:DAL) expects hedge loss of $650 million in 2Q. The cost of fuel is expected to be 25% lower in the current quarter than it was in 2Q a year ago. It will help the airline company to save as much as $2.2 billion in 2015.
