Delta made $834 million during the quarter. Sounds good so far. But two things took a huge bite out of the earnings: merger-related expenses and fuel hedge losses. Its merger with Northwest cost the airline $58 million this quarter, but that wasn’t the bulk of the loss. Fuel hedge losses accounted for a staggering $390 million.
Ignore all that, though, and Delta’s net profit was $191 million. And the airline has gained more than $200 million in “synergy benefits” in the first half of the year from its merger with Northwest. In a statement accompanying the financial results, Richard Anderson, Delta’s CEO, said, “The industry faces substantial challenges from unprecedented revenue declines and volatile fuel prices, but Delta is the best positioned network carrier to weather these economic conditions.”
According to USA Today, Wall Street expects that Delta will be profitable again within the next few quarters. To get to profitability, Delta will be expanding capacity cuts this fall, with a 10 percent overall reduction in service and an additional 5 percent of international flights to be eliminated.
Passenger revenue decreased 25 percent over last year due to the global recession, the H1N1 virus, and a 7 percent capacity reduction. But other revenue, namely increased baggage fees and better terms for the airline on its American Express branded credit card, grew 15 percent, giving the airline another $123 million. As Associate Editor Carl Unger is always quick to point out, this is just another sign that baggage fees seem poised to become a permanent feature of the airline fees landscape. In fact, Delta just announced an additional $5 fee for paying for your checked bags at the airport.
What do you think? Will Delta, now the world’s largest airline, recover by the end of the year?