Delta posts profit beat on loyal, new customers as rivals battle 737 MAX crisis

By Tracy Rucinski

CHICAGO (Reuters) – Delta Air Lines Inc (NYSE:) posted on Tuesday a fourth-quarter profit that beat Wall Street forecasts, boosted by customers gained from rival airlines’ 737 MAX cancellations and what CEO Ed Bastian said was a growing preference for the Delta brand.

Airlines that own Boeing (NYSE:) Co’s 737 MAX are together cancelling more than 10,000 monthly flights as the aircraft remains grounded following two deadly crashes. Delta does not operate the MAX, enabling it to grow its flight capacity and capture new customers while peers like Southwest Airlines (NYSE:) Co have had to scale back.

Atlanta-based Delta’s net income rose 8% to $1.1 billion in the quarter to Dec. 31 from a year earlier. Adjusted earnings per share hit $1.70, beating analysts’ expectations for profit of $1.40 per share, according to IBES data from Refinitiv.

Total operating revenue rose 7% to $11.4 billion.

“There’s no question that we’re picking up new customers, but that’s not the main driver of our performance,” Bastian told Reuters, citing a strong brand and customer loyalty at a time when air travel demand continues to rise.

Bastian sees the trend continuing in the first quarter with estimated revenue growth of 5% to 7% year-on-year as demand continues to rise “at record levels.”

The carrier sees non-fuel unit costs growing 2% to 3% in the first quarter and revenues per available seat mile, a closely-watched metric, flat to 2% higher.

Delta, with 204 million passengers in 2019, generated $4.2 million of free cash flow for the year, a number it expects to repeat this year, allowing it to invest more in new technology to improve passenger experience.

As for new aircraft, Delta is still interested in Boeing’s proposed new midsized airplane, known as the NMA, despite the planemaker’s delayed decision on whether to launch the new aircraft as it continues to deal with the 737 MAX fallout.

Delta wants to remain a customer of both Boeing and Airbus SE but Bastian said the longer Boeing takes to decide on the NMA, the less options the airline has. Airbus’ A321XLR and A330 could be alternatives to the new Boeing jet, he said.

The airline is also still interested in investing around 100 million euro ($111.34 million) in the rescue of Italian flagship carrier Alitalia as the Italian government works on a new consortium, Bastian said.

Separately, Delta is working with regulators in South America on anti-trust immunity after closing this month the acquisition of a 20% stake in LATAM Airlines Group, he said.

Following the LATAM stake purchase, Delta unwound its partnership with Brazil’s GOL, a move it said boosted fourth-quarter adjusted EPS by 9 cents.

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