Nonprofit, nonpartisan journalism. Supported by readers.


Delta gains altitude with record profit during spring quarter

Delta is demonstrating that it is capable of producing sustained profitability.

Delta and other big airlines that reported profits benefited from a drop in fuel prices.
REUTERS/Jonathan Ernst

With the merger of Delta and Northwest airlines nearing its fifth anniversary, Delta is demonstrating that it is capable of producing sustained profitability.

The Atlanta-based carrier on Wednesday reported an $844 million net profit for the second quarter, which was a record in the airline’s history. When special charges were subtracted, including domestic fleet restructuring, Delta still wound up with a net income of $685 million.

Delta and other big airlines that reported profits benefited from a drop in fuel prices, but a portion of Delta’s profit comes from a “revenue premium” within the airline industry.

It has been aggressive in pursuing high-value business travelers and CEO Richard Anderson told Wall Street analysts Wednesday that the airline will be cautious about adding airline seats to the market.

Article continues after advertisement

“We will continue to manage our capacity conservatively, as we have done over the past several years, in order to prioritize profit margins,” Anderson said.

For Twin Cities travelers, that means that Delta will continue to operate with nearly full airplanes and discount fares will be rare.

In the first half of 2013, Delta’s flight seat capacity was down 1 percent across the airline. In the July to September quarter that we’re in now, Delta is increasing its seat capacity by 1 to 3 percent.

Anderson noted that Delta plans to boost its seat capacity during 2013 at a level that’s under the growth rate of the gross domestic product.

That restraint allows Delta to maintain higher fare levels, because it doesn’t have to use many sales to get customers into its seats.

In expanding the business, Delta’s executives recently made big investments in a joint venture with Virgin Atlantic and a new terminal at New York’s Kennedy Airport. They also are rapidly paying down debt and reducing their interest costs. By the end of June Delta’s debt was $10.2 billion, a drop of nearly $7 billion from 2009.

Minneapolis-St. Paul hub

The Minneapolis-St. Paul Delta hub remains a major contributor to Delta’s strong financial picture.

When discussing the competitive landscape within the airline industry, Delta Executive Vice President Glen Hauenstein characterized the Twin Cities and Detroit hubs as “great profit centers.” On the conference call with analysts, Hauenstein said: “Detroit and Minneapolis have been very, very steady over the past few years. We don’t see any change to that.”

Endeavor Air, a regional carrier based in the Twin Cities and owned by Delta, will be experiencing changes that affect the flying public. Endeavor, formerly called Pinnacle Airlines, will be losing 50-seat regional jets and Delta will be allocating 76-seat jets to Endeavor that have first-class cabins.

Article continues after advertisement

Delta wants to get rid of the 50-seaters and shift to more fuel-efficient planes and that is a major consideration because fuel is the airline’s biggest expense.

In the second quarter, Delta generated $9.7 billion in operating revenue and its fuel bill was $2.6 billion.

North Dakota oil

Delta shocked industry insiders last year when it bought an oil refinery in Trainer, Penn. The airline lost $51 million on refinery operations in the second quarter. Paul Jacobson, Delta’s chief financial officer, explained in an internal memo to employees that the refinery would have “broken even,” except for “elevated costs associated with the Environmental Protection Agency’s standards on renewable fuel.”

Jacobson also reported: “Production at Trainer has contributed to a substantial change in the jet fuel markets, which is lowering our overall fuel expense significantly.” Delta acquired the refinery with the desire to gain more control over its fuel costs.

North Dakota’s oil production previously caught the eyes of Delta executives, and now it’s clear what type of role North Dakota will play in Delta’s fuel strategy.

On Wednesday, Jacobson said on the conference call that Delta plans to “receive 50,000 to 75,000 barrels per day of Bakken” crude oil from North Dakota.

Fedor can be reached at She is on Twitter @LizFedor.