Delta profits from rival airlines hamstrung by the Boeing 737 MAX

Chicago  — On Tuesday, Delta Air Lines reported a fourth-quarter profit that beat estimates, boosted in part by customers it gained from rival airlines’ Boeing 737 MAX cancellations and growing air travel demand.

Airlines that own Boeing’s 737 MAX are cancelling more than 10,000 monthly flights in total as the aircraft remains grounded following two deadly crashes.

Delta does not operate the MAX, enabling it to expand its flight capacity and capture new customers, even as peers such as Southwest Airlines have had to scale back.

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

Total operating revenue rose 7% to $11.4bn.

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

Lower fuel costs and a 9c per share gain from the sale of its stake in Brazil’s Gol also propped up profit.

In the first quarter, Delta expects revenue growth of 5% to 7% year-on-year as US demand rises in spite of heightened geopolitical tensions. Shares were up 3.3% at $61.45 on Tuesday morning, with Delta’s positive comments on travel demand lifting shares of other US airlines as well.

Delta, the first of its peers to report quarterly results, generated $4.2m of free cash flow for 2019, and expects to repeat that this year, enabling new investments in technology to improve passenger experience. JPMorgan analyst Jamie Baker called the cash flow “unchartered territory for any airline”.

One issue for 2020 will be ongoing contract negotiations with pilots.

As for new aircraft, Delta is still interested in Boeing’s proposed new mid-sized plane, 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 but the longer Boeing takes to decide on the NMA’s launch, the fewer options the carrier has, Bastian said, noting that the Airbus A321XLR and A330 could be alternatives.

Delta is also still interested in investing about €100m in the rescue of Italian flagship carrier Alitalia, Bastian said, and is working on anti-trust immunity in South America after closing  the acquisition of a 20% stake in LATAM Airlines Group this month.

Reuters