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Delta expects 8-10% operating margin in 2Q2012, to record fuel hedge loss in 2Q

27-Jun-2012 1:30 PM

Delta Air Lines stated (26-Jun-2012) it expects to generate an operating margin of 8 to 10% for the Jun-2012 quarter. This result represents an improvement over the prior year’s 6.9% operating margin on a comparable basis. On a GAAP basis (which includes USD800 million of mark to market adjustments on out of period hedges and USD170 million of special items), Delta’s 2Q2012 operating margin is expected to be approximately -1%. Jun-2012 and 2Q2012 unit revenues are forecast to improve by 8% year-on-year, "as the company continues to see strength from corporate revenues, investments in its product and network, and the benefit of capacity discipline. Strong performance in New York from Delta’s expansion at LaGuardia is contributing to this result". The 2Q2012 forecast is as follows:

  • Operating margin: 8-10%;
  • Cargo and other revenue: USD1.2 billion to USD1.3 billion;
  • Fuel price per gallon: USD3.37;
  • Profit share expense: USD120 million to USD150 million;
  • Non-operating expense: USD300 million;
  • Capital expenditures: Between USD600 million and USD650 million;

The forecast on a year-on-year basis are as follows:

  • Passenger unit revenue: +8%;
  • Consolidated CASM, excluding fuel, profit sharing expense, and special items: +3% to +4%;
  • System capacity: -1% to -2%;
  • Domestic capacity: -1% to -2%;
  • International capacity: -1% to -2%. 

Delta expects to end the Jun-2012 quarter with USD5.3 billion in unrestricted liquidity, including USD1.8 billion of undrawn revolving credit facilities. The carrier also stated that based on the 22-Jun-2012 forward curve, Delta is projecting a Jun-2012 quarter economic fuel price of USD3.37 per gallon, which is higher than previous guidance of USD3.28, due to hedge losses that settled in May-2012 and Jun-2012. While previous guidance contemplated a sizable hedge gain, the company now expects to realise a USD155 million loss for fuel hedges settling during the quarter. The carrier also expects to participate meaningfully in the market decline of fuel prices for 2Q2012. On a GAAP basis (which includes mark to market adjustments on out of period hedges), Delta’s 2Q2012 fuel price is expected to be USD4.20. [more - original PR]