Delta expects USD2.6bn improvement in pre-tax income for 2010

Delta Air Lines made the following forecasts at the carrier's investor day on 15-Dec-2010:

• Financial:
  
  • FY2010:
    
    • higher revenues and solid cost performance have driven a USD2.6 billion year-on-year improvement in profitability for 2010;
    • it now expects a 6-7% improvement in operating margin for 4Q2010, compared with previous estimates of a 6-8% increase (Reuters, 15-Dec-2010);
    • expects total unrestricted liquidity of USD5.3 billion;
    • the carrier has also been aggressively reducing debt to USD15 billion in 2010 using USD2 billion in annual free cash flow. Plans to reduce this to USD10 billion by end of 2012;
  • FY2011:
    • solid passenger revenue growth driven by unit revenue increases combined with higher capacity;
    • expecting PRASM to meet 2008 levels, despite pressure from eliminating smaller, high-RASM aircraft;
    • expecting ancillary revenue to grow 5-10% year-on-year and earn USD2 billion from unbundled fees and services;
    • plans to grow capacity by 1-3%, led by international capacity growth - biggest gain on routes to/from London Heathrow, Tokyo Haneda, Beijing and Shanghai;
    • CEO Richard Anderson stated fuel prices may be "somewhat of a headwind" for 2011, but feels Delta can manage the costs;
• Fleet:
  
  • currently 175 international, 542 domestic and 626 regional aircraft;
  • President Ed Bastian stated Delta plans to enter talks with aircraft manufaturers over a possible narrowbody order "in the first part of 2011";
• Fares:
  
  • plans to restructure fare products to better align value of product attributes and fare paid;
  • Mr Anderson stated changing the carrier's fare structure is a key part of efforts to improve return on capital and reflects the major challenge of rising fuel costs (Dow Jones, 15-Dec-2010);
• Consolidation: Mr Anderson stated he expects more consolidation in the industry and Delta plans to keep enough capital to allow it to participate (The Atlanta Journal-Constitution, 15-Dec-2010). The CEO added he believes the merger of United Airlines and Continental Airlines and Southwest Airlines' and AirTran Airways' proposed merger "are in the long run good for the industry". He added Delta can participate through JVs with foreign carriers and can"use that model with Air France-KLM to get the same kinds of synergies on revenue and cost without trans-border mergers". [more]

Delta Air Lines: "2010 was a good year. It will end up being our best year in the past decade. The economic growth is going to be outside the US, and so I think we need to be certain that we're flexible enough to participate, either through joint ventures or other sorts of arrangements," Richard Anderson, CEO. Source: The Salt Lake Tribune, 15-Dec-2010/Bloomberg, 16-Dec-2010.