Low fuel prices helped Delta Air Lines beat profit expectations in the second quarter, but revenue fell and it became one of the first major U.S. companies to signal a financial effect from Brexit.
The Atlanta-based carrier — and biggest operator at Minneapolis-St. Paul International Airport — said it will reduce its flight capacity between the United States and United Kingdom by 6 percent in its winter schedule.
The effect of that change on its daily route between MSP and London's Heathrow Airport wasn't clear. Executives said the capacity of cuts could take several forms, including a cut of some routes.
The significant scaleback is a reaction to the drop in value of the British pound in the aftermath of the U.K. vote to leave the European Union. Company executives anticipate this will stymie travel.
The airline, No. 2 by traffic in the U.S., on Thursday reported a $1.5 billion profit for April, May and June, a 4 percent increase from the same period a year ago. But the price of fuel, which helped prop up Delta's profits, is also to blame for its declining unit revenue — a key industry metric that measures how much money the airlines make on each mile flown.
Cheap fuel has led airlines to add flights and seats faster than public demand can absorb, which has forced Delta to drop its prices, executives said on a call with analysts and reporters. As a result, the airline saw a 5 percent drop in its unit revenue in the second quarter. Investors are anxious about slumping unit revenue, which has been sliding at Delta and other major U.S. carriers all year.
Delta prides itself as a favorite among business travelers, but these typically high fares were "stubbornly low" said Delta President Glen Hauenstein. The seats are selling for leisure travel, but that hasn't offset the hit it has taken on lower fare offerings.
"That leaves us with really no other choice but to decrease the capacity levels moving forward," Hauenstein said.
Delta has shaved its capacity growth plans by half, forecasting just a 1 percent increase in the fourth quarter.
The airline, which has a strong transatlantic business, plans to cut its U.S.-U.K. capacity by reducing flying on some routes during nonpeak days, using smaller planes and, Hauenstein said, "we haven't committed to it yet, but some markets will not make it through."
Executives declined to speculate on what markets could face trimming but highlighted Manchester, England, as possibly seeing less flying and any U.S. market popular among British travelers, like New York, Florida and Las Vegas.
The airline's second quarter revenue fell 2.4 percent to $10.45 billion, below Wall Street's $10.48 billion forecast.
Delta's stock rose roughly 3.5 percent to $40.98 Thursday while competitors American and United airlines respectively rose 4.1 percent and 4.3 percent.
The Associated Press contributed to this report.
Kristen Leigh Painter • 612-673-4767
