Delta posts $1.4 billion loss, expects 2009 profit

Delta Air Lines, which reported a fourth-quarter loss of $1.4 billion on Tuesday, expects to make money in 2009 despite a global economic recession that has kept many would-be travelers grounded.

Delta CEO Richard Anderson said that the carrier will be "solidly profitable" this year because of lower fuel costs, reductions in Delta's flying operations and about $500 million in financial benefits from the merger with Northwest Airlines.

The year won't start off well though: The carrier said it will have a "sizable loss" in the first quarter, when demand historically slackens.

Delta shares plunged 20 percent Tuesday, closing at $7.93.

Despite oil prices remaining low, Delta will have higher fuel costs at the start of this year because of hedges put in place when fuel prices skyrocketed last year. In retrospect, Anderson said, the hedging became "an expensive insurance policy."

After oil hit $147 a barrel last July, Anderson said, "no one could have predicted that oil would fall so precipitously." Crude oil settled at $41.58 a barrel on Tuesday on the New York Mercantile Exchange.

For 2009, the Atlanta-based airline is sticking to its December projection that it will reduce domestic capacity by 8 to 10 percent and trim international operations by 3 to 5 percent.

February and March bookings are down, and the London-New York JFK route has been hit particularly hard. Consumers, wary about spending, often are booking their trips nearer to departure. Delta executive Glen Hauenstein, who oversees ticket pricing and flight scheduling, said people are "hesitant to make investments in their future, whether or not they're looking at stock portfolios, washers and dryers or airline tickets."

Delta, which acquired Northwest at the end of October, released quarterly results that included Northwest's financial performance. Based on those combined figures, operating revenue was $7.8 billion, or flat, on a base of flight operations that were 4 percent smaller.

Operating expenses increased 23 percent to $9.5 billion. The lion's share of Delta's quarterly loss was associated with a noncash charge for employee stock awards that amounted to more than $900 million. Delta also recorded a $91 million loss on out-of-period fuel hedges.

Bill Hochmuth, a senior research analyst at Thrivent Investment Management in Minneapolis, said he was "a little surprised" by Delta's stock slide Tuesday. Hochmuth, who deals with fixed-income investments, said that Wall Street investors may have viewed Delta's revenue picture as weaker than they expected. Unit revenue is expected to be down 4 percent this year.

But Delta anticipates a 6 to 8 percent full-year operating profit margin.

Loucks anticipates another tough year in 2009, but he said there's been one bright spot:

"Because of the extreme weather we've had, we've seen an uptick in business during the last month." The brutal cold in many regions of the United States motivated many consumers to take advantage of discounts being offered by airlines, hotels and other travel-related companies, Loucks said.

He expects the discounting to continue to encourage jittery consumers who still have jobs to spend money on travel. Business travelers also are taking advantage of deals and booking well in advance to get cheaper air fares.

"It is serving as a stimulus to our travel industry," Loucks said. "We aren't going to get a government bailout. It's welcome when suppliers are willing to price their services at an attractive price."