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Jan 15, 2019

Delta warns U.S. shutdown will cost airline US$25M this month

Bond trading weighs on JPMorgan, Delta warns of shutdown's drag on airfare

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Delta Air Lines Inc. warned that the U.S. government shutdown is eroding sales and will hurt its ability to raise ticket prices.

Revenue from each seat flown a mile will rise no more than 2 per cent this quarter from a year earlier, Delta said in a statement as it reported earnings Tuesday. The benchmark pricing-power gauge climbed 3.2 per cent in the last three months of 2018.

Delta’s disappointing forecast kicked off a potentially fraught earnings season for U.S. airlines, which are already under earnings pressure as a rising seat supply crimps their ability to jack up fares. Delta is also the first carrier to quantify the effect of the shutdown, with Chief Executive Officer Ed Bastian telling CNBC that revenue would be cut by US$25 million this month as government employees and contractors travel less.

“Corporate travel will be affected by the shutdown, and will be replaced with lower yielding leisure travel,’’ Helane Becker, an analyst at Cowen & Co., said in a note to clients. “Delta needs to see further revenue improvement to impress a skeptical investment community.’’

The shares fell 1.4 per cent to US$47.10 before the start of regular trading in New York. Delta dropped 11 per cent in 2018, while a Standard & Poor’s airline index dropped 17 per cent.

Delta said first-quarter adjusted earnings would be 70 cents to 90 cents a share. That trailed the 93-cent average of analyst estimates compiled by Bloomberg. The Atlanta-based company also cited “currency headwinds” as likely to affect its performance in the first three months of the year, as well as the timing of Easter, which falls later in the second quarter than last year.

The airline reaffirmed its 2019 profit forecast of US$6 to US$7 a share.

Shutdown Impact

Airports in Atlanta, Washington, Houston and Miami this week closed some security lanes temporarily because of a shortage of screeners, and the Transportation Security Administration said Monday it would begin relocating officers nationwide to meet shortfalls that can’t be addressed locally.

In another impact of the shutdown, Southwest Airlines Co. also said it can’t move ahead with plans for flights to Hawaii until Federal Aviation Administration safety inspectors return to work.

Delta’s fourth-quarter adjusted earnings rose to US$1.30 a share, topping analysts’ expectations of US$1.28. Revenue met the US$10.7 billion estimated by analysts.

United Continental Holdings Inc. is scheduled to report earnings later Tuesday, with other carriers set for next week.