Delta, US Airways top estimates despite high fuel-WRAPUP 2

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Tuesday April 26, 2011 11:15:18 PM GMT

* Delta, US Airways results stronger than expected

* Delta: adjusting fares to cover input costs

* Delta shares up 9 pct; US Airways ahead nearly 5 pct (Adds oil prices, updates shares)

By Karen Jacobs

ATLANTA, April 26 (Reuters) - Delta Air Lines and US Airways Group turned in smaller-than-expected quarterly losses as they raised ticket prices to cover higher jet fuel costs, sending sector shares up.

Delta's stock jumped 10 percent on Tuesday as it vowed to adjust fares and capacity to recover the full cost of fuel on each flight even as some analysts questioned how much longer consumers would tolerate higher fares.

US Airways shares gained more than 5 percent.

Results from the two carriers underscored the threat of rising energy costs as industry demand bounces back.

"We must fully recapture our costs on every flight every day to maintain and improve our earnings performance," Delta Chief Executive Richard Anderson said on an earnings conference call, adding that high fuel was now "the new norm" for the industry.

"Where we cannot get the necessary revenue increases to offset the increased cost of operating the flights, we will remove capacity, particularly in our post Labor Day schedule," he said.

Oil prices see-sawed in choppy trading on Tuesday ahead of a U.S. Federal Reserve policy meeting. U.S. crude was off 24 cents at $112.01 a barrel.

Airlines have steadily raised fares this year as oil threatens to wipe out the industry's recovery from the economic downturn. Carriers are reporting higher passenger demand, but their costs are also rising.

"As you see fuel rise ... over the course of the next few months, you can expect ticket prices to increase," Delta President Edward Bastian said. "I think that is a fairly basic fundamental."

WATCHING THE CONSUMER

Analysts were cautious on how long passengers might tolerate higher fares.

"You're not seeing (airlines) in a state of panic like they were, say, in 2008 because so far demand has been so strong they've been able to pass through most of these additional costs," said Ray Neidl, a senior aerospace specialist with Maxim Group.

"But at some point, you'll get consumer push-back for ticket price increases," he added.

Morningstar equity analyst Basili Alukos said Delta's goal of recovering the full cost of fuel on each flight may not be practical.

"(It's) very aggressive, if you ask me," he said. "The only way for that to occur is if the legacy carriers abandon the leisure passenger and focus exclusively on the premium passengers."

Alukos added that if major airlines raise fares too aggressively, low-cost carriers like Southwest Airlines will win a greater share of budget travelers and "undercut the legacy carriers on pricing."

Atlanta-based Delta reported a first-quarter net loss of $318 million, or 38 cents a share, beating the average analyst forecast of a loss of 50 cents a share, according to Thomson Reuters I/B/E/S. Revenue rose 13 percent to $7.75 billion.

Delta, which was also hurt by lower Japan demand after the March earthquake, said it expected a second-quarter profit and forecast double-digit growth in unit revenue for the period.

US Airways posted a loss, excluding special items, of $110 million, or 68 cents per share. The loss was wider than the one a year earlier but not as bad as analysts' average forecast of 72 cents a share.

Revenue was $3 billion, up 11.7 percent. Operating expenses were also $3 billion, up 12.8 percent, due primarily to a $272 million jump in fuel costs.

Shares of Delta were up 9.1 percent at $9.82 by afternoon and US Airways rose 4.7 percent to $8.67.

The Arca Airline index gained 2.7 percent. (Additional reporting by John Crawley and Kyle Peterson; Editing by John Wallace and Steve Orlofsky)

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