When it reported a fourth-quarter profit of $19 million on Tuesday, Atlanta-based Delta said its fuel bill could rise by $1 billion this year, if oil prices stay where they are at about $92 a barrel. Delta's fuel bill rose 13 percent to $1.93 billion in the fourth quarter.
Delta and other airlines have already raised fares as jet fuel prices have climbed, and Delta said it could dial back its growth plans as well, if necessary.
Travelers will notice the fare increases first. Delta and United raised fares on Monday, with other airlines matching at least some of the increase, said Rick Seaney, CEO of FareCompare.com. By his count, it's the fourth increase since December. He said the increases appeared to be $10 to $20 per round trip, depending on the airline. Southwest, which often declines to match broad-based fare increases, has matched portions of the recent fare increases, and on Tuesday matched most of the latest increase by other airlines, Seaney said. Southwest carries more domestic passengers than any other airline, so its response to fare hikes by other airlines can determine whether those price increases stick.
"I don't recall seeing Southwest, even in the height of runaway oil prices in 2008 match or initiate domestic airfare hikes in two successive weeks," Seaney said.
Those fare increases plus revenue from add-on fees and services will help Delta cover its rising fuel bill, Chief Financial Officer Hank Halter wrote in a note to workers on Tuesday. Delta currently expects to increase its capacity by 1 percent to 3 percent this year. Airlines increase capacity by operating more flights or flying larger planes. Rising fuel prices could cause Delta to trim those plans, CEO Richard Anderson said on a conference call with analysts.
Many Delta planes are paid for, leaving the airline free to park them if they can't be flown profitably. On Tuesday Delta said it would retire another 100 of its smallest planes over the next year and a half.
Airlines began cutting capacity in 2008 because of high fuel prices, and they've been slow to add it back. Investors have been nervous that airlines will make more seats available than traveler demand can support.
The thinking is that passengers will pay more if seats are in short supply. That showed up on Delta's bottom line on Tuesday. Capacity rose just 1 percent, but the amount it collected for each seat flown one mile jumped 13 percent.
If fares rise high enough, travelers could stay home. But the latest fare increase on Monday suggests that higher fares are "having little-to-no negative impact on overall demand," J.P. Morgan analyst Jamie Baker wrote.
Delta's fourth-quarter profit was the first time in a decade that it made money during that time of year. Revenue rose 14 percent to $7.79 billion, more than analysts expected.
Delta Air Lines Inc. earned 2 cents per share. Not counting special items it would have earned 19 cents per share. Analysts surveyed by FactSet expected 27 cents per share. A year earlier Delta lost $25 million, or 3 cents per share. Delta said many analysts didn't include the impact of the late-December storms, which sliced $45 million from its profits as it canceled some 4,000 flights.
Delta said on Tuesday that another round of storms this month will hurt its first-quarter profit by $30 million after another 4,000 cancellations.
Delta said it has hedged 49 percent of its first-quarter fuel consumption. In the fourth quarter, it hedged 58 percent, for an average fuel price of $2.47 per gallon. That was about 30 cents per gallon higher than the same period a year earlier.
For the full year, Delta earned $593 million, or 70 cents per share. That compared with a 2009 loss of $1.24 billion, or $1.50 per share. Revenue for the year rose 13 percent to $31.76 billion.
All the big airlines except American are expected to report a fourth-quarter profit. The industry as a whole is expected to have its first money-making year since 2007. American Airlines reports its fourth-quarter and full-year earnings on Wednesday.
Delta shares fell $1.04, or 8.2 percent, to $11.71 in afternoon trading.