Delta plots growth on record profit

If airlines provide a handy barometer for the health of a country’s economy, then Delta Air Lines best exemplified the United States’ recovery last year.

Six years after exiting bankruptcy protection and five years after merging with Northwest Airlines, Delta earned a record $2.7bn pre-tax profit in 2013 – more than the earnings of Southwest, United and Jetblue combined.

That represented a 70 per cent improvement of Delta’s 2012 profit, growth that will be near-impossible to match this year. Nonetheless, the carrier intends to exploit its recent momentum.

Outlining its goals in a recent SEC filing, Delta is targeting long-term earnings per share growth of 10-15 per cent and operating margins of 10-12 per cent, an ambitious goal considering that even in its current rosy period it is only achieving margins of about seven per cent.

To achieve this the Atlanta-based carrier is to boost profitability on domestic routes – which contribute the bulk of its revenues – by using larger aircraft and slashing the number of 50-seat jets in its fleet.

It will also step up its presence in the lucrative transatlantic market by expanding at Europe’s main gateway – London Heathrow – and forming more airline partnerships.

The airline will also continue improvements in New York, where surprisingly it is still unprofitable despite offering more outbound seats per week United, American Airlines or Jetblue. Upgrades include a revamped Terminal 4 at JFK and a shuttle service from LaGuardia.

Less conventional strategies continue to be pursued, including operations at Delta’s Trainer refinery.

The airline expects to see a modest profit at the refinery this year (though it has erroneously made similar forecasts before) thanks to a production ramp-up and a switch to Bakken crude oil, which works out a couple of dollars cheaper per barrel than its current supply.

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