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Delta Air Lines lowers profit forecast due to new pilot contract
[NEW YORK] Delta Air Lines Inc said on Friday it would take a US$475 million hit in the fourth quarter from a new contract that hikes pilots' pay retroactively to the beginning of 2016.
Delta, the No 2 US airline by passenger traffic, said it would pay profit-sharing and higher wages to pilots, including US$380 million for the first three quarters of the year. It expects the payments to push down its operating profit margin for the quarter to between 9.5 per cent and 10.5 per cent, about five percentage points below its prior outlook.
Excluding the effects of the contract, Delta said its margin would be at the high end of its previous forecast. Average fares are stabilising for US flights booked at the last minute, after falling for months, it said.
Delta shares were up 1.5 per cent in morning trading.
"Core results look good," JPMorgan analyst Jamie Baker said in a research note.
The financial impact of the pilot agreement is "as expected, though it still stings," Mr Baker added.
The contract raises wages 30 per cent by 2019, just one example of the wage crunch that top airlines are facing.
US and European commercial pilots are demanding to share in recent gains by airlines, which slashed costs last decade to survive higher oil prices and the negative effect the Sept 11, 2001, hijacked airliner attacks had on air travel.
Also on Friday, Delta said passenger unit revenue, which measures sales relative to the capacity and distance of Delta's flights, declined 1 per cent in November from a year earlier after falling 6.5 per cent in October.
The company previously forecast November results year-over-year would be much stronger than October's.