Delta Air Lines Inc is anticipating a double benefit from the US corporate tax cut this year as it saves money on its own bill and expects an uptick in business travel as companies use tax savings to invest in generating new business. "We're very excited about the potential for increased business demand with the tax cuts," Delta President Glen Hauenstein told analysts in a conference call after quarterly earnings on Thursday.
"We haven't seen that materialize yet, but we expect that to materialize in the first quarter." The No. 2 US carrier reported better-than-expected fourth-quarter profit on Thursday, helped by higher business fares and a busy holiday travel season, and forecast even better performance this quarter as demand for travel remains strong across the board.
Its shares rose 2.7 percent to $57.37 on the New York Stock Exchange, helping the NYSE Arca airline index up 2.3 percent, on track for its best day since November 29.
Atlanta-based Delta forecast total unit revenue, a measurement closely watched by investors, to increase by 2.5 percent to 4.5 percent in the first quarter of 2018, not including any benefit from increased travel that may result from the tax cut.
In December, US Congress passed a sweeping tax law designed to kick-start economic growth that slashed the corporate rate to 21 percent from 35 percent. Several US companies have already said they will make more investments in their businesses and raise pay or bonuses for workers because of the new tax law, both of which could lead to an uptick in air travel.
Delta said on Thursday the law would cut its own tax rate to between 22 percent and 24 percent in 2018. Partly due to those savings, Delta raised its full-year profit outlook to between $6.35 and $6.70 per share, well ahead of Wall Street estimates.
Delta said it would not use tax savings to pay any US tariffs slapped on its order of 75 CSeries jets from Canadian planemaker Bombardier Inc as a result of an unresolved trade spat. A ruling on the matter is expected later this month.
Delta is the first to report earnings after a broadly positive quarter, where airlines managed to hike fares to partially offset growth in fuel prices and other costs.
Earlier this week United Airlines and American Airlines forecast higher unit revenue, followed by JetBlue Airways Corp on Thursday. Delta's quarterly net profit fell as it took a combined hit of $60 million from December's power outage at Atlanta's Hartsfield-Jackson Airport and Winter Storm Benji. It also took a one-time charge of $150 million due to the tax code change. Including those items, Delta's fourth-quarter net income dipped to $572 million, or 80 cents per share, compared with $622 million, or 84 cents per share, a year earlier.
Excluding the tax charge and other one-time items, Delta earned 96 cents per share, above the average 88 cents per share expected by analysts, according to Thomson Reuters I/B/E/S.
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