Delta Air Lines Inc. said it plans to cut seating capacity later this year on international routes as the strong dollar and declining oil prices damps overseas demand.
The pullback includes fourth-quarter reductions of as much as 20 percent to Japan, Africa, India and the Middle East, 15 percent to Brazil and a halt in Moscow flights, Delta said Wednesday.
The world’s third-biggest carrier gets about 30 percent of its revenue from international sales, and the strength of the U.S. currency, which was near a 12-year high against the euro earlier this week, is hurting demand from some foreign countries and contributing to lower revenue from each seat flown a mile.
“This is music to the ears of many investors who believe Delta should not over-grow capacity,” Helane Becker, a Cowen & Co. analyst, said in a note. “The international markets have been a drag on results recently.”
Shares of Atlanta-based Delta rose 1.9 percent to $43.88 in early trading. They are down 12 percent this year through Tuesday.
U.S. airlines, among the best stock performers last year, posted their worst start in the first quarter since 2011. Earlier this month Deutsche Bank AG analyst Michael Linenberg downgraded Delta, United Continental Holdings Inc. and American Airlines Group Inc., saying the strong dollar, an increase in available seats by foreign carriers and slowing global economic growth will weigh on results.
Still, analysts are projecting a record $2.9 billion in first-quarter adjusted profit for the six biggest U.S. airlines, according to data compiled by Bloomberg, buoyed by low jet kerosene prices.
Delta, the first of the major U.S. carriers to report earnings, also gave its first forecast for second-quarter operating profit margin, at 16 percent to 18 percent. That was in line with some analysts’ estimates.
“While the strong dollar is creating headwinds with international revenues, it also contributes to the lower fuel prices which will offset those headwinds with over $2 billion in fuel savings this year,” said Delta President Ed Bastian in the statement.
First-quarter profit excluding one-time items rose to $372 million, or 45 cents a share, the company said. That’s a record for the first quarter since Delta’s 2008 merger with Northwest Airlines and beat the average analyst estimate of 44 cents.
Delta’s cuts in available seats come after it had been growing in Brazil in recent years, largely to provide connecting passengers to its partner Gol Linhas Aereas Inteligentes SA. In Asia, Delta operates a hub at Tokyo’s Narita International Airport, where it has been cutting service from there while serving more Asian destinations from Seattle and other U.S. airports.
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