Delta Says Earnings Declined in Period

Delta Air Lines, squeezed by higher fuel costs and soft traffic, said Wednesday that its earnings in the quarter that ended in December will be lower than in 1988.

Industry analysts said Delta’s announcement signals hard times ahead for the airlines, which recently lowered fares on key routes to spark travel during the slow winter months. John Pincavage, an analyst with the Transportation Group Ltd. investment firm in New York, said 1990 is shaping up as a dismal year for the airlines.

Pincavage expects the industry to lose as much as $600 million during the first three months of 1990, its biggest quarterly loss in seven years. “It is going to be a disaster,” he said.

Delta did not estimate its December quarter earnings and said that, despite disappointing quarterly results, its earnings for the year would set a record. But analysts sharply lowered their quarterly estimates for Delta, some by as much as 70%. Pincavage said he expects Delta to make just half the $1.73 it earned per share in the last three months of 1988.

Pincavage and other industry analysts said the airlines--after enjoying a strong first half in 1989--received a double whammy in December in the form of sharply higher fuel prices and unusually light passenger travel. The airlines last week raised ticket prices slightly to cover fuel costs, but that move is expected to discourage discretionary travel.

“If traffic weakens further, the airlines will have to cut fares to put people on,” Pincavage said.

The airlines’ difficulties may be compounded by the huge expansion plans under way at most major airlines. Fleet capacity is expected to grow by 9% to 10% this year with the acquisition of new aircraft and the anticipated comeback of financially troubled Eastern Airlines. Meanwhile, passenger traffic is expected to rise only 2% to 3%.

The need to fill the newly acquired aircraft is expected to place additional pressure on the airlines to reduce fares.

This may be good news for the consumer, but it is bad news for the airlines. Raymond Neidl, an analyst with the investment firm of Dillon, Read & Co. in New York, advised investors Wednesday to avoid airline bonds because of the industry’s poor earnings outlook.

Neidl said he did not single out any particular companies, adding, “The problem is pretty much across the board.”