- Associated Press - Monday, July 19, 2010

Delta Air Lines Inc. reported its largest quarterly profit in a decade Monday but investors dumped its shares as sales didn’t meet expectations and the carrier gave a cautious outlook amid economic uncertainty.

The world’s largest airline said its second-quarter net income was $467 million, or 55 cents per share. That reversed a year-ago loss of $257 million, or 31 cents a share, when the airline industry was still reeling from the recession.

Delta’s revenue rose 17 percent to $8.17 billion from $7 billion a year earlier. But that figure was below analysts’ revenue estimate of $8.25 billion and Chief Executive Richard Anderson described the revenue environment as “good, but not yet great.”

Investors hoping for better sold the shares. Delta shares fell 86 cents, or 7.3 percent, to $10.80 in midday trading.

Excluding one-time items, Delta’s earnings came to 65 cents a share, above analysts’ expectations of 63 cents per share.

Delta said it expects to be solidly profitable for the year. But it’s reducing the size of its fleet by 20 aircraft next year on top of the 91 fewer it expects to have by the end of this year. And it doesn’t expect to increase capacity much this year or in 2011, signs of a cautious approach with the strength of the U.S. economic recovery in question.

Another sign: Delta is hoarding its cash. Delta had $6 billion in unrestricted liquidity, including $4.4 billion in cash, as of June 30. The total figure is expected to grow to $6.3 billion by the end of September. Delta is using some of the extra cash to pay down debt and improve its balance sheet, while continuing to rein in costs.

“Our focus is very much on driving efficiency,” Mr. Anderson said.

The company isn’t bulking up its employee rolls. The total number of full-time Delta employees fell 1.3 percent year-over-year to 81,916 at the end of June. Delta said it is in the process of hiring more airport customer service and reservations agents.

And there are other headwinds: Delta’s expense for aircraft fuel and related taxes rose 8 percent in the second quarter to $1.96 billion.

Still, the airline, based in Atlanta, is in much better shape than it was just a year ago.

“The business is performing well and we still have significant opportunity for improvement ahead,” Mr. Anderson said during a conference call with analysts and reporters.

Delta expects to report double-digit year-over-year unit revenue gains for the September quarter.

Several major carriers are expected to post profits in the days ahead, but investors are wary about whether the industry can keep the momentum going. Continued fare sales are good for consumers, but not for investors who want airlines to charge more for tickets while remaining lean.

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