Delta profits from Trainer refinery, lower fuel costs

Delta Air Lines said Wednesday that its Trainer refinery in Delaware County posted an $86 million profit in the first quarter of this year.

Delta said the sharp drop in crude oil prices would translate into a $2.2 billion savings in jet-fuel costs in 2015.

"Over the last four quarters, the refinery has produced a cumulative profit of over $220 million," chief financial officer Paul Jacobson said during a conference call on the company's earnings.

Delta, whose report began airlines' earnings season, said it expected that the refinery would make about $80 million in the second quarter.

The Atlanta-based carrier bought the former ConocoPhillips refinery in 2012 for $150 million as a source of discounted jet fuel.

The refinery, operated by the Delta subsidiary Monroe Energy L.L.C., posted a $105 million profit in the fourth quarter last year, a $19 million third-quarter profit, a $13 million profit in the second quarter, and a $41 million loss in the first quarter of 2014.

Delta's quarterly profit beat analysts' estimates. Net income was $746 million, or 90 cents a share, on revenue of $9.4 billion.

Excluding special items, first-quarter profit was $372 million, or 45 cents a share. Analysts had expected 44 cents a share.

The airline said it would reduce international flying by 3 percent in the fourth quarter because the strong U.S. dollar has hurt travel in some international markets. Flights to Japan, Brazil, Africa, India, and the Middle East will be trimmed. Service to Moscow will be suspended for the winter, the carrier said.

Airlines often reduce capacity by flying routes less frequently and switching from larger aircraft to smaller planes.

"This is music to the ears of many investors who believe Delta should not overgrow capacity," analyst Helane Becker with Cowen & Co. said in a client note. "The international markets have been a drag on results recently."

Earlier this month, Deutsche Bank AG analyst Michael Linenberg downgraded the shares of Delta, American, and United Airlines, saying "international sales will be a source of earnings disappointment for the next few quarters." He cited the strong U.S. dollar, an increase in flights by foreign airlines including fast-growing Persian Gulf carriers, and slowing global economic growth.

Delta, along with American and United, has asked the Obama administration to renegotiate Open Skies treaties, or flight rights, with Gulf competitors Emirates, Etihad, and Qatar Airways.

The U.S. carriers say the state-owned Gulf carriers have received $42 billion in subsidies and benefits from their home governments, creating an unfair advantage over U.S. airlines that operate without such subsidies.

The Gulf airlines deny the allegations, saying U.S. airlines have lost market share because of inferior service. Qatar flies daily nonstop between the Qatari capital of Doha and Philadelphia.

"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 chief executive officer Richard Anderson.

American, Southwest, United, JetBlue, and Alaska Airlines will report earnings next week.