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Delta caught by falling fuel



Delta Air Lines
Inc.


DAL -5.29%

on Tuesday worried investors about the industry's ability to handle recent oil price declines as it warned that an important sales metric was behind the previous expectations.

US Air carriers saw a 40% increase in fuel prices last year, raising fares and fees and reducing unprofitable flights. So far, however, they have had greater difficulty adapting to the sharp declines. They have often lost cheap fuel savings by launching additional flights that have triggered price wars in some markets. Delta's new projections for revenue growth in the fourth quarter of the fourth quarter resulted in a sell-off of sectors, although carriers said the economy continues to attract strong demand, particularly for business class flights and routes to Europe

The move has mitigated airlines' share price gains over the last ten sessions, with delta stocks down about 6.5% in afternoon trading

American Airlines Group
Inc.

dropped by almost 7%. The NYSE Arca Airline Index lost almost 4%.

Delta, an Atlanta-based corporation, also said fourth-quarter earnings would be at the upper end of the existing forecast. Competitors such as Alaska Air Group Inc. and low-cost airline Spirit Airlines Inc. have raised their own earnings forecasts over the last week and have seen jet fuel prices drop 20% since their peak in early October.

Investors and analysts still remember the reaction when fuel prices fell sharply in early 201

5. The airlines responded by triggering flights to and from Dallas, Chicago and parts of California with flights and sparks.

"We are paranoid about the recent decline in oil prices," analyst Hunter Keay of Wolfe Research said in a customer message.

Mr Keay said the airlines' latest flight schedules indicate that industry capacity is at first Q1 2019 will increase by 4.1% over the previous year.

United Continental Holdings
Inc.,

The company has cut its expansion plans as fuel consumption increases, and expects to rise 6% more next year, more than one percentage point above the plan stated in the timetables submitted a week ago.

Andrew Nocella, Chief Commercial of United Officer, said at a sector conference last week that the earnings environment has been one of the best for years in all markets except parts of Latin America. The unusually large gap between Thanksgiving and Christmas holidays has also led to an increase in ticket sales to high-margin business aviation.

Analysts said market conditions are different from three years ago as airlines used basic rates for price wars

Delta, which hosted an investor day on December 13, also said that cost control was better than expected and helped to raise earnings per share to the high end of its $ 1.10 to $ 1.30 margin for the fourth quarter

It is expected that sales will increase by 3.5% without the sales of its 100% oil refinery, which is below the average of its previous forecast for an increase of 3% to 5%.

Write to Doug Cameron at doug.cameron@wsj.com


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