While the first quarter of the year is usually slow for travel, Delta and US Airways both reported profits today that beat expectations, as they did better at filling seats and having customers pay more for flights. But airlines are expecting bad news for April.
Delta said it had a net profit of $85 million, the first time it’s been in the black in the first quarter since 2000. Sales also increased by 1%. But for April, Delta expects a 2% to 3% decline in passenger revenue per available seat mile—a measure of demand and a key metric for airlines. US Airways complained that airline travel already began tapering off in March because of the budget cuts, which hurt demand for last-minute travel.
Part of the problem is the so-called “sequestration”—mandatory government budget cuts that took effect March 1 after Congress and president Barack Obama failed to agree on a budget deal. The cutbacks have put air traffic controllers on obligatory furloughs, reduced the number of controllers working at a given time. That’s already resulted in hundreds of canceled flights in the last few days. The US Federal Aviation Administration (FAA) said last week that passengers could expect delays of more than two hours. In another blow to the airlines, the government also cut back on travel for its employees.
Delta, which merged with Northwest Airlines in 2008, said lower fuel costs because of airline consolidation could help offset the expected fall in revenues. That’s good news for the future of US Airways, which is in the midst of its own consolidation and expects to close its merger with American Airlines later this year.
But cancelled flights and angry passengers are never good news for the airline industry. Airlines For America, the top industry group, is suing the FAA to prevent the agency from furloughing air traffic controllers. And the travel headaches are becoming ammunition for politicians to blame each other for the budget woes.
The good news is the budget cuts have yet to hit airline stocks. Both Delta and US Airways shares were up today on their positive earnings report. But they may not be so lucky for the next quarter.